HC Deb 10 March 1981 vol 1000 cc775-6

At a time when the real burden of income tax has to be increased it is all the more important that it should be fairly shared.

The benefit of a company car is already subject to tax but the tax scales fall well short of the true value. The amounts assessed to tax are less than half the AA's estimate of the annual costs of running a car. Last year we prescribed an increase of 20 per cent. in the scales from this April—just about enough to keep them rising in line with the costs of motoring. I now propose that they should be increased by a further 20 per cent. in April 1982. For company cars that have little or no business use there is a higher schedule of taxation. I propose to raise the business mileage below which this charge applies from 1,000 to 2,500 miles a year, with effect from this April.

Last year I referred to the growing practice of employers providing free petrol and said that I should be bound to contemplate action if it continued to spread. This warning has largely been ignored. I propose, therefore, to take action that will ensure that tax is chargeable in all cases where petrol is provided for the private use of a higher-paid employee or director. The Inland Revenue will consult employers' organisations over the administrative implications of the various possible methods of achieving this.

Most people have to pay for their own travel to work, whether by rail or by road. Some people have their travel costs met by their employers. Most of these pay tax on that benefit. There is, however, one small but growing group—not more than one commuter in 10—who get their travel costs tax-free. When an employer contracts with a transport authority for the provision of a season ticket to his employee the benefit is not, under the present law, within the general liability to tax. This is a clear anomaly. And it is plainly right to bring this group into line with everyone else.

Similarly, a minority of employees are provided with credit cards, which they use to obtain a wide range of goods and services that are charged to the employer. The employee may thus avoid paying tax on part of what is truly his income. This, too, is quite wrong. I shall ensure that all employees pay tax on benefits of this kind.

Following consultations that took place last year, I have decided for now to leave in place the earnings threshold below which the taxation of fringe benefits does not, in the main, apply. Company cars and other such benefits will therefore continue not to be taxed in the hands of those earning less than £8,500 a year. Consistently with this approach, I propose to remove the charge to tax on medical insurance premiums paid by employers for the benefit of their employees earning less than this amount.

One pre-war anti-avoidance measure needs to be brought up to date following the decision in the Vestey case. This has shown that, among other imperfections, the rules dealing with avoidance of tax by way of transfers of assets abroad do not affect an individual who benefits from such a transfer but did not make or procure it. I propose changes in these complex and technical rules, to take effect from today, which will ensure that the individual pays tax on any benefit he receives. I propose also to amend the rules governing the taxation of capital sums paid by trusts.

Mr. J. Grimond (Orkney and Shetland) rose—

Sir Geoffrey Howe

Not even for the right hon. Gentleman do I wish to break the tradition of an uninterrupted Budget Statement.