§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Cope.]
§ 2.18 a.m.
§ Mr. John Heddle (Lichfield and Tamworth)
I am most grateful to you, Mr. Deputy Speaker, for calling me to enable me to raise the question of tax concessions on luncheon vouchers. I had thought that we should be discussing this matter around breakfast time, possibly as part of a legislative sandwich as the Opposition continued their filibuster through the night on the Education Bill.
My proposal is that employees may receive luncheon vouchers to the value of 50p per day without incurring a liability to tax. The proposal does not require any change in the law. I put it forward because the case for an increase in the tax free limit is undeniable in principle. The current extra-statutory concession was fixed in 1948, when the average earnings of an office employee in London and the South-East were less than £7 a week. I accept that the Government's prudent Budget strategy allows no scope to increase the limit unless and until we overcome our temporary economic ills.
I therefore seek to remind the House that there are thousands of Miss Smiths, clerks, clerk-typists, shorthand typists and secretaries—many of whom live in my constituency of Lichfield and Tamworth and who commute daily to Birmingham by British Rail—who live in hope that one day before too long, a sympathetic 870 Government will amend the regulations to extend tax relief on luncheon vouchers to enable them to have a proper meal, so that they may not feel discriminated against compared with their friends and colleagues who work in larger industrial concerns which provide canteens for them. I have no doubt that many hon. Members on each side of the House will have encountered similar comments from constituents who live in commuter areas such as mine.
The idea of the luncheon voucher, as you may remember, Mr. Deputy Speaker, originated in the period towards the end of the Second World War. At that time industry began more and more to introduce canteens on to its premises to enable employees to be adequately fed, and thereby to increase output that was so vitally necessary in wartime, and, once peacetime had arrived, to manufacture the goods that the nation then so desperately needed. Indeed, we still need those goods desperately today.
It thus came about that large industrial concerns could afford to provide canteens for their employees, but small firms obviously felt left out. In order to compete in the labour market they had to provide facilities for their staff, as their larger industrial competitors did. Hence the idea of the luncheon voucher was born.
Because it was clearly unfair that those who received luncheon vouchers should be taxed while those who received an equal benefit from the industrial canteen should not, this extra-statutory concession was granted by the Treasury in 1946 at a level of 2s. 3d., which was raised in 1948–31 years ago—to 3s. 0d., or 15p, without incurring liability to tax. This figure of 15p has remained unchanged since 1948. A pint of beer then cost 7d. Today it costs 42p. A newspaper then cost a penny. Today it costs 10p. The present value of that 15p in 1948 is 93p.
Currently, about 220 million vouchers are issued each year, worth about £40 million. These are issued to about 1 million employees, by about 20,000 small business men. The only thing that they each have in common is that they work in establishments that are too small to have canteens—the sort of firms that are the life blood, the veins and the arteries of British commercial life, such as 871 solicitors, printers, accountants, small industrialists, and also small branches of larger concerns, including organisations such as the Bank of England, the British Airports Authority, the Greater London Council and the Ministry of Defence.
As I have indicated, this concession is now more than 30 years old. Since then, as all hon. Members must surely agree, inflation has struck savagely. This, of course, is not a matter of politics. It is a matter of pure and simple equity. The recipient of a subsidised canteen meal can receive whatever subsidy the employers choose to grant and is not assessed in any way for one iota of tax on the benefits received for eating more cheaply than he or she would otherwise have done.
My hon. and learned Friend the Minister of State, Treasury, certainly needs no reminding that the subject of tax concession on luncheon vouchers has received regular—almost monotonous—consideration by the Government of the day for many years. He will no doubt remember the debate on the Finance Bill in 1972, when the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) moved an amendment seeking to increase the tax limit on luncheon vouchers from 15p to 31p, which was then the level recommended by the Confederation of British Industry. That amendment was defeated by 31 votes.
In 1977, the right hon. Gentleman, then Financial Secretary to the Treasury, in reply to one of a stream of written questions over the years on the subject of tax-free concessions on luncheon vouchers, said that no decision had been taken to increase the tax-free limit on luncheon vouchers but that the concession continued to be kept under regular review. This debate serves to remind the House that that review is, from the Miss Smiths' point of view, a long time a-coming.
Also in 1977, my hon. Friend the Member for City of London and Westminster, South (Mr. Brook) presented a petition to the House containing 9,500 signatures, the names of Miss Smiths in this part of London who enjoy a tax-free concession of a mere 15p on their luncheon vouchers.
I agree that the first priority of the Government is to reduce the burden of taxation at all levels across the board. My right hon. and learned Friend the Chan- 872 cellor of the Exchequer has begun to do it with marked effect, and of course I agree that all other claims, such as the one that I am putting forward now, must, of necessity, take their place in the list of priorities. But I do not agree with the arguments that have been advanced in the past to resist any change in the existing regulation. It has been argued that to extend the tax concession would be administratively expensive. Where is the additional administrative expense? Where is the additional administrative machinery necessary simply to deal with two figures—15p to 50p? I cannot see that a further burden would be placed upon the bureaucracy by the Government giving way on this point.
Nor am I persuaded that there is any element of unfairness to those who benefit neither from luncheon vouchers nor from subsidised canteen meals. All employees should receive fair tax treatment, and whether an employer chooses to provide his employees with the benefits should not in any way affect the tax principle involved. To argue that to change the tax concession would be unfair to those who do not enjoy such concessions is surely to argue that tax relief is unfair to those who do not hold life insurance policies or mortgages. I do not accept that case either.
The year 1948 is a long time ago, and a lot of water has flowed under the economic bridge since then. Then it was agreed that the luncheon voucher user should receive the same tax benefits as the canteen user. In the last 31 years the canteen user has continued to be totally untaxed on all benefits received, whereas the luncheon voucher user has lost almost all benefits that the regulation once gave him.
I believe that it is right to speak up for the silent work force employed in small firms, because in the main these people do not have organisations to speak up on their behalf, and I believe, too, that it is right to speak up for those small firms without whose contribution to the national weal our economy just would not survive. I am grateful to my hon. and learned Friend the Minister of State for attending at this very late hour to hear again about this anomaly in our tax system, and I hope that in the fullness of time he will find it possible to amend the existing regulation.
§ 2.28 a.m.
§ The Minister of State, Treasury (Mr. Peter Rees)
I rise with considerable pleasure to respond to my hon. Friend, who, with great acuteness, has picked on a subject which we did not debate during the Committee stage of the Finance Bill, although, as he reminded us, it has engaged the attention of Finance Bill Committees on numerous occasions. He referred to the 1972 Finance Bill Committee. I entered the House in 1970, and 1972 has been the only year since I arrived when I did not serve on the Finance Bill Committee. Thus, I did not have the pleasure of hearing the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) press the point on that occasion. There would have been an added piquancy there since he subsequently became Financial Secretary to the Treasury, and I have no doubt that on numerous occasions he resisted blandishments from those of us now on this side of the House.
This is a subject which attracts considerable public interest, and my hon. Friend the Member for Lichfield and Tamworth (Mr. Heddle) has done a signal service in raising it tonight. In the course of our debate in Committee on the Finance Bill, although we did not touch on this point, the question of benefits in kind, fringe benefits or perks, was touched on, and I must return later to the general principles which inform this Government's approach to the subject.
Perhaps I may start by emphasising that in law—this was implicit in what my hon. Friend said—the cash value of a luncheon voucher is taxable as part of the emoluments of the employee receiving it but, as my hon. Friend said, the practice of not taxing luncheon vouchers has prevailed since 1946, and the precise figure at which this concession has been fixed has existed since 1948.
In his lucid and articulate way, my hon. Friend has given the history of luncheon vouchers. My brief tells me that the habit started in the City of London just after the war, when a number of employers made special arrangements with certain restaurants for the provision of meals for their employees. Whether they were unable in the circumstances of the time to organise canteens I do not know, but obviously the practice has grown considerably since then. I accept 874 that there must be many of my hon. Friend's constituents who enjoy luncheon vouchers today. It is not confined to the South-East but must be fairly widespread.
The concession, for that is what it is—an extra-statutory concession, as my hon. Friend said—has been justified on the basis that the provision of luncheon vouchers did no more than put employees of concerns which did not have canteen facilities in roughly the same position as workers who enjoyed subsidised canteens. The employee who gets a cheap meal in a canteen is not regarded as liable to tax on what he saves by comparison with what he would have to pay in a restaurant, and the luncheon voucher was arguably the equivalent of an employer's subsidy to a canteen meal, although it has never been intended that the value of the luncheon voucher should be enough to cover the full cost of a restaurant meal. I think it right to emphasise that.
Although it may be a matter of academic interest at this hour, the present extra-statutory concession relating to luncheon vouchers was given in a parliamentary answer on 20 January 1959. The precise conditions are that the luncheon vouchers must be non-transferable and be used for meals only; that where any restriction is placed on their issue to employees, they must be available to lower-paid staff; and the value of the vouchers issued to an employee must not exceed 15p for each full working day. The value of any voucher or part of a voucher which does not comply with these conditions is still subject to income tax.
Perhaps it is almost nostalgic to go back to the past and recall that when luncheon vouchers were first issued 3s. a day was on the generous side compared with a normal canteen subsidy on each meal served, and for some years afterwards it was felt that 15p was broadly equivalent to the subsidy element in canteen meals. In view of increases in the cost of food since then, it may well be that this is no longer an exact equivalence.
The Inland Revenue has done certain researches into the value of canteen subsidies, and though there is no very precise figure I can tell the House that an Industrial Society Survey in 1975 found an average subsidy per employee of about 875 £24 a year. I am not particularly numerate, but even at this hour of the morning one can calculate that a daily luncheon voucher at 15p is roughly the equivalent of £40. That was four years ago, and, assuming that the annual subsidy for a canteen meal has increased slightly, it is certainly not much more than the luncheon voucher figure.
It cannot be argued that a person who enjoys a canteen meal has an advantage over a luncheon voucher holder or vice versa. There are, however, a wide range of people who do not enjoy the benefit of canteen or luncheon vouchers. We can debate whether a good employer should be encouraged to extend the luncheon voucher practice, but I am diffident to suggest that.
The subject of the concession has frequently been raised in the House. A new clause was put down for Standing Committee debate but was not selected. Other hon. Members who have stood at the Dispatch Box have said that it should be subject to regular review, and in 1979 we are reviewing it once again. I hope that I shall not give a monotonous reply, as has previously been the case.
§ Mr. Nicholas Lyell (Hemel Hempstead)
Is my hon. and learned Friend saying that the value of a luncheon voucher, which is unchanged in relation to a canteen meal, is somehow the same today as it was in 1959, or has the argument changed between 1959 and today?
§ Mr. Rees
A survey in 1975 showed that, on average, the element of subsidy in canteen meals—and employees are required to pay a modest contribution—was about £27 a year. Inevitably, that figure is imprecise. My hon. Friend the Member for Dorking (Mr. Wickenden) is characteristically generous to his company employees and will doubtless correct me and say that in his company it is much more. I can only give the House such material as is available from the Inland Revenue. There is a rough equivalence between the subsidy element in canteen meals and the value of luncheon vouchers, taking an average working week of five days and 50 working weeks a year. It is a crude comparison, but the only people at a disadvantage are those who get neither luncheon vouchers nor canteen meals.
876 I shall not talk of administrative convenience, because I agree that the change can be made at a stroke. If one believes in extra-statutory concessions, it can easily be extended. My hon. Friend has modestly said the increase could be 50p, but if we are adjusting for the fall in the value of money it will be more likely 64p—and I pay tribute to his modesty.
I prefer to put the case to the House in a different way, and it is relevant in the light of the Finance Bill. Against the background of substantial cuts in direct taxation, is it right that we should increase the value of fringe benefits? Recently, when I was pressed by the right hon. Member for Llanelli (Mr. Davies), I said that employers should be encouraged to remunerate their employees in cash rather than kind. That is the way ahead. As far as possible we should try to prune out perquisites. It would be healthier for the economy, industry and the whole social balance.
If one looks at the case that my hon. Friend has advanced so persuasively, one sees that there is a strong argument for it. However, if it is examined against the background of what the Government are trying to do to bring down tax rates until they are comparable with those of our European competitors one sees the matter in a different light. Therefore, I ask my hon. Friend whether this is the appropriate moment to increase the value of luncheon vouchers.
The House is indebted to my hon. Friend for giving us the opportunity to consider the issue of luncheon vouchers and the level at which they are set. He advanced his case with extreme eloquence, moderation and persuasion, but I hope that at the end of the day he will recognise that this is a historic anomaly. I do not think that it is bound up with the health of the small business sector. As the House knows, the Government are doing a considerable amount for small businesses.
§ Mr. John G. Blackburn (Dudley, West)
I remind my hon. and learned Friend that luncheon vouchers are still at the level that they were in 1948. He has produced a figure from the 1975 survey, but does he agree that the position of those receiving these vouchers is aggravated by the fact that in receiving 15p 877 they are worse off than those who enjoy the facility of subsidised canteens at their work places?
§ Mr. Rees
I was not resting my case on the 1975 survey. I had said that obviously the figure needed to be adjusted. I was simply trying to demonstrate that on the material available to the Inland Revenue there is a rough equivalence between subsidised meals and luncheon vouchers.
I rest my general case on the fact that we should not follow this route of benefiting employees but should consider, against the background of fairly considerably tax cuts, whether it is necessary or wise to revalorise fringe benefits, even 878 though they have respectable antecedents and were justified when introduced in 1948.
I think that we should treat this as a historic anomaly. I am not suggesting that we should abolish luncheon vouchers, but I wonder whether employers should be encouraged to give their employees cash rewards rather than rewards in kind. Although we are grateful to my hon. Friend for raising this issue, I think that we should leave the matter where it is and treat this as an interesting historic fiscal anomaly.
§ Question put and agreed to.
§ Adjourned accordingly at seventeen minutes to Three o'clock a.m.