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`In subsection 4 of section 36 of the Finance (No. 2) Act 1975, in the definition of "voucher", after the words "this Act", there shall be inserted the words "or a voucher exchangeable and only exchangeable for food to be consumed on the premises in which the voucher is exchanged or freshly prepared for immediate consumption, except to the extent (if any) by which the value of the voucher or vouchers given to the employee exceeds £1 for each working day."'.— [Mr. Michael Cocks.]
§ Brought up, and read the First time.
§ Mr. Michael Cocks (Bristol, South)I am much encouraged by the response of the Chief Secretary to the last clause. I therefore beg to move, That the clause be read a Second time.
Out of consideration for the House, I did not take part in the previous debate, although I was sorely tempted to do so as I am chairman of the Bristol, South Labour club and felt a great affinity with much that was said. It may not surprise the House to learn that relations between the Bristol, South Labour club and the Bristol, South constituency party are rather strained. In spite of this unfortunate lack of identity of views, I am glad to say that, unlike some of the clubs that have been described tonight, the Bristol, South Labour club is thriving and prosperous and is prepared on occasion to donate money to causes which we consider to be worthy.
I am pleased to introduce the new clause because by doing so I am giving the House an opportunity to consider and possibly to rectify an anomaly which discriminates especially against small firms, young people and lower paid workers. These are three groups which the 244 Government, and particularly the Chancellor of the Exchequer, are always telling us that they are most anxious to assist.
The present position is probably known to right hon. and hon. Members. Everyone who is given a luncheon voucher by his employer has to pay tax on every penny that he receives above 15p a day. That tax has to be paid by the employee; it cannot be paid for him by the employer. This is in strong contrast to the treatment of those employees who eat in company canteens, which are frequently heavily subsidised. They do not have to pay any tax on the benefit that they receive. Whether it is a factory canteen or a directors' dining room, they are not liable to 1p extra on their tax. The anomaly is manifestly unfair and it is becoming increasingly unfair as the years pass as a result of inflation. The inequity puts at a disadvantage firms which are not large enough to maintain a staff canteen and which cannot afford all of the overheads that go with it when it comes to recruiting staff.
Luncheon vouchers were introduced after the war when 15p, or three shillings—or three bob, as I prefer to call it — was sufficient to buy a three-course meal. I can remember after the war having a number of substantial blowouts in the then British Restaurants, and the total bill for a good feed was no more than three shillings. At that time the value of a luncheon voucher equated roughly with the price that was being paid in factory canteens. Today, 15p will scarcely buy a cup of coffee. The value of a luncheon voucher is in no respect equal to the amount of subsidy which goes into maintaining staff canteens.
By any standards, the tax-free element of luncheon vouchers is absurd. It has been absurd for a long time and the anomaly has been recognised for a long time. In 1975, an attempt was made to make the luncheon voucher system more realistic. A number of enlightened Members tried to rectify the anomaly by supporting an amendment that was moved in Committee during the consideration of what was then the Finance (No. 2) Bill. An amendment was moved to increase the tax-free element from 15p to 50p, and the Member who moved it used words which are difficult to improve upon. He said:
We seek the change simply on the ground of equity between the employees who have to have luncheon vouchers because their employers are either too small or do not have the premises to provide canteen facilities and those who have canteen facilities, for whom the fringe benefit has been able to keep pace with the cost of food. We seek to make the tax-free benefit more realistic in terms of current costs.The Financial Secretary will be aware that 15p now goes not very far at all in many parts of the country, particularly in London, in assisting an employee to have a decent lunch. We seek to bring the amount into line with reality." — [Official Report, Standing Committee H, 1 July 1975; c. 649.]Those were wise words then and they are wise words now. They were the words used by the right hon. Member for Norfolk, South (Mr. MacGregor), who is now the Chief Secretary to the Treasury. I commend them to the House today. The right hon. Gentleman has a chance that is not presented to many who stay in this place for any time. He can demonstrate that he does not say one thing when he is out of office and another when in power. Two faces are not for him. He has a chance to strike a blow for consistency, honesty and sincerity.When the issue was drawn to my attention I was tempted initially to table an amendment in the precise terms used by the Minister, as he now is, in 1975. However, I resisted what might be described as a tease. I thought that it would be better to table a new clause in words which 245 overcame some of the objections which were raised in 1975. I succumbed to the tease in Committee, but some of my colleagues argued that I had not brought the value of luncheon vouchers in line with current practices, so I have added the words
or freshly prepared for immediate consumption".This relates to food which can be purchased by luncheon vouchers. I have taken into account the many snack and sandwich bars, for example, which have come into existance since 1975, when the Minister tabled his amendment, and instant food and food which is taken off the premises.Luncheon vouchers are provided by many small employers and they are given mainly to young and lower paid workers. The tax-free element governs to a large extent the value of vouchers issued, or which in many instances can be issued. An employer who issues vouchers worth more than 15p a day has to set up machinery to deduct tax at source from each of his employees who receives more than 15p daily. This is expensive and troublesome and consequently in most instances the amount given is limited to the tax-free limit of 15p a day. I am sure that an increase in the tax-free level would result in an increase in the value of the voucher issued for the majority of recipients. Many young and low-paid workers would receive an increase and small firms would be in a better position to compete with firms large enough to run staff canteens.
About 14,000 British companies provide luncheon vouchers for about 500,000 employees. An increase in the value of vouchers would provide more employment in the catering industry, especially for small and family businesses. About 30,000 caterers are involved already. The new clause would cost money and in Committee I expressed my sympathy with the Chief Secretary for the demands which were made on him for resources from various Departments. If the new clause were to be approved, however, a good deal of benefit would be returned to the Treasury in a reduction in unemployment and extra tax revenue. Fewer low-paid people would be in the poverty trap, where it is sometimes more beneficial to be unemployed than to take a job.
t is possible also that the new clause would help to turn people away from having junk food for lunch. If they were encouraged to have something more substantial, that would be of benefit to their working ability and to their general health. Other countries have recognised the benefit of the concession. I do not normally take examples from the continent, but in France the benefit is equivalent to £1.40, and in Portugal, £1.50.
As the Chief Secretary said some time ago, the benefit increase is long overdue. I hope that the right hon. Gentleman likes the change that I have made to the clause since it appeared in Committee. I think that between us we have come up with a pretty good formula to increase the safeguards over any abuse which may be made, or thought to be made, by those who use vouchers for other purposes. I do not think that the receipt of luncheon vouchers is what is sometimes described vulgarly as a perk. It is a genuine and desirable benefit. I certainly would not support it if I thought that it was just another perk.
If we brought the value of the tax-free element to the present equivalent, having regard to inflation, the original 15p would have to go up to about £3. I do not ask for that. I think that an increase to £1 would go some way to demonstrating that the Government have the interests of 246 small employers and young workers at heart. At a comparatively small cost to the Treasury, the Government can assist 500,000 workers. There can be few cheaper ways of showing that they mean what they say about the problems.
9 pm
Since I tabled the clause, I have had a number of representations. I think that a number of hon. and right hon. Gentlemen have also had them. The interest shown by various organisations and individuals has reinforced my view that reform is long overdue. I do not want to embarrass the Chief Secretary by congratulating him too heartily on his prescience in pointing the way. He was a sort of parliamentary pathfinder in 1975, blazing the way for the reform that he now has a chance to pick up.
It is most unusual to find oneself in the position of being able to do what one was thinking about 10 or 11 years ago. If the Government accept my new clause, I should be the first to congratulate them. I would not make any cheap party points about saying one thing in opposition and doing another in government. If any of my colleagues felt inclined to go along that path, I should do my best to damp it down. It would be a most praiseworthy event if the Chief Secretary were able to cough up on this occasion.
If the Government oppose the reform, despite my best blandishments, some of my colleagues might be so churlish as to point out that one thing was said in opposition and another in government. However, the Chief Secretary can rely on me to put the best possible gloss on the outcome of the debate. He is a decent chap; I am sure that he will do his best. I am giving him an opportunity to cast an eye over a simple and inexpensive reform that would help a number of people who are probably most deserving of assistance. The measure would help entrepreneurs who are setting up small businesses and younger people going to work, possibly for the first time.
§ Mr. PenhaligonCan the right hon. Gentleman say which is the most expensive proposal in real terms—the proposal argued in 1974, or the proposal put so wonderfully to the House by the right hon. Gentleman? Perhaps the answer is that his proposal is the cheapest.
§ Mr. CocksI am obliged to the hon. Gentleman. I was thrown a little at first because he used the superlative when he should have used the comparative. I know that he did that only to test my knowledge of English grammar. I agree entirely with the point that he made. I hope that that will be a further reinforcement to the Chief Secretary to cast a favourable eye over the new clause. However sympathetic he may be, he may feel that further consultations are required and that perhaps the net should be spread more widely. I should not be aggressive if he made such a point. I look forward with great interest to the response from the Treasury Bench.
§ Mr. MacGregorAs the right hon. Member for Bristol, South (Mr. Cocks) has made clear, the matter is a regular runner in Finance Bill debates. As the right hon. Gentleman pointed out, it has been run in Committee, without success, by some young Back-Benchers who have just become Members. Following representations made to them, Back-Benchers may subsequently have been converted to a different view. I shall say something about that later. As the right hon. Gentleman knows, the matter has not been run only once; it has been run many times.
247 I am aware that the right hon. Gentleman has been prevented from making contributions to our debates for some years. He has certainly made some charming, witty and well-researched contributions to our debate this year. I can see that he has spent many years storing up his contribution. He will know, from his research, that the matter has come up regularly. Therefore, he will not be surprised at some of the points that I shall make to him in return.
As has frequently been pointed out, tax relief on luncheon vouchers was introduced in 1948. Subsequently, it was developed in a different form by way of extra-statutory concessions. It was introduced in the immediate post-war period when conditions and requirements were quite different from those which exist today. The problems were quite different. For example, the income position of employees has changed substantially since then.
The right hon. Gentleman said that one of the reasons for the introduction of tax relief on luncheon vouchers was that people who had subsidised meals in work canteens were advantaged compared with those who did not have subsidised meals at their place of work. The luncheon voucher system was intended to deal with that. Today the great majority of employees have neither luncheon vouchers nor an employer-subsidised canteen and therefore must meet the full costs of their meals from their pay net of tax. The current daily luncheon voucher with the 15p tax concession is equivalent to a tax-free payment of £40 a year. Increasing the concession on the scale suggested by the right hon. Member for Bristol, South would certainly discriminate substantially further against the vast majority of employees who have the benefit of neither provision.
I, too, have been doing research. I think that the right hon. Member for Bristol, South will remember the response to a parliamentary question in February 1979, under the previous Labour Government, when the then Financial Secretary to the Treasury — the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) —responded with these words:
I do not think that such an increase would be justified. To increase the value of the concession would be unfair to the millions of workers who have the benefit neither of luncheon vouchers nor of subsidised canteens." — [Official Report, 12 February 1979; Vol 962, c. 423.]That is the point I am making now and about which I am convinced. I shall be interested to know whether the hon. Member for Birmingham, Hodge Hill (Mr. Davis) holds the view that was held by the then Government or whether he has changed his mind.During the period of the last Labour Government, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), the present Financial Secretary to the Treasury, put the point correctly when he said:
I accept the case that benefits in kind should be taxable. I think that it would be far better to have lower tax rates, higher pay, and a totally sensible tax regime. But that is not the world in which we live."—[Official Report. 17 May 1976; Vol. 911, c. 1070.]That was an accurate comment on the position under the last Labour Government. I am sure, although I cannot quite recall, that that must have been one of the reasons why I was advocating some relief for as many people as possible from the very high tax regime, the levels of which had been increased in 1975.248 There are other reasons why the new clause would introduce even greater unfair discrimination against all those who do not have the benefit of these provisions. I shall refer first to perhaps the least important. The right hon. Member for Bristol, South said that, if we accepted his recommendation, it was likely that fewer people would eat junk foods in the middle of the day. There is evidence — I recall what happened when I had the benefit of luncheon vouchers and saw what happened with many people—that often luncheon vouchers are not used for the purpose intended. They are often used to purchase goods and not simply to purchase lunch-time meals. It is a problem. It is difficult to prevent that. Obviously, increasing the limit would increase the scope for misuse. However, that point is secondary to the issue of unfair discrimination.
The concession would be very costly. That is an important point. The current claim, on figures which we have been able to establish—I think they come mainly from the company that produces the luncheon vouchers — is that about 400,000 employees currently receive luncheon vouchers. If that is accepted as the normal figure and if one uses the normal calculation of the number of days in the year on which luncheon vouchers are available, the annual cost of the present 15p exemption is about £4 million. Increasing the exemption to £1 a day, as suggested by the right hon. Member for Bristol, South, would increase the cost to at least £30 million, but it could well be beyond that.
If the tax exemption were increased to £1, there would obviously be a greater incentive for more employees to request luncheon vouchers and for more employers to grant it. There could easily be a substantial increase in the number of luncheon vouchers and the cost would rise accordingly. In talking about that scale of tax relief and the costs, it becomes important to consider whether this is the right priority at this time. I do not believe that it is.
What we are endeavouring to do with the tax regime and the point made back in 1976 by my right hon. Friend the Financial Secretary are relevant to my next point. We believe that priority must be given to reducing the burden of taxation to the benefit of all taxpayers, rather than to extending special relief to particular groups such as those who have luncheon vouchers. Given that approach and determination, I must challenge whether it should be a priority, or an objective at all, to encourage the spread of perks and benefits in kind. Remuneration in cash rather than kind gives employees greater freedom to decide for themselves how to spend their income. There is also the point that, at the end of the day, benefits in kind are just another form of remuneration.
I do not think that the right hon. Member for Ashton-under-Lyne was in the Chamber when I referred to his response on this subject. I would be interested to know whether he agrees with himself.
§ Mr. Robert SheldonI only came into the Chamber to hear whether the arguments have altered. I regret that the right hon. Gentleman has not discovered anything new. I was able to discover one or two new aspects. I am afraid that the right hon. Gentleman has let me down.
§ Mr. MacGregorWhat has altered is that the cost is rising in terms of priorities. Many of the arguments have not changed. In fact, I accept the arguments. What is different is our determination to reduce the burden of 249 taxation on employees generally. Therefore, that is why there is a point of principle here. When one accepts that benefits in kind are a form of remuneration and, in principle, should be taxed accordingly, especially in fairness to all taxpayers not in receipt of them—I know that we are not in a perfect world in that respect—I do not believe that it is right substantially to extend the benefit in kind and the tax treatment of it, as the right hon. Member for Bristol, South suggested. It would not be available to all taxpayers and, in any case, I do not believe that it is the right approach at present.
It is for that reason that I have to say to the right hon. Member for Bristol, South that 1 am sorry to disappoint him but we are in a different tax regime and my point of view makes sense.
§ Mr. Terry DavisI should like to congratulate my right hon. Friend the Member for Bristol, South (Mr. Cocks) on tabling this new clause and drawing attention to what I would describe as an obvious injustice in that the value of luncheon vouchers has not increased for many years. There was an increase at one time. It used to be 12½p, half a crown, and was then increased to 15p. That was a long time ago and there has not been an increase since. Clearly, the amount has not kept pace with inflation since luncheon vouchers were originally introduced in the 1940s.
Obviously the amount should have been increased and equally obviously the Government should accept my right hon. Friend's new clause in view of what was said by the Chief Secretary to the Treasury in 1975 when he not only debated this proposal but actually moved a new clause to this effect in Committee. He tells us that he has subsequently seen the force of the arguments adduced by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) on that occasion. I understand that my right hon. Friend pointed out that he was not relying on the Treasury brief because he was teased by Conservative Members on the Committee that he was relying on the brief they had used during the previous Conservative Administration. Those arguments, which were so hackneyed and had such little force for the Chief Secretary in 1975, have prevailed in his mind since he came to office a few months ago.
The right hon. Gentleman described this issue as a regular runner. To my knowledge, it has not been discussed for four or five years, certainly not in this Parliament. I am not going to tease the Chief Secretary any more, but he should have been consistent and at least have expressed more sympathy with the arguments of my right hon. Friend the Member for Bristol, South, even if he was not allowed to accept the new clause.
The Chief Secretary put some new arguments. He said that the world, or at least the tax regime in this country, has changed since 1975. He said that, because this country does not have what he described as a high tax regime in 1986, the force of the argument for an increase in luncheon vouchers had declined. In the days when I used to receive luncheon vouchers, they were issued to more junior people in the company. They were not given to the directors, who had rather better eating arrangements. I did not resent that. The fact is that luncheon vouchers brought particular benefit to the more junior and lower-paid people in the office.
§ Mr. HanleyThe Conservative principle is that those people should be taken out of tax altogether.
§ Mr. DavisI am delighted to hear that, but that has not happened under the present Government. The people who have had their taxes reduced are precisely those on the highest rate of tax, not those on the basic rate of tax. The fact is that the marginal rate of tax for the low-paid has increased under this Government. When one takes into account the impact of indirect taxes, they are even worse off. The hon. Member for Richmond and Barnes (M r. Hanley) shakes his head. He must have missed our debate in Committee on clause 15.
§ Mr. HanleyI am sure that the hon. Gentleman will remember that I was present during that debate. The tax-free benefit that has been proposed by the right hon. Member for Bristol, South (Mr. Cocks) amounts to about £66 a year for a person paying 29 per cent. tax. The Government have reduced taxation upon exactly the sort of people that the hon. Gentleman has been talking about by more than £66 a year.
§ Mr. DavisThat is not true. I am sure that the hon. Gentleman believes it, but it is a fairy story. I gave the figures in our earlier debate. If the hon. Gentleman was present, obviously he did not take them in. I should be happy to discuss the matter with him privately afterwards, and to show him the tables that have been produced by the most respectable outside organisations, showing that the marginal rate of tax paid by people in that income bracket has increased under this Conservative Government. The people who have really benefited from the reduction in taxation and who are no longer living in a high tax regime are people like the hon. Gentleman, whose income is much higher than that of people who benefit from luncheon vouchers.
The second reason that was given for the Chief Secretary's change of mind was that there is some abuse of luncheon vouchers. It existed in 1975 as much as it does now in 1986. I see that the Chief Secretary is nodding. So that is a bogus reason.
I had some sympathy with the Chief Secretary when he then said that the provision would cost £30 million, so the Government cannot afford it. The Government have a philosophical approach towards benefits in kind, and I think that the Chief Secretary was alluding to the Government's philosophy during the latter part of his remarks. It has been made clear on Report in Finance Bills in the past two years that the Government have a philosophical objection to benefits in kind, including not only luncheon vouchers but factory and office canteens. I do not think that I am quoting unfairly the previous Financial Secretary, the right hon. Member for Croydon, Central (Mr. Moore). In our debates on workplace nurseries, I am sure that I remember him saying that if the Government had the option today, in the 1980s, they would not exempt the benefit of eating in a factory or office canteen from liability to tax. The fact is that the arrangements for canteens and luncheon vouchers have existed since the 1940s, and the Government are not prepared to experience, particularly in the run-up to the general election, the outcry that would ensue if they put their philosophy into practice. That is their position. If they had their way, they would not be giving those exemptions now.
The Chief Secretary asked me directly what I would do it I were in his shoes. I am tempted to say, "Wait and see," 251 although that would not be a satisfactory answer. The Labour Governments of the past have not increased the tax-free value of luncheon vouchers—I am sure that my right hon. Friend the Member for Bristol, South (Mr. Cocks) played some part in ensuring that that did not happen in his previous role as Chief Whip in the Labour Government—and I would not hold out any hope that the next Labour Government would increase the tax-free value of luncheon vouchers, precisely because of priorities. The Chief Secretary estimated that the provision would cost £30 million, which is a substantial sum. The sums of at least £25 million for the personal equity plan and £30 million for luncheon vouchers add up to significant amounts. The next Labour Government would want to use such substantial sums to put our priorities into effect, which, in any case, are different from those of the Conservative Government.
Therefore, although I have a great deal of sympathy for my right hon. Friend the Member for Bristol, South, and would not wish to oppose his arguments as a friend because I recognise the force and justice of his case, I cannot tell him that I would support him if he pressed the new clause to a Division because I do not want to put a future Labour Chief Secretary in the position in which he has put the present Chief Secretary, the right hon. Member for Norfolk, South (Mr. MacGregor).
§ Mr. CocksI am grateful to the Chief Secretary for his contribution. I agree that in 1948 the position was different.
Then a dynamic Government got 6 million people out of the forces and back into civilian life without any massive unemployment. They put our war industries onto a peacetime footing and on a smooth and equitable basis. They took into public ownership the clapped-out public utilities which had been run on a care and maintenance basis throughout the war. At the same time, the Government repaired and restored over 2 million homes which had been destroyed or severely damaged due to the German blitz. All this occurred when our overseas assets had been flogged to buy essential war equipment, food and raw materials and the bulk of our merchant shipping fleet had been sunk. I agree that the situation in 1948 was entirely different but I will not go on to draw a parallel with how the Government are tackling the problems facing the country today.
I thought there was a certain inconsistency in the Chief Secretary's argument that people should be given their money to spend as they liked but then said that one of the reasons why he was not in favour of luncheon vouchers was that they might be abused by a small number of people who might use them for other purposes. I thought that was a weakness in his argument.
I understand the right hon. Gentleman's argument about the possibility of a large uptake if this scheme was introduced. Such an uptake could not be predicted. Given the difficulties under which Treasury Ministers labour in attempting to keep within limits and always having to look for economies, an open-ended commitment of this nature is difficult to undertake. I understand that.
I was encouraged when the Chief Secretary said that this was not the right priority. I hope that this opens the door to show that the Treasury mind is not entirely closed on the matter. It may well be that last Thursday night we 252 had a curtain-raiser to the possible date of the next general election. The Secretary of State for the Environment came to the House and announced that water privatisation was off the menu for this Parliament.
I worked in the usual channels for many years and I know that, unfortunately, with the best will in the world one often imputes base motives to people in circumstances where others may have given them the benefit of the doubt. I thought that the announcement was a ploy for possibly having a nice fat carrot next year at a general election. Perhaps the Government will offer to increase mortgage relief from £30,000 to £35,000 or £40,000. I declare an interest because I am at present in the process of upgrading my mortgage commitment to £40,000. I trust that the House, and even the Chancellor, who is present, will take that into account.
I thought last Thursday's announcement was a sprat to catch a mackerel. In scavenging about, the government may think that luncheon vouchers are an attractive thing to put in the shop window. However, I do not think that that will be sufficient to return them at the next general election.
Because of the comparatively forthcoming statement by the Chief Secretary and his mention of priorities, and understanding his difficulties about taking on a commitment—the full extent of the expenditure was not foreseen—it would be in the best interests of the House if I were to beg leave to withdraw the clause. At least we have had a debate about it and the points can be considered. No doubt one party or the other will return to the matter at some future date.
§ Motion and clause, by leave, withdrawn.