§ Lord BOYD-CARPENTERMy 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 why and under what authority the Inland Revenue has decided to treat as liable to income tax certain payments made by companies by way of the provision of scholarships for children of their employees; whether the Government were consulted about and agree with this decision; and whether if such a change were for any reason thought desirable, the specific authority of Parliament should not have been obtained.
§ The SOLICITOR-GENERAL for SCOTLAND (Lord McCluskey)My Lords, the Board of Inland Revenue has been advised that the cost of providing scholarships for the children of directors and higher-paid employees by reason of the latter's employment is taxable as a benefit under the rules contained in Chapter II of Part III of the Finance Act 1976, despite the exemption given to scholarship income under Section 375 of the Taxes Act 1970, and proposes to contend for liability accordingly. The administration of the provisions relating to income tax is the statutory responsibility of the Board of Inland Revenue, not of the Government. However, Ministers were informed of this decision before a public announcement was made.
§ Lord BOYD-CARPENTERMy Lords, would the noble and learned Lord also answer the Question which is on the Order Paper, not only as to whether the 636 Government were informed but whether they agreed? May I also ask him to say whether he thinks that at this moment to penalise good employers, who make a provision of this kind, by nullifying largely the effect of their action, and to tighten the screw on the most highly taxed section of people in the world, makes even the most rudimentary sense?
§ Lord McCLUSKEYMy Lords, the answer to the first point was really implicit in the Answer I gave; namely, that the statutory responsibility for these matters rests with the Board of Inland Revenue. It is not uncommon for the Board to change its practice in the light of changed circumstances; for example, a decision of the courts might well result in the Board receiving legal advice to the effect that the previous practice was based on an unsound interpretation of a statutory provision. It would not he appropriate to seek the authority of Parliament for a change in practice resulting from such advice. The proper course is to let the courts decide. In relation to the other point which the noble Lord raised, of course one does not want to penalise proper initiative, but, if a benefit is truly an emolument in the nature of income, it must be treated as such by the Board of Inland Revenue and the courts must decide whether or not their present reading of the provisions to which I referred is sound; it is not for the Government to intervene.
§ Lord BOYD-CARPENTERMy Lords, the noble and learned Lord pointedly did not answer the question as to whether this action by the Inland Revenue, in seeking to treat as taxable this year something which, under the same Act, they did not treat as taxable last year, had the agreement of the Government. If the conclusion is to be drawn, as I think it must be, that the Government disapprove of this action, in order to stop this nonsense will they take action to insert a clause in the Finance Bill which is now before another place?
§ Lord McCLUSKEYMy Lords, in the first place, as I sought to make clear; it is not for the Government to agree or disagree; it is for the Board of Inland Revenue to take the advice of its lawyers and, acting on that advice, to seek to charge tax in the circumstances where it is appropriate to do so. If the courts 637 uphold the view of the Inland Revenue and come to the view that the charge is properly made, then it would arise for consideration whether the law requires to be amended; but the relevant law was passed in 1970, which re-enacted the previous provision, and in 1976. At the moment the position of the Government is that they will stand behind the legislation on the Statute Book.
§ Lord ROBBINSOn a constitutional point, my Lords, might I inquire of the Minister whether it is not the case that the Board of Inland Revenue is ultimately responsible to the Chancellor of the Exchequer?
§ Lord McCLUSKEYMy Lords, the Board of Inland Revenue, as I understand it, has the statutory responsibility to administer the law as contained in the taxing statutes; that is its responsibility.
The Earl of HALSBURYMy Lords, is the noble and learned Lord aware that this is the standard practice in Japan, a nation from which we could learn perhaps more than one thing at the present time?
§ Lord DRUMALBYNMy Lords, surely the noble and learned Lord would not deny that the Government could change the law so that it would he interpreted by the Inland Revenue in the sense they wanted it to be?
§ Lord McCLUSKEYMy Lords, of course the Government can seek to change the law by laying proposals before Parliament which would have the effect of changing the law; but the practice to which the noble Lord refers in the Question has obtained for some time. In June of this year the Board of Inland Revenue announced that, on taking fresh legal advice, it intended to change the practice. Of course, it does not intend to seek to change the practice retrospectively at all. For example, in respect of those employers who have provided such schemes and scholarships for the benefit of the children of employees, those schemes will not be subject to tax if they were made before the announcement by the Board of Inland Revenue; there is no element of retro-spectivity here.
§ Lord ROBBINSMy Lords, would the noble and learned Lord agree that, in the light of his answer—doubtless correct—to my question, the habit of the general public in blaming the Treasury for all kinds of oddities which happen in the administration of the tax law is completely misplaced; the Board of Inland Revenue is virtually, according to this interpretation, a sovereign State?
§ Lord McCLUSKEYMy Lords, I am indebted to the noble Lord. On a previous occasion, when I answered a Question and myself rather confused the Board of Inland Revenue with the Treasury, he has made this point. He is right to say that it would not be appropriate for the Government constantly to he stepping in to say to the Board of Inland Revenue, "Do this and do that". The Board has its statutory independence. If, as a result of its application of the law in particular cases, it is felt that an injustice or anomaly has arisen, then of course the Government may seek to introduce changes in the law.
§ Lord DRUMALBYNMy Lords, may I press the noble and learned Lord further on this matter? It seems extraordinary. If there is a challenge to the Inland Revenue's interpretation that comes to the House of Lords, will the noble and learned Lord undertake, if that challenge is successful, that all assessments of taxation so based in the meantime, before that decision by the House of Lords is reached, will be wiped out?
§ Lord McCLUSKEYMy Lords, I think that it would be quite inappropriate for me, without notice of that particular question, to offer such an undertaking. But what I can say is that I am quite certain that when the Revenue seek to charge to tax a particular emolument, and the courts decide that it is wrong, then it would follow from that that the Board will take certain action. I am quite certain that in this case it will follow the usual procedure.
§ Lord BOYD-CARPENTERMy Lords, arising out of his answer to my noble friend's question, could the noble and learned Lord explain how it is that the legal advisers of the Revenue this year advised that these payments were taxable, 639 although apparently they did not last year? Have the Revenue changed the lawyers?
§ Lord McCLUSKEYMy Lords, anybody who has sat through the discussions of the Scotland Bill will realise that lawyers are not always unanimous—or, indeed, that they do not always say the same thing on Wednesday as they said on Tuesday. The position is truly this. Schemes of this kind were really quite rare until the last year or two, when there was a great mushrooming of such schemes, with new varieties and new dimensions. In the light of this great growth of such scholarships, the legal advisers looked at the matter again and, on this occasion, have offered the advice which the Board of the Inland Revenue are really properly obliged to take. It can be tested before the Special Commissioners, the General Commissioners, and ultimately the courts. That is all I can say properly upon the matter.
Lord PAGET of NORTHAMPTONMy Lords, is not the real complaint against the Board of Revenue that it allowed people to get away with an obviously taxable item for far too long?
§ Lord McCLUSKEYMy Lords, that is not Lord Boyd-Carpenter's complaint.