HL Deb 13 December 1950 vol 169 cc919-30

2.37 p.m.

Order of the Day for the Second Reading read.

THE LORD CHANCELLOR (VISCOUNT JOWITT)

My Lords, I rise to move the Second Reading of this Bill. I noticed with some interest that in another place at the conclusion of the proceedings it was said: "Here is the trade union of lawyers showing what a powerful and efficient trade union they are" As this Bill affects me personally as Lord Chancellor I must declare my interest at once. I would say that, so far as I am concerned, I think it is a most inefficient trade union, from which I should contract out or fail to contract in, as the case may be. The long and short of the matter is that 150 years ago when there was no income tax, surtax or any of those horrors, the Lord Chancellor used to get half as much again as he does to-day. I do not quite see what I have been paying my contributions to the union for, because I do not think the officials of the union have been very active. How-ever, so far as I am concerned I would much rather not receive any concessions myself—I have said this privately as well as publicly—if the benefit can go to some of the Judges who are faced with most difficult circumstances to-day. We have not had a strike in the legal profession since the days, I believe, of Christopher Hatton, in Elizabeth's time. I am bound to say that my recollection is that there were so many blacklegs after the strike had started that it broke down almost at once.

The purpose of the Bill is to make provision for a contributory scheme for the payment of pensions to the widows and children of His Majesty's Judges and judicial officers. For your Lordships' convenience, and in response to a suggestion which the noble and learned Viscount, Lord Simon, made to me, I have arranged for a table to be appended to the front of this Bill, and in this your Lordships will see a list of the Judges and judicial officers to whom the Bill applies and the financial effects that will result from the passing of the Bill. The under-lying principles embodied in this Bill are not, of course, new. for we already have a similar scheme for the civil servants. I am glad to be able to say that the Bill is welcomed in all quarters. It has the support not only of those to whom it will apply in England and Wales, but also of the Scottish and Northern Irish Judges; but in all cases, be it understood, without prejudice to their claim for an increase in salary. This Bill does not deal with the question of salary at all.

Hitherto, there has been no provision for the widows and children of the Judges and judicial officers. I believe that in times like these this lack of a widows' pension scheme may well cause financial anxieties, and it is important that those to whom the scheme applies should, so far as possible, be free from these anxieties; and it is also important that their appointments should attract the best people, so that the high standard of justice to which we have been accustomed can be maintained.

The structure of the Bill can be de-scribed as follows. First, instead of receiving the pension which may at present be paid, the pension of those concerned will be reduced by one-quarter, and to compensate for this reduction there will be paid, either on retirement or in the event of death before retirement, a lump sum or death gratuity, as the case may be. The lump sum will be twice the annual amount of the reduced pension, and the death gratuity will be twice the annual amount of the pension for which the office holder would have been eligible had he retired on the grounds of ill-health at the date of his death, or the last annual salary, whichever is the greater. That, of course, is the Civil Service principle.

Actuarially, the lump sum or death gratuity is calculated to compensate the office holder so that in the long run the State will neither gain nor lose by this arrangement. I should like to draw the attention of your Lordships to the great advantage of this provision for the payment of a death gratuity to a Judge or judicial officer who dies while still in harness. I believe that in such cases the provision will be of real benefit and will prevent hardship which would otherwise result. Speaking again of myself, it is a very long time since a Lord Chancellor has died in harness—it is certainly not within the last 100 years. But if anything did happen to me—there is no wood I can touch- substantial benefit would be derived under this Bill. I think I should point that out to your Lordships.

The purpose of this alteration in the method of paying pensions and the introduction of the lump sum or death gratuity leads me to the second aspect of the scheme, which is the provision of pensions for Judges' widows and children. It is calculated that the cost of this innovation will be met. as to one half, by the State and as to the other half by the contributions to be made. These contributions by the Judges will be made not in cash but by a reduction of the lump sum or death gratuity to be paid to them by this Bill. The contribution to be paid by the office holders will be equal to the amount of the annual pension of the officer or the accrued pension, if he is still serving at the time of his death. In exchange for the payment of this contribution there may be paid an annual pension for the officer's widow equal to one-third of the amount of his contribution or pension, these being equal. In addition there may be paid a pension in respect of his children, varying according to the number of children under the age of sixteen or children whose education has not been completed, up to a maximum of a further one-third of the contribution or pension.

The table on the front of the Bill will indicate to your Lordships the way in which this Bill is intended to work, and I will give only one example. Let us take the case of a Master of the Supreme Court who is drawing his maximum salary, £2,500. His present pension would be £1,666. This will be reduced by Clause 1 of the Bill to £1,250. On retirement, or on death in office, his lump sum or death gratuity, as the case may be, would be £2,500. He would surrender half of this lump sum, and his widow's pension would be £416 a year. It is intended that the Bill shall apply to all Judges and judicial officers appointed in future, but provision is made for those who are now serving either to elect to retain their existing pension rights or to elect that the revised method of paying their pension shall apply to them—that is, a reduced pension and a lump sum, but without the widows' and children's pension rights.

Your Lordships will note that the benefits under the Bill are discretionary, whereas the contributions are compulsory. This may at first seem anomalous but I think that is not so. Personal pensions are always a matter of discretion and. therefore, it is exactly right that Clause 1 of the Bill should contain mandatory pro-visions taking away a potential benefit which is actuarially equivalent to the potential benefit conferred by Clause 2. The lump sums payable on retirement or death do not attract income tax. Further-more, since they are discretionary, the lump sums payable or death, and the widows' pensions, do not swell the estate of the deceased for death duty purposes. This is, of course, an exceedingly difficult branch of the law, and I have had the benefit of consultations with the Inland Revenue on this matter.

As the Bill stands, the Board of Inland Revenue consider that the lump sum pay-able on retirement is not subject to income tax. It does not, in their view, constitute emoluments of the Judge's office, and therefore cannot be taxed as such. It can-not be taxed as pension, since it is not pension; on the contrary, it is to be given in substitution for pension. It is therefore not taxable at all. I may add that in some circumstances the taxability of a lump sum retirement benefit depends on whether payment is discretionary or mandatory, and the fact that the lump sum provided in the Bill is discretionary may be thought to confirm its non-taxable character; the Board, however, consider that it would not be subject to income tax even if payment were mandatory. On the other hand, if payment were mandatory the freedom from estate duty of the lump sum payable to the widow would become open to doubt, since the freedom from estate duty does depend on the discretionary character of the payment. It is sufficient. I think, for us to say that this is now the accepted doctrine. Of course, this principle has been accepted with regard to the Civil Service for a very long time, and it is plainly the basis upon which we are proceeding, that these lump sums are not subject to any tax, either by way of in-come tax or death duties.

I believe that this Bill will be of real benefit to the Judiciary, and in asking your Lordships to give it a Second Reading I do so without prejudice to the question of judicial salaries. The Bill has been welcomed, as I have already said, by the Judges and judicial officers concerned, and I commend it to your Lord-ships. I very much hope that your Lordships will agree with me. and that if so you will allow me to take the remaining stages of the Bill this afternoon. I beg to move.

Moved, That the Bill be now read 2a. —(The Lord Chancellor.)

2.48 p.m.

VISCOUNT SIMON

My Lords, unlike the Lord Chancellor I am under no necessity to declare my personal interest in the Bill, because the Government, by rigid adherence to principle on this occasion, abstained from making their legislation retrospective—a salutary but rigorous rule which in the past and in other connections they have not always thought fit to observe. Therefore I feel no personal embarrassment in saying that I agree with the Lord Chancellor and think it would be an advantage if we carried this measure into law speedily, if only for this reason: that though there is a provision in the Bill by which the holder of one of these offices might declare his option and get the advantage of his choice if he retired, he would lose any benefit which the Bill might otherwise confer if he happened to die before the Royal Assent was given. I think, therefore, on every ground that it is desirable that we should dispose of the matter.

I am glad that the Lord Chancellor has called attention to the table on the first page of the Bill. I do not profess for a moment to follow the actuarial calculations. Indeed, I should have thought that in some cases it was a little difficult to make an actuarial calculation. I am sure that my noble and learned friend on the Woolsack will not mind my saying that it would appear to be particularly difficult in the case of X, a holder of his present office, who is necessarily only one person at a time, who may be of any age within reason and whose prospects of life in an official sense are, I should have thought, rather difficult to calculate with any precision. There is also the interesting reflection, which might occur to some members of the House, as to what would happen if an ex-Lord Chancellor by any chance became Lord Chancellor again. Would he receive another lump sum? Without dwelling further on that point, I may say that if the Bill is carefully examined, I think it will be found that however many times he may return to the Woolsack he will receive the lump sum only once.

There is one rather serious consideration which I mention, not at all in opposition to the Bill but because it is important-indeed, the Lord Chancellor has given an illustration. He took as an illustration a Master of the Supreme Court, with the salary he named of between £2,000 and £2,500. The principle of the Bill is that if the holder of the office so chooses, instead of drawing the pension to which he is at present entitled (which is shown in Column 2), he may draw that pension reduced by one quarter, and in return for that reduction some consequential benefits are secured. As a matter of fairness to those who are in the lower scale of salary, I wish to point out that to give up one quarter of your pension is a very different thing for persons drawing the lower salaries as compared with those who are drawing the higher salaries. It is a different thing if the question is how much more or less are they left with to spend, because if they are in the higher range of salaries the present rate of income tax and surtax is such that it really does not make much difference to them whether they receive, let us say. £3,750 or £2,812 as their pension. The direct taxes are so high when you get into these higher ranges that even a substantial increase does not mean much in your pocket, and a substantial decrease does not mean losing much from your pocket.

The position is different, however, when we come to those who are in the lower scales. Let us take, for example, a county court judge, who under the present arrangements has a pension at the end of his fifteen years' service of £1,333; his pension will be reduced from that sum to £1,000; in other words he gives up in pension £333. That does make a great deal of difference, because, his own pension being smaller in total, the extent to which he is able to benefit by the larger sum is less eaten into by direct taxation than would be the case with those at the top of the table. I do not say this with any idea that we should change the Bill, but I think it is right that we should observe that point, because I have no doubt at all that that is the effect. Indeed, I wonder whether some of those in the lower ranks, when they consider whether they will exercise this option, will really find it possible to say: "Yes. I will take the lower pension," in view of the fact that they have to contemplate living at the lower figure for whatever is left of their life after they have finished their fifteen years' service. I think that is a comment quite legitimately made when the explanation is offered that: "It is all done according to a scheme. Divide the existing pension by four and take away one quarter." In fact, the operation of that scheme is very different in the case of the man on the higher scale as com-pared with the case of the man on the smaller salary.

One or two other interesting reflections occur when one looks at this table, which I will venture to mention in only a sentence or two. Again I direct attention to the case of. the county court judge which is to be found in the table on page iii. The county court judge has a salary of £2,000 a year, and the table shows the proposals for reducing his pension, providing for his widow and so on. If your Lordships will turn over to page v you will find that registrars of the county court, responsible officials but, after all, subordinate to the county court judges, have, as here recorded, various salaries, of which the highest is £2,125. I think there are twenty-six registrars who receive £2,000 (the same as the county court judge himself) and there are several who get £2,125 The result is that the registrar of a county court, a most responsible official but still not of the status or authority of the county court judge, is by this scheme not only retaining a salary which in some cases is higher than that of the county court judge but is, of course, getting, if he chooses to take it, the consequential advantage of a higher widow's pension and a higher provision for children.

Of course, I do not forget that some, at any rate, of the county court judges are now, under a scheme which the Lord Chancellor devised, also doing work as Divorce Judges and, I understand receiving some remuneration for it. I cannot help thinking, however, that the situation very clearly disclosed in this table is a remarkable one, when one considers the position of a county court judge, a very hard-worked official, who has to maintain his proper status in the county and who has great responsibilities which I think are generally discharged to the satisfaction of the general public. It is a great mistake to suppose that the good government of a democracy in respect of the administration of justice is properly secured by disregardirg the hardships of the lower-paid judicial officers. Before a man can administer justice with any satisfaction he has not only to be a man of high character, training and experience but somebody whose mind is fairly free to do his work and who is not distracted by the thought of how he is to carry out his responsibilities to his wife and children. That is irrelevant to-day, and I am glad that it is, because the Lord Chancellor has again stated, as was announced in another place, that (he changes which this Bill makes have nothing in the world to do with the question whether judicial salaries are adequate or not. Therefore the passing of this Bill, as I think the Lord Chancellor agrees, is never to be used as an argument of any weight at all when the question of judicial salaries arises.

That is all I want to say about this Bill. I think it is well that it should be before us now, and I know that we on this side at any rate, have been willing that it should receive its Second Reading at the shortest possible notice. I do not expect that any Amendment will be pro-posed. To some extent, perhaps, these financial matters are not appropriate for this House, but in any case I have ventured to make these observations on the Bill with a desire to call the attention of the House and people outside, so far as I may, to some of the anomalies and difficulties with which I think we may be faced.

3.0 p.m.

LORD BALFOUR OF INCHRYE

My Lords, I do not want to delay the passage of this very good Bill beyond a moment or two, because I am sure we all give it general support. However, there is one point of public policy that I beg to submit to your Lordships for a moment's consideration. It is the question of policy arising from the proposals of lump sum payments. I feel that the Government are by Statute assisting certain persons to avoid, to some extent, the results of the policy of very high taxation which is being imposed upon the citizens of this country at the present time, for the Bill provides for a reduction of pensions by one-quarter and for the payment of a lump sum in lieu. I am sure the noble and learned Viscount on the Woolsack will forgive me if I concentrate—not in any personal sense, of course—on the position of a Lord Chancellor.

I calculate that a Lord Chancellor on a retirement pension of £5,000 a year, married and with no dependent children, receives a net spendable income of £2,554. Under the proposals of the reduced pension, he gets £2,136, which is a reduction of £418 a year, against which he receives a lump sum of £7,500. I confess to some difficulty in understanding the words of the Attorney-General during the Committee stage of this Bill in another place. He said: The reason why the lump sum is payable free of income tax is that it is regarded as a capital payment compounding the pension which otherwise would have been paid"— and I would ask your Lordships to note these words— and it is because it is actuarially a com-pounding of the quarter of the pension that it does not attract income tax. I find some difficulty in appreciating how it is possible actuarially to calculate a pension when the age at which the holder will commence to enjoy that pension is not known. As the noble and learned Viscount. Lord Simon, said, a Lord Chancellor may be a Lord Chancellor for a period; then perhaps he is out of office for a bit. and later returns again to office. His age at entry to the enjoyment of this pension is unknown.

It is true that the Attorney-General, on the Third Reading of this Bill, apparently made some intended amendment of his previous Committee stage contention, because the Attorney-General then changed his ground and said: It is not a sale, but it is a statutory trans-action, and under the clauses as they now stand, although the pension, the annual annuity, will attract income tax in the ordinary way, the lump sum is capital and does not attract tax. I am rather at a loss to understand whether this lump sum is a sum actuarially calculated; if so, I cannot understand its basis. Alternatively, if, as the Attorney-General's second statement claimed, this is a statutory provision, I think I am entitled to make the point that by doing this the Government are giving certain servants of the Crown at this time an advantage over their fellow citizens. There are tens of thousands of professional men—surgeons, accountants and others—who find it absolutely impossible to-day to accumulate any capital whatsoever for retirement. Men who have looked forward to retirement have now to work virtually until they are physically unable to provide for themselves, because they cannot accumulate any capital under the present levels of taxation. By this Bill the Government are allowing certain persons to avoid the very effects of the Government's own policy.

Let us assume that a commercial man who has served his industry well retires on a discretionary pension given to him by his board of directors, and let us assume that he had great responsibilities for millions of money and the employment of thousands of men. His board of directors give him a discretionary pension of £20,000 a year. Perhaps the noble and learned Viscount the Lord Chancellor would be so good as to give me an answer to this question. Suppose that the man either sells or compounds one-quarter of his pension, so that his pension becomes £15,000 a year, and he receives a lump sum of £30,000, could he avoid income tax and surtax on that £30,000? And if the pension were paid at the discretion of the board of directors, would it escape death duties and estate duties? I venture to put that case before your Lordships because I feel that we must realise that we are establishing for certain persons in our State an advantage which is not enjoyed by others who I consider, with the greatest respect, are equally deserving by reason of their contributions to our industrial and political life.

3.5 p.m.

LORD CHORLEY

My Lords, with your Lordships' permission, I should like to be irrelevant, in the company of the noble and learned Viscount who brought to your Lordships' attention the position of the county court judges. He revealed a most anomalous situation in which the administrative officers in a number of county courts, as the result of the recommendations of the Committee over which I myself had the honour to preside, are now receiving a substantially higher salary than the county court judge him-self. I am quite sure that the noble and learned Viscount who sits on the Wool-sack is well aware of this position, but I feel that it needs to be ventilated in the way that the noble and learned Viscount opposite has ventilated it. The work of the county court judge is, in a sense, just as difficult, onerous and important as the work: of the Judge in the High Court. It is true that he is dealing with people in the lower income grades, but the actual decisions he has to come to are just as difficult to make. He tries his cases under conditions which are often much more difficult than those obtaining in the case of a High Court Judge. He is subjected to a great deal of physical hard work. moving over large areas of the country, often in exceedingly difficult conditions, and at the present time he undoubtedly is very seriously under-remunerated. I will not take up your Lordships' time. I am sure that the position is obvious. I express the hope that the Lord Chancellor will find time to deal with it, and deal with it very quickly indeed.

3.7 p.m.

THE LORD CHANCELLOR

My Lords, I cannot follow the noble and learned Viscount, Lord Simon, and the noble Lord, Lord Chorley, into forbidden paths, beyond saying that I fully realise what they say about the county court judges. I Jay at once that the present position of the county court judges, in particular, is causing me, and I think would cause any Lord Chancellor, some anxiety. There are similar cases in Northern Ireland and Scotland. They are matters which would seriously affect the mind of anybody in my position.

If I may say so, with the greatest respect to the noble Lord. Lord Balfour, he gave rather a grudging compliance to this scheme, but really he is under a complete and fundamental misapprehension. There is nothing to take this scheme outside the ordinary law of the land There is nothing in this Bill which does that. It provides for the payment of a lump sum. Whether that lump sum is or is not subject to tax is a matter which depends on the ordinary law. I have told your Lordships what the ordinary law is, in the view of the Inland Revenue author ties. This is no new problem; it has existed, for years, in the case of the civil servants, and in the case of many other people also. My noble friend tells me that railway men are in the same position.

The Bill does not propound any new principle of law in this connection at all, and whilst I am not going to speculate as to what would happen in different cases, or anything of that sort, I can only tell the noble Lord that it depends upon the existing law of the land, which is not being touched by this Bill at all. Whether or not this lump sum does or does not attract tax is a matter for the ordinary law, and we are not interfering with that. I have told your Lordships what, in the view of the tax authorities, is the position. It is a position which has been followed for many years and I believe it to be right. But the noble Lord has rushed into this very difficult topic, one of the most difficult topics in our law, and he will forgive me if I do not follow him further into the attractive field into which he has endeavoured to lead me.

I am grateful to your Lordships for the reception which this Bill has received, and for the help that you have indicated you are going to give me in order to get it passed.

On Question, Bill read 2a; Committee negatived.

Then, Standing Order No. XXXIX having been suspended (pursuant to the Resolution of December 7), Bill read 3a, and passed.