SICK PAY (Hansard, 15 July 1981)

§ Mr. Lawson
I beg to move amendment No. 42, in page 19, line 14, leave out 'either by his employer or'.

Mr. Deputy Speaker
With this it will be convenient to discuss the following amendments:
No. 43, in page 19, line 20, at end insert— 'and the amour t of the said sums liable to charge under this section shall be such proportion of them as is not attributable to any contribution towards the cost of their provision made by the person above referred to.'. Government amendments No. 44 and 45
No. 46, in page 19, line 31, leave out '1982–83' and insert '1983–84'.

§ Mr. Lawson
This clause, which concerns the taxation of sick pay paid through insurance schemes, is one which, in principle, was agreed as being right and equitable on both sides of the Committee when we discussed it. However, certain difficulties were pointed out, in particular by my hon. Friend the Member for Croydon, South (Sir W. Clark). I undertook to bring forward on Report amendments to deal with those difficulties.
Amendment No. 42 is a straightforward amendment that takes out some words that we believe are no longer necessary. The more substantial amendments are Nos. 44 and 45. Amendment No. 44 deals with the point that was rightly raised about jointly funded schemes, in which the employer and employee contribute to the sick pay benefit that is being provided. In those cases it is desirable that only that proportion of the benefit financed by the employer which is a benefit to the employee should be taxed. The employee should not be taxed on the benefit that he is providing himself. Amendment No. 44 meets that point in the most sensible and appropriate way.
Amendment No. 45 meets perhaps a more difficult point, which was raised in Committee. Although the Bill provides that those benefits should come into the tax net only in 1982, it was represented to me—I had meetings with the companies that were particularly affected—that many companies that had those schemes would have to go through a complicated process of renegotiation with the trade unions. It would have been difficult to sort out everything in time for 1982. Therefore, in Committee I undertook that the schemes and arrangements that already exist would not be brought into the tax net until 1983, but the 1982 date would apply otherwise. That is the sense and meaning of amendment No. 45, which meets that point. I commend it to the House.

§ Sir William Clark
I am grateful to my right hon. Friend for accepting the amendments. As he rightly said, the two amendments that are in my name are covered by Government amendments.
It is right that if an employee pays for sickness insurance out of taxed income, whatever he gets for the proportion of the insurance should not be taxed, because that would be double taxation. I believe that the House agreed with my right hon. Friend when he acknowledged the fact that sickness benefit should eventually be brought into the tax bracket. With the State scheme coming in in 1983–84, since the Bill provided that the sickness benefit under insurance scheme would come in in 1982–83 it would have meant two separate negotiations for employers. I am delighted that the Government have accepted the spirit of my amendment. Consequently, I should like to thank my right hon. Friend and his colleagues. I trust that we shall receive the same sort of co-operation from the Government in future amendments.

§ Mr. Cook
The Financial Secretary said that this was not a clause in which there was any division in principle between the two Front Benches. The Government were right to act to deal with the situation in which an increasing number of schemes were being formed to take advantage of a tax advantage. Therefore, there is no dispute between us over the principle of the clause.
We warmly welcome amendments Nos. 44 and 45, which improve the form of the clause. Amendment No. 44 will be of benefit to the schemes where there is part contribution by employee and employer—in particular the forward benefit scheme, which is perhaps the largest, in which the costs are shared almost equally between the two parties to the agreement and in which it would be wrong that the tax would be levied on the whole of the benefit paid out under that agreement. That position will be very much improved by amendment No. 44.
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I particularly welcome amendment No. 45, which will provide added time for negotiation and rearrangement to those affected by existing schemes who have perhaps unfortunately been caught. A number of the schemes were set up many years ago, and there is no suggestion that they were created to take advantage of the tax advantage conferred. However, those involved may be caught in the net because others, on their backs, sought to take advantage of the position. In many cases there can be no suggestion that a tax device was arranged, and it is right that those people should have an additional year to negotiate new arrangements, particularly if the House, in its wisdom, decides to give the Treasury powers to tax sickness benefit and particularly as there will be a further set of negotiations for the subsequent year starting in April 1983.
For those reasons, I warmly welcome the amendments, which will improve the clause.