Thalidomide Trust (Hansard, 9 December 2002)

§ Mr. Jonathan Djanogly (Huntingdon)
The Thalidomide Trust, which is based in my constituency, was established in 1973 to administer ongoing compensation offered initially by the Distillers company to the victims of thalidomide. The trust is responsible for supporting all the British survivors of the thalidomide tragedy, currently numbering some 450 individuals.
Many of the beneficiaries, most of whom are aged between 39 and 42, are now raising families and engaging in a variety of careers and activities. To give some idea of the severity of the disabilities faced by the survivors, about 10 have no hands, arms or legs; a further 100 have either no arms or no legs, or so-called flipper arms or legs; and the majority of the remainder have short limbs, particularly arms, and hands with no thumbs.
It is important to point out that as the victims age, their needs are changing. Many are experiencing deterioration of their health and medical condition, which is both making life today more difficult and causing them to worry about the future. For example, some are finding that, because the lack of some limbs has caused them to overuse others, arthritis and similar complaints are gravely compounding the disabilities that they have worked long and hard to overcome.
It is worth pointing out that thalidomide victims do not fit the typical description of a disabled person—someone who has all their limbs, but requires the use of a wheelchair. Thalidomide victims have unique needs—for example, they might be unable to reach buttons at ticket barriers, or to work locks and catches, or to carry loads owing to their having deformed shoulder joints. Those problems will not diminish with the passing of time; in fact they will certainly become worse. They were a factor in the generous decision made in 2000 by Diageo—a successor company to Distillers—to pay a further £32.5 million to the trust at present day values.
The trust was set up as a charity because it was believed that its objects, being charitable, would result in all distributions made to beneficiaries being tax exempt, but that proved not to be the case. However, the then Government agreed that there had been a genuine misunderstanding about the tax treatment of the payments made to beneficiaries by the trust. On that basis, in 1974, the Government paid a sum of £5 million to the trust to offset the tax payable on distributions. Further payments totalling £12.8 million were made to the trust in 1975, 1979 and 1996 by Distillers and its successor company, Guinness.
It is important to note that each time a request was made by the trust to the Government, such a request was made on the basis of offsetting the effect of tax on the distributions of the trust, and the same formula for calculating the offset was used in each case. Another important point is that previous Governments' payments to the trust do not set any sort of precedent for other charities, which might give the Government reason not to wish to give the traditional relief to the Thalidomide Trust again. That is because a class action 130 compensation settlement being made today would normally be established as a structured settlement, with payments in all normal circumstances being tax exempt.
Even taking previous Governments' tax payments into account, it could not be said that the trust has not paid any tax—indeed, although Governments have paid £12.8 million to the trust since 1974, they have received taxes of more than £15.5 million from the trust, and are likely to take another £20 million in tax receipts between 2002 and 2022, thus providing a Treasury profit over the years of about £23 million. In practice, about £12 million of that tax has been recovered by beneficiaries claiming tax allowances, but that still leaves the Government approximately £11 million in profit.
The tax position of thalidomide beneficiaries is that victims without other sources of income are able to reclaim the difference between the tax that the trust deducts from distributions to them and their personal allowance of the basic rate of tax. That means that beneficiaries can achieve tax reclaims typically a year after they have received the payments, although, unfortunately, it is believed by the trust that many of the beneficiaries do not take advantage of that, either because of their lack of understanding of the system, or because of the need to employ accountants to prepare their tax returns for them.
To return to the current position, if the formula that was applied to previous extensions to the original Distillers covenant were to be used, the Government should now be paying the trust £6.1 million. The Government have implied that the trust has a significant pot of money, and that that in itself is a reason for it to pay tax. Although the covenanted sums may indeed sound significant, they are relatively modest compared with many modern-day court settlements, and in any event are less following recent stock market falls. The money needs to last for a long time, and current annual payments to victims range from between £5,000 and £25,000 a year, the average annual payment being only £11,000. Unfortunately, however, on 30 July this year the Chancellor turned down the trust's request to be treated in the way that every past Government had allowed. As a result, no Treasury payment is now being offered in respect of the recent Diageo covenant. The decision has now been confirmed in a letter that I received from the Chancellor this morning.
Many people, including the trustees and certainly the victims themselves—some of whom are here today—many of their supporters across the country and, indeed, over 80 Members of Parliament who signed early-day motion 107 have been extremely perturbed and disappointed by the Government's decision.
The Government's reasons for the rejection are set out in a letter from the Chancellor dated 30 July this year. The first general point is the Chancellor's statement that the Government greatly values the work of the Trust in supporting the victims of the Thalidomide tragedy". How well that claim sits with the fact that this is the first Government to refuse tax relief is a judgment that I will leave others to make. I think it worth noting, however, that my predecessor, the right hon. John Major, first wrote to the Chancellor requesting the granting of relief on 14 February 2001. He sent a further letter on 30 April 2001, asking for a reply.
131 Following my own election in June 2001, I asked for an update by way of a written question on 18 July 2001, and then wrote to the Chancellor asking for replies to Mr. Major's letter on 32 January 2002, and again on 15 April 2002. Finally I asked for a reply by way of a further written question on 10 June 2002, to which I received a one-word reply from the Chief Secretary to the Treasury, namely "Shortly". Given that this was hardly a new issue, having been a settled course of action since 1974, I feel that the Government's 17-month delay in responding sits uneasily with their claim to value the trust's work. None the less, I shall address the Chancellor's key contention as set out in his letter. He wrote The Trust put forward the same case in 1995 and, although the Government of the day did make a payment in 1996 with £7 million, this was on the explicit understanding (made clear in the Department of Health press release at the time) that this was a 'final' and 'once and for all' payment, made in recognition of the unique and tragic circumstances surrounding the Thalidomide disaster and not to be offset for taxation.
I have previously explained to Members that, although the circumstances are certainly unique and tragic, they are almost certainly ongoing. Indeed, the trust may need to last for another 40 years or more until there are no survivors left. Furthermore, each Government payment to the trust has been stated to be full and final in respect of the taxation arising from each further covenant, and the situation here is exactly the same.
I have now received a copy of the original letter from the Prime Minister's private secretary, dated 8 November 1974. It states The Inland Revenue made it clear all along that they could give no assurance that all payments from the Trust would be tax free, although clearly there has been some genuine misunderstanding on this point. In view of this, the Government decided to make a once-and-for-all capital payment of £5 million to the Trust, which will increase the income available to the Trust in a way, which should at least offset the effects of taxation. It will, of course, be for the Trustees to deal with this additional assistance to individual children in accordance with the terms of the Trust. In this way, the Government hopes to ensure that the Thalidomide children are not prejudiced and at the same time avoid any possible doubt as to the tax consideration applying to any settlement if any comparable tragic case should arise in the future. The point, therefore, is that every previous Government payment has been treated as a once-and-for-all settlement in relation to this matter. For the Government to say that because the Chancellor in 1995 also stated that the then new covenant should be final means that a payment should not be made simply does not fit with the facts. I also note that in 1974 the then Government saw their method of repaying tax as a way of differentiating their treatment of thalidomide from that of other charities, so as not to set a precedent.

§ Mr. Michael Howard (Folkestone and Hythe)
I congratulate my hon. Friend on his comprehensive demolition of the principal reason advanced by the Chancellor in justification of his decision. Does my hon. Friend share with me some sympathy for the Paymaster General, who has been placed in an impossible position this evening by the refusal of the Chancellor to accept my invitation to come to the House personally this 132 evening to defend his mean-minded decision; and will my hon. Friend accept my assurance that the next Conservative Government will make in full the payment to the trust that should have been made by the Chancellor this year in accordance with the precedents that my hon. Friend has explained?

§ Mr. Djanogly
I thank my right hon. and learned Friend for that tremendous intervention. I am sure that many victims across the country will be very grateful for his words and I thank him on their behalf.
The UK has the second largest population of thalidomide victims world wide. The country with the largest such population is Germany, with 2,851 registered survivors. After the UK comes Japan, which has 317 survivors. It is important to realise that, of those three nations, the UK Government are alone in never having agreed directly to compensate thalidomide victims. Indeed, looking at it in that way, not only have the UK Government not had to pay a penny to thalidomide victims, but they have been receiving tax revenues from the payments made by drugs companies for the welfare of victims. I ask the Minister: how fair is that?
All payments made to thalidomiders in Germany are tax free. For a more local comparison, I refer the Minister to section 192 of the Irish Taxes Consolidation Act 1997, which states that any handicap that can be linked with the taking by the individual's mother during her pregnancy of preparations containing thalidomide is to be exempt from income tax and not to be reckoned in computing total income. Accordingly, not only does the current Government's position run totally contrary to the spirit and practice of Government policy since 1974 in terms of dealing with the effects of this terrible tragedy, but their position runs contrary to the practice of every other country I have been able to find, which all basically follow the principle that Government should not make a profit from the victims of thalidomide.
I urge the Government to think again on this matter. Please look at how the victims are still struggling by reason of no fault of their own; look at what every Government since 1974 have done for the victims; look at the tax income that the UK has received from the victims, despite Government payments to the trust; look at the fact that the British Government have never directly given a penny towards the welfare of these victims; look at the fact that every other country not only does not tax its own victims, but gives them taxpayers' money; and then please look again at the Chancellor's mean-spirited and factually incorrect response to this sensible and fair request. The eyes of the country are on the Government. Please do the right thing for the victims of this terrible ongoing tragedy.

The Paymaster General (Dawn Prima rolo)
I congratulate the hon. Member for Huntingdon (Mr. Djanogly) on securing tonight's Adjournment debate. As Members can probably tell, I have a very bad cold, so I hope that my voice will hold up during my reply.
I intend to explain to the House the decision of the previous Government in 1996 according to the documentation, the basis on which that decision was 133 taken, why we believe that it was correct, and why it should stand. Although a vital piece of the jigsaw was missing from the hon. Gentleman's contribution, it was otherwise excellent, and the whole House will want strongly to add its voice to the points that he made—[Interruption.] I caution Conservative Members against commenting until they know what their Government's policy, which is the one in place now, was.
The position is quite clear, and the hon. Gentleman explained it in great detail. First, he noted the incredibly important work that the trust does, and its valuable role in supporting the victims of the tragedy—remarkable people who are now approaching middle age. The trust has played a valuable role in enabling them to lead fulfilling lives. As the hon. Gentleman also pointed out, over the years, successive Governments have made significant contributions to the trust. In 1974, the then Labour Government contributed some £5 million in recognition that, in terms of the original settlement, confusion over the tax position may have changed the decision on how much money was paid into the trust. They made a subsequent contribution in 1978, in recognition of the new beneficiaries within the trust's remit, and in fairness to the original payment. That payment was in respect of the setting up of the trust, and of the actual amount that would have been settled. From 1974, the tax position was clear, and I shall explain to the House what it is now.
In 1996, the then Conservative Government made a further payment, but the hon. Gentleman is not correct in saying that it was made on the same basis as that made in 1974. In fact, it was less than it might have been, had it been made on the same basis as the 1974 payment. The hon. Gentleman and the shadow Chancellor, the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), said that the Government have abandoned an important tax concession, which they have not, that there is a long-standing convention that the tax should be disregarded, which there is not, and that not reinstating the tax concession to the trust was reprehensible. Yet the right hon. and learned Gentleman seems conveniently to have forgotten the arrangement made by his Government, and the terms of the settlement to the trust in 1996.
I shall explain the details to the right hon. and learned Gentleman. The then Chief Secretary to the Treasury set out in a letter the basis on which the £7 million payment was to be made to the trust. The letter states very clearly that the payment was not being made for the offset of tax treatment; however, it went further. It said that any payment would not represent any offset for tax, and that future support for the Trust will be a matter solely between the Trustees and Guinness", now Diageo. The letter continues: I would be very concerned if the Trustees and Guinness assumed that the taxpayer would automatically pay a proportion of the cost for the trust. Indeed, as the hon. Member for Huntingdon pointed out, following discussions between the then Chief Secretary and the then Secretary of State for Health, the right hon. Member for Charnwood 134 (Mr. Dorrell), the press release from the Department of Health said that a once and for all payment would be made to the trust.

§ Mr. Howard Flight (Arundel and South Downs)
Will the right hon. Lady give way?

§ Dawn Primarolo
No, I will not give way.
In 1974, the tax position was contentious and the Government responded, but by 1996, the position was clear. There is no confusion. Let me remind the House exactly what tax is due. As the trust is a charity, it claims a repayment of the tax paid on its investment income. [HON. MEMBERS: "Who wrote this?"] We could ask who wrote the disgraceful contributions that seek political advancement from a sensitive and tragic case. [Interruption.] When Ministers in the previous Conservative Government looked at the evidence—

§ Mr. Howard
Will the right hon. Lady give way?

§ Dawn Primarolo
No.

Several hon. Members
rose—

§ Dawn Primarolo
No, I will not give way.

Several hon. Members
rose—

§ Mr. Speaker
Order. The Paymaster General is replying to an Adjournment debate brought by a single hon. Gentleman. She is entitled to give a reply to him.

§ Dawn Primarolo
Thank you, Mr. Speaker.
The allegations are made in the press release. Conservative Members seek to advance them on the Floor of the House this evening with no reference to the facts of the case. As the trust is a charity, it claims a repayment of the tax paid on its investment income. Some payments made by the trust are taxed. The fact is well recognised. However, there is sometimes a misunderstanding—I put it generously—about the exact process. How the trust distributes its finances on income support and capital grants means that there is a difference in the tax treatment. Capital grants are not subject to taxation, and that accounts for 57 per cent. of the total distributions. Income distributions are, under certain circumstances, which accounts for 43 per cent. of the distributions.
We can give an example of what would happen on income distributions. Non-taxpayers can reclaim the full amount of tax as a tax credit. Starting rate taxpayers—the 10 per cent. taxpayers—can reclaim £24 of the £34. Basic rate taxpayers can reclaim a proportion—£12—of that money, and higher rate taxpayers cannot. The central argument advanced by the Thalidomide Trust is that although its members, some 450, may well be entitled to the tax credit, they are not claiming it. This is about the money that the individuals get. The Government have said quite clearly that they are prepared to work with the trust to ensure that those who are entitled to the tax credit get it back. That is precisely what is in the fact sheet produced by the Thalidomide Trust.
135 This is an important debate about how we take forward the principles of taxation and support for the victims of thalidomide and how we treat others who, in tragic circumstances, find themselves in the same position. The circumstances are not unique.
The Opposition refuse to accept the good, sound decisions that they took when they were in government—

§ Mr. Flight
Will the right hon. Lady give way?

§ Dawn Primarolo
I shall not give way to the hon. Gentleman; this is an Adjournment debate.
The Opposition invent the facts of the case, missing out the inconvenient ones, and then try—unforgivably—to make political capital out of—[HON. MEMBERS: "That is a disgrace."] If anything is a disgrace, it is the press release issued today in the name of the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) who clearly does not know the facts of the case.

§ Mr. Howard
On a point of order, Mr. Speaker. Would you be good enough to confirm, first, that there is no convention of the House that prevents an hon. Member from giving way when replying to an Adjournment debate; and, secondly, that it is the convention of the House to give way when accusations of the kind that the right hon. Lady has just made in respect of another hon. Member are so made?

§ Mr. Speaker
The hon. Member for Huntingdon (Mr. Djanogly) gave way to the right hon. and learned Member for Folkestone and Hythe (Mr. Howard). That was his privilege. It is the same for the Paymaster General. The right hon. and learned Gentleman will know that in an Adjournment debate there is an allocated time for the hon. Member who initiates the debate and for the Minister to reply. The Paymaster General has time to consider—[Interruption.] Order. I 136 am trying to point out to hon. Members that an Adjournment debate held at the end of the day is not similar to a normal debate.

§ Dawn Primarolo
Opposition Members do not like rebuttal on the Floor of the House; they prefer to make their accusations in press releases that cannot be answered.
The Government take the view that we should constantly and actively seek to support the Thalidomide Trust, including working closely with it to ensure that those who are entitled to a tax refund receive it. We are prepared—

§ Mr. Djanogly
Will the right hon. Lady give way?

§ John McDonnell (Hayes and Harlington)
Will my right hon. Friend give way?

§ Dawn Primarolo
I shall give way to the hon. Member for Huntingdon in a moment—[HON. MEMBERS: "Why?"] It is his Adjournment debate.
We stand ready to work with the trust. The Government are also clear that funding for the national health service and for social services, as well as the remarkable increase in that spending, ensures that we can support all those people, as well those in the Thalidomide Trust in challenging—[HON. MEMBERS: "Give way."] I shall give way to the hon. Gentleman in a moment.
This Adjournment debate should be a rational discussion of how best to support individuals and use the resources available. If Conservative Members look back at what they did in government, they will see that that was the case.

§ Mr. Djanogly
If it is the intention of the Government to hold a rational debate, will the right hon. Lady confirm that it will not take her two years to respond to the next letter?

§ Dawn Primarolo
In all modesty, I think that I have done remarkably well in trying to conduct a reasonable debate in the face of outrageous accusations and constant barracking—