§ Mr. BeithI beg to move amendment No. 12, in page 200, line 26, leave out `6th April 1993' and insert `4th April 1994'.
§ Mr. Deputy SpeakerWith this, it will be convenient to discuss the following amendments: No. 13, in page 200, line 28, leave out `6th April 1993' and insert '4th April 1994'.
No. 11, in page 200, line 30, leave out `6th April 1993' and insert '4th April 1994'.
§ Mr. BeithThis group of amendments is all about relocation expenses and their tax treatment. The amendments would delay the implementation of the new regime for taxing relocation expenses.
The issue was dealt with fairly extensively in Committee, but we were unable then to persuade the Government to raise the cap that they have placed on those relocation expenses that are non-taxable. We proposed that that tax threshold should be very much higher to reflect the real relocation costs. We propose in the amendments that there should at least be a transitional period.
The Government have just told us how important it is to provide favourable—indeed, generous—tax treatment to internationally mobile business men, yet they have failed to accept the case put to them by British industry that there should be more favourable tax treatment of those who are forced to move if business in this country is to be successful and efficient.
We are talking about firms that need to relocate people, if they are to succeed. We are referring to firms that have 869 to cope with major changes in their industry and in their markets. We are referring also to firms that are having to adapt and to firms that are feeling the consequences of the recession, yet they are trying to keep people in employment. Often, the only way in which they can keep people in employment and avoid redundancy is by relocation. They may relocate a whole plant to another site, or they may strengthen, through importing skilled people, a plant that would otherwise go to the wall. Relocation of this kind is important if businesses are to be flexible and able to adapt.
Relocation is difficult to achieve in the United Kingdom context, because of our housing problems. The rented housing sector is largely dominated by local authority housing, which makes it very difficult for people to move from one area to another. The private housing sector has been severely affected by the consequences of the recession. When, therefore, a company says to somebody, "We want you to move," he is likely to reply, "I can't afford to move on my wages." The company then has to construct a package that makes it feasible for that person to move.
The package will often involve help with removal expenses, but that is only the beginning of the story. It may be some time before the person concerned can sell his house or buy a house in the area where he has been relocated. All sorts of additional ancillary costs that affect families may be involved. Most of the firms involved—for example, Barclays bank, which does a great deal of this, estimate that the cost of relocation is between £20,000 and £30,000. That is the average cost of many of these removal and relocation packages. The Government, however, have set their face against accepting that that is the average cost of relocation packages. We seek to persuade them at least to make provision for a transitional period.
I have said that the Government have set their face against relocation expenses at this level. That is not quite the case. Among people in the public sector, there has been considerable concern about how, given the provision, they will relocate. Several Government Departments are involved in substantial relocation activity. Indeed, hon. Members of all parties have been trying to persuade the Government to relocate some of their work—to transfer it from the south-east to the areas of highest unemployment, for example.
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Other factors are involved in the relocation of Government Departments. Am I right in thinking that the Treasury has approved the grossing up of relocation expenses above the £8,000 limit paid to civil servants? Is it true that Departments know perfectly well that £8,000 is well below the real figure? I believe that they know perfectly well that much larger relocation packages will be necessary. It seems to me that Departments have been told by the Treasury that £8,000 is a figure plucked out of the air to be put in the Finance Bill. It appears that the Treasury is saying, "If you find that it is necessary to pay people £15,000, £20,000 or £25,000, you must gross up the amount. You must pay that amount plus what is necessary to bring it up to the amount originally intended." It is nonsensical if the Treasury itself—the very Department responsible for the Bill—has already admitted that the amount is too small and if Departments are already being told to get around the rules so that people may receive the much larger amounts that they know are involved.
870 It is likely that the Government's proposal will be harmful to industry. Firms will have difficulty with relocation packages unless they adopt the strategy that the Treasury is suggesting to Government Departments. Labour mobility will be harmed and relocation costs will be increased. Firms will have to gross up, as the Treasury suggests. There may be even harm to inward investment, which often involves foreign firms in the relocation of personnel in order to have key people at a new plant. Firms already struggling with relocation because they must concentrate operations on a single site will face higher costs. Training will be undermined as firms lay off partially trained people and re-employ to save on the expenses of relocating skilled people.
In these circumstances, the very least we must ask of the Government is that they provide a little more time for industry to adapt to the new and very restrictive regime. The proposals extend to a 12-page schedule, so they will clearly be quite complicated to implement. A period of grace would at least be of some help. If a new system were started on 6 April, there would be a period of notice of only two weeks—the interval between the Budget and the beginning of the financial year. No business plans relocation on the basis of a two-week period. Relocations are planned on a time scale of months or years. Many relocations already in progress have been planned long ago. In some cases, employees will be liable to tax on, say, £25,000—or £25,000 minus £8,000—while in others they will not, depending on the removal date. Some people in a firm will be adversely affected. If there were a period of notice—if this provision did not have to be implemented until next April—firms could plan around the scheme; thus, we could avoid a situation in which some people involved in a particular relocation exercise were much more favourably treated, from a tax point of view, than others.
Industry ought to be given some time to adapt. I hope that the Chief Secretary to the Treasury will not further distract the Financial Secretary as this is a matter that industry regards as very important. A period of grace would at least help us through the worst of the aftermath of the recession. The Government's view—we all hope that they are right—is that recovery is under way. A further year before the falling of the axe on tax-free relocation expenses would give a little more opportunity to firms still adapting as a direct consequence of recession, so that they would not have to abandon relocation packages on the ground that they could not afford them, or gross up at considerably greater cost.
It is clear that Departments recognise that the Government's £8,000 is inadequate. Obviously, the Treasury is aware of that fact. Industry feels very strongly about the matter—I have in mind the Confederation of British Industry, the Engineering Employers Federation and many other organisations. This is a last chance for the Government at least to provide a little more time before implementation of their proposal.
§ Mr. DorrellThe right hon. Gentleman has made it clear that he favours a system that encourages flexibility where it is necessary for a business to move its operations. He agrees that unnecessary obstacles should not be put in the way of such mobility. I agree. It is important that the system be sufficiently flexible to facilitate mobility where it is clearly in an employer's interests to move an activity from one part of the country to another. But that is rather 871 different from the notion that mobility is a public good, that employers should receive tax treatment to encourage them to make some of their activities mobile. When an employer decides to move an activity from one area to another, he should not have to deal with unnecessary obstacles. However, the tax system should not in any way encourage such a decision. In this regard, the system and the public interest should be entirely neutral.
The changes that we are introducing remove what has amounted to a mild tax subsidy for a particular type of activity. The right hon. Gentleman has suggested that some people regard £25,000 removal packages as the norm. I simply do not believe that that is the normal cost of moving an individual from one part of the country to another. If it is the average, how is it that anybody ever moves house other than when paid by his employer to do so? Hon. Members ought to bring their critical faculties to bear on questions that we debate. Representations from interested groups to the effect that the average removal cost is £25,000 should be subjected to critical analysis. If they were analysed critically, they would be found to be wanting. The right hon. Gentleman asked me about grossing up in the case of public sector employees. That is not unknown, although we examine cases critically. When grossing up takes place, whether in this or in any other context, it is for Departments to decide what they need to do within the resources available to them. My right hon. Friend the Chief Secretary made the position very clear in the Standing Committee: he said that he would not entertain a suggestion that extra resources should flow to a Department that wanted to move people and to pay individuals' tax associated with the removal. Indeed, this flows from the policy stance that the Government have consistently adopted in respect of grossing up in the case of civil servants' tax bills.
§ Mr. BeithI accept that no additional resources will be provided to enable Departments to gross up, but I should like to ask the Financial Secretary to confirm that Departments are examining, or have had to examine, relocation packages of more than £8,000, for which grossing up must be considered.
§ Mr. DorrellIf a Department chose to gross up, it would be because it had decided that it needed to make a payment to a civil servant in respect of a removal in excess of £8,000. It is not a question whether the figure in excess of £8,000 includes an amount that is properly defined as betterment and, therefore, properly taxable. Spending Departments make payments to civil servants all the time, which are subject to tax. The question is not whether the payment is exceptional but whether it should be subject to tax. Against that background, we recognise that in order to move civil servants, or to encourage people in other walks of life to move, grossing up payments will be made. The principle is that the payment includes an element of betterment which is properly subjected to income tax. That principle underlies the provisions.
The Government have tabled what we believe are sensible proposals for transition. I cannot commend the amendment. The House should be aware that its practical effect would be not to extend the transition period but to abolish it. The Government have already withdrawn the extra statutory concessions with effect from 5 April this 872 year. which were the arrangements whereby removal expenses were previously exempt from tax. It is only by allowing the Bill to be passed in its present form that the transitional provisions would reach the statute book. Although the right hon. Gentleman may have preferred a longer transitional period, I hope that he will recognise that the effect of the amendment would be not to lengthen but to abolish the transitional arrangements proposed by the Government. Against that background, I hope that he will feel able to withdraw the amendment.
§ Mr. BeithI do not accept the Minister's technical argument. We know that the matter proceeded on the basis that the extra statutory concession was withdrawn after a decision by Ministers. The extra statutory concession could have been used and could still be used as a vehicle for concession.
I do not accept the Minister's rather cavalier approach to grossing up. In this context, as in most others, grossing up is a device to ensure that what the employee and the employer—in this case, the employer being the Government—think might reasonably be a tax-free payment is still treated as if it were a tax-free payment and that the sum that the person involved receives in his hand is the same as if the payment had been tax free. It is a device, and one that should not be commended by the Treasury. The fact that the Treasury commends it suggests that the Treasury recognises internally that it has gone too far in setting the £8,000 limit.
For the Minister to argue that the issue should be dealt with in a tax-neutral way, and that it is wrong to treat relocation as a public good and therefore to allow any sort of concession, is an argument against having even a £8,000 limit. The logic of his case is that there should be no concession at all.
Ministers should be cautious about using the public good argument in matters of mobility. As they are transported to work in their chauffeur-driven cars on journeys on which they pay no tax, unlike other people, I hope that they will recline in their leather-covered seats—if they qualify for cars that have such seats—and ask themselves whether there is really any public good in their journeys being tax free. They should realise that other people have been told by their employers that if they want to keep their jobs they must move to the other end of the country, when the most that employers can put together to make such a move feasible, and without their paying tax, is £8,000. Otherwise, all the costs that employers find it necessary to subsidise, such as the cost of keeping two houses going until one can be sold, will be treated as a taxable benefit and the person involved will be taxed on it. That is not reasonable, and it is a perfectly sound argument for carrying the protest to a vote.
§ Question put, That the amendment be made:—
§ The House divided: Ayes 38, Noes 300.
875| Division No. 329] | [6.13 pm |
| AYES | |
| Alton, David | Connarty, Michael |
| Ashdown, Rt Hon Paddy | Corbyn, Jeremy |
| Barnes, Harry | Cryer, Bob |
| Berth, Rt Hon A. J. | Ewing, Mrs Margaret |
| Bennett, Andrew F. | Graham, Thomas |
| Bruce, Malcolm (Gordon) | Harvey, Nick |
| Campbell, Menzies (Fife NE) | Hoey, Kate |
| Campbell, Ronnie (Blyth V) | Hughes, Simon (Southwark) |
| Canavan, Dennis | Johnston, Sir Russell |
| Carlile, Alexander (Montgomry) | Jones, Ieuan Wyn (Ynys Mòn) |
| Jones, Nigel (Cheltenham) | Salmond, Alex |
| Kennedy, Charles (Ross,C&S) | Sheldon, Rt Hon Robert |
| Llwyd, Elfyn | Skinner, Dennis |
| Loyden, Eddie | Steel, Rt Hon Sir David |
| Lynne, Ms Liz | Steinberg, Gerry |
| Macdonald, Calum | Welsh, Andrew |
| Mahon, Alice | Wigley, Dafydd |
| Marshall, Jim (Leicester, S) | |
| Martlew, Eric | Tellers for the Ayes: |
| Michie, Mrs Ray (Argyll Bute) | Mr. Don Foster and Mr. Archy Kirkwood. |
| Rendel, David |
| NOES | |
| Ainsworth, Peter (East Surrey) | Davis, David (Boothferry) |
| Aitken, Jonathan | Day, Stephen |
| Alexander, Richard | Deva, Nirj Joseph |
| Alison, Rt Hon Michael (Selby) | Devlin, Tim |
| Allason, Rupert (Torbay) | Dickens, Geoffrey |
| Amess, David | Dorrell, Stephen |
| Ancram, Michael | Douglas-Hamilton, Lord James |
| Arbuthnot, James | Dover, Den |
| Arnold, Jacques (Gravesham) | Duncan, Alan |
| Arnold, Sir Thomas (Hazel Grv) | Duncan-Smith, Iain |
| Ashby, David | Dunn, Bob |
| Aspinwall, Jack | Durant, Sir Anthony |
| Atkins, Robert | Dykes, Hugh |
| Atkinson, David (Bour'mouth E) | Eggar, Tim |
| Atkinson, Peter (Hexham) | Elletson, Harold |
| Baker, Nicholas (Dorset North) | Emery, Rt Hon Sir Peter |
| Baldry, Tony | Evans, David (Welwyn Hatfield) |
| Banks, Matthew (Southport) | Evans, Jonathan (Brecon) |
| Banks, Robert (Harrogate) | Evans, Nigel (Ribble Valley) |
| Batiste, Spencer | Evans, Roger (Monmouth) |
| Bellingham, Henry | Evennett, David |
| Bendall, Vivian | Faber, David |
| Beresford, Sir Paul | Fabricant, Michael |
| Biffen, Rt Hon John | Fairbairn, Sir Nicholas |
| Blackburn, Dr John G. | Fenner, Dame Peggy |
| Body, Sir Richard | Field, Barry (Isle of Wight) |
| Bonsor, Sir Nicholas | Fishburn, Dudley |
| Booth, Hartley | Forman, Nigel |
| Boswell, Tim | Forsyth, Michael (Stirling) |
| Bottomley, Rt Hon Virginia | Forsythe, Clifford (Antrim S) |
| Bowden, Andrew | Forth, Eric |
| Bowis, John | Fowler, Rt Hon Sir Norman |
| Boyson, Rt Hon Sir Rhodes | Fox, Dr Liam (Woodspring) |
| Brandreth, Gyles | Fox, Sir Marcus (Shipley) |
| Brazier, Julian | Freeman, Rt Hon Roger |
| Bright, Graham | French, Douglas |
| Brooke, Rt Hon Peter | Fry, Peter |
| Brown, M. (Brigg & Cl'thorpes) | Gale, Roger |
| Browning, Mrs. Angela | Gardiner, Sir George |
| Bruce, Ian (S Dorset) | Garnier, Edward |
| Budgen, Nicholas | Gill, Christopher |
| Burns, Simon | Gillan, Cheryl |
| Burt, Alistair | Goodlad, Rt Hon Alastair |
| Butcher, John | Goodson-Wickes, Dr Charles |
| Butler, Peter | Gorman, Mrs Teresa |
| Carlisle, Kenneth (Lincoln) | Gorst, John |
| Carrington, Matthew | Grant, Sir Anthony (Cambs SW) |
| Cash, William | Greenway, John (Ryedale) |
| Channon, Rt Hon Paul | Griffiths, Peter (Portsmouth, N) |
| Chapman, Sydney | Grylls, Sir Michael |
| Churchill, Mr | Gummer, Rt Hon John Selwyn |
| Clappison, James | Hague, William |
| Clark, Dr Michael (Rochford) | Hamilton, Rt Hon Archie (Epsom) |
| Clarke, Rt Hon Kenneth (Ruclif) | Hamilton, Neil (Tatton) |
| Clifton-Brown, Geoffrey | Hampson, Dr Keith |
| Coe, Sebastian | Hanley, Jeremy |
| Colvin, Michael | Hannam, Sir John |
| Congdon, David | Hargreaves, Andrew |
| Conway, Derek | Harris, David |
| Coombs, Anthony (Wyre For'st) | Haselhurst, Alan |
| Coombs, Simon (Swindon) | Hawkins, Nick |
| Cope, Rt Hon Sir John | Hawksley, Warren |
| Couchman, James | Hayes, Jerry |
| Cran, James | Heathcoat-Amory, David |
| Currie, Mrs Edwina (S D'by'ire) | Hendry, Charles |
| Curry, David (Skipton & Ripon) | Hicks, Robert |
| Davies, Quentin (Stamford) | Higgins, Rt Hon Sir Terence L. |
| Hill, James (Southampton Test) | Pickles, Eric |
| Hogg, Rt Hon Douglas (G'tham) | Porter, Barry (Wirral S) |
| Horam, John | Porter, David (Waveney) |
| Hordern, Rt Hon Sir Peter | Portillo, Rt Hon Michael |
| Howarth, Alan (Strat'rd-on-A) | Powell, William (Corby) |
| Howell, Rt Hon David (G'dford) | Redwood, Rt Hon John |
| Howell, Sir Ralph (N Norfolk) | Renton, Rt Hon Tim |
| Hunt, Sir John (Ravensbourne) | Richards, Rod |
| Hunter, Andrew | Riddick, Graham |
| Hurd, Rt Hon Douglas | Rifkind, Rt Hon. Malcolm |
| Jack, Michael | Robathan, Andrew |
| Jackson, Robert (Wantage) | Roberts, Rt Hon Sir Wyn |
| Jenkin, Bernard | Robertson, Raymond (Ab'd'n S) |
| Jessel, Toby | Robinson, Mark (Somerton) |
| Johnson Smith, Sir Geoffrey | Roe, Mrs Marion (Broxbourne) |
| Jones, Gwilym (Cardiff N) | Ross, William (E Londonderry) |
| Jones, Robert B. (W Hertfdshr) | Rowe, Andrew (Mid Kent) |
| Key, Robert | Rumbold, Rt Hon Dame Angela |
| Kilfedder, Sir James | Ryder, Rt Hon Richard |
| King, Rt Hon Tom | Sackville, Tom |
| Knapman, Roger | Scott, Rt Hon Nicholas |
| Knight, Mrs Angela (Erewash) | Shaw, David (Dover) |
| Knight, Greg (Derby N) | Shaw, Sir Giles (Pudsey) |
| Kynoch, George (Kincardine) | Shepherd, Colin (Hereford) |
| Lait, Mrs Jacqui | Shepherd, Richard (Aldridge) |
| Lamont, Rt Hon Norman | Shersby, Michael |
| Lang, Rt Hon Ian | Sims, Roger |
| Lawrence, Sir Ivan | Skeet, Sir Trevor |
| Legg, Barry | Smith, Tim (Beaconsfield) |
| Lennox-Boyd, Mark | Speed, Sir Keith |
| Lester, Jim (Broxtowe) | Spencer, Sir Derek |
| Lidington, David | Spicer, Sir James (W Dorset) |
| Lightbown, David | Spicer, Michael (S Worcs) |
| Lilley, Rt Hon Peter | Spink, Dr Robert |
| Lloyd, Peter (Fareham) | Spring, Richard |
| Luff, Peter | Sproat, Iain |
| Lyell, Rt Hon Sir Nicholas | Squire, Robin (Hornchurch) |
| MacGregor, Rt Hon John | Stanley, Rt Hon Sir John |
| MacKay, Andrew | Steen, Anthony |
| Maclean, David | Stephen, Michael |
| McLoughlin, Patrick | Stern, Michael |
| McNair-Wilson, Sir Patrick | Stewart, Allan |
| Madel, David | Streeter, Gary |
| Maitland, Lady Olga | Sumberg, David |
| Malone, Gerald | Sweeney, Walter |
| Mans, Keith | Sykes, John |
| Marland, Paul | Tapsell, Sir Peter |
| Marlow, Tony | Taylor, Ian (Esher) |
| Marshall, John (Hendon S) | Taylor, Rt Hon John D. (Strgfd) |
| Marshall, Sir Michael (Arundel) | Taylor, John M. (Solihull) |
| Martin, David (Portsmouth S) | Taylor, Sir Teddy (Southend, E) |
| Mates, Michael | Temple-Morris, Peter |
| Mawhinney, Dr Brian | Thomason, Roy |
| Mayhew, Rt Hon Sir Patrick | Thompson, Sir Donald (C'er V) |
| Mellor, Rt Hon David | Thompson, Patrick (Norwich N) |
| Merchant, Piers | Thornton, Sir Malcolm |
| Milligan. Stephen | Thurnham, Peter |
| Mills, Iain | Townsend, Cyril D. (Bexl'yh'th) |
| Mitchell, Andrew (Gedling) | Tracey, Richard |
| Mitchell, Sir David (Hants NW) | Tredinnick, David |
| Moate, Sir Roger | Trend, Michael |
| Monro, Sir Hector | Trotter, Neville |
| Montgomery, Sir Fergus | Twinn, Dr Ian |
| Moss, Malcolm | Vaughan, Sir Gerard |
| Needham, Richard | Viggers, Peter |
| Neubert, Sir Michael | Waldegrave, Rt Hon William |
| Newton, Rt Hon Tony | Walden, George |
| Nicholls, Patrick | Walker, A. Cecil (Belfast N) |
| Nicholson, David (Taunton) | Waller, Gary |
| Nicholson, Emma (Devon West) | Ward, John |
| Norris, Steve | Wardle, Charles (Bexhill) |
| Onslow, Rt Hon Sir Cranley | Waterson, Nigel |
| Oppenheim, Phillip | Watts, John |
| Ottaway, Richard | Wells, Bowen |
| Page, Richard | Whitney, Ray |
| Paice, James | Whittingdale, John |
| Patnick, Irvine | Widdecombe, Ann |
| Pattie, Rt Hon Sir Geoffrey | Wiggin, Sir Jerry |
| Pawsey, James | Wilkinson, John |
| Peacock, Mrs Elizabeth | Willetts, David |
| Wilshire, David | Yeo, Tim |
| Winterton, Mrs Ann (Congleton) | |
| Winterton, Nicholas (Macc'f'ld) | Tellers for the Noes: |
| Wolfson, Mark | Mr. Timothy Kirkhope and Mr. Robert G. Hughes. |
| Wood, Timothy |
§ Question accordingly negatived.