HL Deb 29 November 1961 vol 235 cc1127-30
LORD KILLEARN

My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

[The Question was as follows:

To ask Her Majesty's Government whether it is true, as stated in the Press, that Income Tax has been charged, amounting to over £500,000, on the interest paid to the Foreign Compensation Commission on their investment of the £27½ million paid by the Egyptian Government in compensation to British subjects for seizure of their property in 1956; if so, whether this Tax is either (1) legally, or (2) equitably justified, seeing that the sum of £27½ million is in fact the property of the claimants; furthermore, even if legally justified, whether there are not strong moral grounds for allowing this interest to go tax free and thus aid in augmenting the Fund of £27½ million, which is already known to fall far short of what is required to meet claims for compensation.]

THE MINISTER WITHOUT PORTFOLIO (LORD MILLS)

My Lords, in their Report for the year ended 31st March, 1961, the Foreign Compensation Commission mentioned an income tax liability of £534,368 on the investment income appertaining to the Egyptian Fund. The Government are advised that this income is legally chargeable to income tax. Moreover, I regret that, as a matter of principle, it is not possible to exempt from tax what is undoubtedly the income of the Commission.

LORD KILLEARN

My Lords, I thank the noble Lord for his answer, which was pretty well what I had anticipated, but I should like to ask a couple of supplementaries arising out of what he said. In the first place, does he not agree that the Fund of £27½ million compensation paid by Egypt is, by general recognition, insufficient to meet the claims as formulated? That is point one. Point two: have not the Government in both Houses of Parliament pretty well committed themselves to meet any short-fall there may ultimately prove to be after the distribution of that £27½ million? My final point—I do not want to make a speech—arising out of those two points is: is it not totally illogical that when the small windfall comes in on the investment of this Fund, the £27½ million, the Treasury should at once intervene, no doubt legally, and have their pound of flesh? Is the prototype of Shylock really a very good one to follow?

LORD MILLS

My Lords, in reply to the noble Lord's question, it is clear that the Fund of £27½ million is insufficient to meet the claims already received by the Government. The Government have not yet committed themselves to meet any deficiency. I cannot agree that it is illogical that money in the hands of the Commission should not follow the law and pay income tax, which every other trustee has to pay.

LORD HENDERSON

My Lords, is it not a fact that this interest accrues because of the delayed distribution of the amounts to the people concerned? While it may be the legal right of the Government to tax it, would it not be a generous gesture to let these people have the interest on the total amount that is available to cover the long delay they have in getting anything at all from the Government?

LORD MILLS

My Lords, it is quite obvious that the interest arises because the money is still in the hands of the trustees. But it is not for the Government to tax it; the income tax laws require that it should be taxed.

LORD BALFOUR OF INCHRYE

My Lords, arising out of that reply, could I put this point to the Minister? Would it not be reasonable to treat this as earned income, in view of the fact that it is inadequate compensation for the confiscation of the work of British nationals over many years past?

LORD MILLS

My Lords, the interest is treated as earned income, and bears the standard rate of tax.

THE MARQUESS OF SALISBURY

My Lords, may I ask the noble Lord this? I accept the fact that legally this trust is in the same position as other trusts. But in view of the very special circumstances of the case, that the beneficiaries of the trust, with the best will in the world, are unable to receive the monies for which the trust was created, would it not be possible for the Government, without altering the law, but as an act of grace, to waive this obligation to charge income tax in this case; and wor4d the noble Lord put that proposal to his right honourable friend the Chancellor of the Exchequer?

LORD MILLS

My Lords, in answer to the noble Marquess, I will certainly put it to my right honourable friend the Chancellor of the Exchequer; but I do not hold out any hopes that it is possible for the trustees to escape the ordinary working of the income tax laws.

LORD SALTER

My Lords, might I ask whether, if there is a legal difficulty about waiving a legal right of the Treasury, the Treasury could not exercise its general power to make a grant; and in deciding whether, and how much, to grant, might they take into account that they have had this accidental legal benefit?

LORD MILLS

My Lords, that is quite another matter, but I will put it to my right honourable friend the Chancellor of the Exchequer.

LORD BARNBY

My Lords, having regard to the usual banking practice of what is known as a "set-off", would it not have been possible to regard this as interest accruing on the account, and to set it against the interest, which presumably is accruing but which will not be paid, on the amount subsequently distributed to the ultimate recipients?

LORD MILLS

No, my Lords, that would not be possible under the existing income tax laws.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, would it be possible, if there has been an actual formal legal opinion given to the Government, for Parliament to be made aware of the exact terms of the opinion? And secondly, as the Minister says, the £27½ million in itself is not sufficient to meet the just compensation of the persons concerned, and they are losing money the whole of the time on what would otherwise have earned interest for them individually. Would the noble Lord see that that point is put very strongly to the Chancellor of the Exchequer, because it is absolutely unjust to each one of the individuals concerned to let those results happen?

LORD MILLS

My Lords, I appreciate what the noble Viscount has said. I will discuss this matter with my right honourable friend the Chancellor of the Exchequer, but I can only repeat, in answer to the question, that it is not possible under the income tax laws to do otherwise than charge tax on the interest.

THE MARQUESS OF SALISBURY

My Lords, in informing his right honourable friend, will the noble Lord make clear the very strong feeling which has been expressed in all parts of the House?

LORD MILLS

My Lords, I appreciate that.

LORD REA

My Lords, would the noble Lord agree, as there seems to be a legal difficulty which impedes him from his generous gesture, that he might ask his right honourable friend to consider introducing legal machinery to overcome that particular difficulty?

LORD MILLS

My Lords, I fear that that is almost impossible. We have to remember that there are many other trustees in a similar position. Take the trustee of a bankrupt; he has to distribute the assets amongst the creditors. Interest accrues to him, and he is charged tax in the ordinary way.

LORD LATHAM

My Lords, it is the case, is it not, that the recipients are not subject to tax in respect of payments made to them?

LORD MILLS

I should like notice of that question, my Lords.

LORD SALTER

My Lords, would the noble Lord agree that the legal difficulty would not arise at all if the Government would consider making a gift, having regard to the fact that they have received this uncovenanted benefit in the form of the receipt of tax? It need not be precisely to the penny the same amount, but approximately the same amount.

LORD MILLS

My Lords, I have already said that that is another question but that I will discuss it with my right honourable friend the Chancellor of the Exchequer. We are already very aware that there is a deficiency on this account, probably a very large deficiency, and no doubt the matter will receive attention.