Clause 63

Finance Bill – in a Public Bill Committee at 9:30 am on 24th May 2007.

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Armed forces: the Operational Allowance

Question proposed, That the clause stand part of the Bill.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I would like to make some brief comments on clause 63. The operational allowance was first announced by the Secretary of State for Defence on 10 October 2006. It is paid as a tax-free sum of £2,240 for a six-month operational deployment. I am sure that I speak for all members of the Committee in paying tribute to our armed forces and the wonderful way in which they do a difficult and dangerous job on behalf of our country.

Field Marshal Viscount Slim, the British commander who won the war in Burma, and a notable authority on the motivation of fighting men, described the morale of his men as consisting of three elements: spiritual, intellectual and material. Of the material element, he stated:

“(a) The man must feel that he will get a fair deal from his commanders and from the army generally, (b) He must, as far as humanly possible, be given the best weapons and equipment for his task, (c) His living and working conditions must be made as good as they can be.”

That still holds good today. Crucially, the operational allowance will, I hope, help with retention of trained personnel, too many of whom are now, unfortunately,  leaving the forces often because of pressures on family life after several unaccompanied tours in close succession.

The allowance is, then, a welcome development, which we have supported and will support again today. However, given the importance of pay and conditions to operational morale, as well as the impact that the funding may have on other parts of the Ministry of Defence budget, I want to raise some points with the Financial Secretary about how the allowance is intended to operate in practice. I have five questions.

First, how long is the operational allowance intended to last? Is it now to be regarded as an established part of the armed forces remuneration package and is it intended in principle to apply to any new deployments, beyond those that are currently envisaged? Secondly, according to a Ministry of Defence press release of 1 March 2007, some £35 million had been paid to that date to 31,000 members of the Royal Navy, Army and Royal Air Force. As the payments began prior to Christmas 2006, but we are discussing the facilitating legislation today, can the Financial Secretary confirm whether qualifying troops who have been given the allowance have been paid it gross or net to date?

Thirdly, from which departmental budget is the allowance intended to come? I understand from previous pronouncements by the Secretary of State for Defence that the new allowance represented some £60 million per annum of new money provided by the Treasury, in addition to the MOD’s existing budget. Is it the Treasury’s intention that that practice should continue, or is it felt that it should be absorbed by the MOD budget in future years? That is an important point with respect to MOD budgeting, and it would be helpful to know the Treasury’s intentions.

Fourthly, to which deployments will the allowance apply and who will qualify? The clause states that qualifying deployments can be decided by order of the Secretary of State for Defence. Air Chief Marshal Sir Jock Stirrup, the Chief of the Defence Staff, said in an MOD press release of 1 March 2007 that the bonus is to be paid at present to

“those serving in Iraq, Afghanistan and the Balkans.”

What criteria will be used to judge whether future deployments will qualify? For instance, why were the Balkans included but not Sierra Leone?

Fifth and finally, how is the allowance intended to interact with other benefits and service allowances? For instance, as I understand it, the operational allowance has been excluded for the calculation of tax credits, by statutory instrument, but what about the new longer separation allowance, which is also meant to be tri-service? Is there any overlap in qualifying criteria and, if so, is one reduced at any point to take account of another?

The Financial Secretary may recall the Government’s embarrassment last year prior to the deployment of 3 Commando Brigade to Afghanistan, when it was revealed, just as they were deploying, that the Royal Marines were to receive less in overseas allowances than had been originally anticipated. That caused quite a row at the time and was raised at Prime Minister’s questions. Vice-Admiral Adrian Johns, the Second Sea Lord, was quoted at the time as saying:

“This unfortunate error could not have materialized at a worse time.”

What is the interaction, if any, between the operational allowance and other military allowances, including the LSA?

I reiterate that we support the new allowance in principle but that we should like some reassurances from the Financial Secretary about how it is likely to operate in practice.

Photo of John Healey John Healey The Financial Secretary to the Treasury

The clause establishes special provision for the tax charge that would otherwise relate to the newly introduced operational allowance, payable to members of the armed forces in certain circumstances. In October, the Secretary of State for Defence announced the introduction of the new operational allowance, which will apply to members of the armed forces serving in specified operational locations such as Iraq, Afghanistan and the Balkans from 6 April 2006. The purpose of the allowance is to recognise the increased and enduring danger in operational locations over and above that which is already compensated for in a service person's salary.

The qualifying areas will be regularly reviewed by the Secretary of State for Defence on advice from the Commander, Joint Operations. That assessment will depend on a review of the nature of the danger to armed forces personnel who are deployed on operations. Any change to the qualifying locations will be approved by Ministers.

The hon. Member for Rayleigh asked me four other questions. The first was how long the allowance would last. It is part of the remuneration package that we judge is appropriate for our armed forces. I explained how the judgment about qualifying areas will be arrived at and that is how it will operate in future.

The hon. Gentleman’s second question was about the exemption—whether the operational allowance is taxed. I can confirm that the exemption will apply retrospectively, and HMRC will not collect tax from any payment of the operational allowance. The third question was about how the Ministry of Defence would treat the allowance in budgeting terms. For the current period after the introduction, the funding comes from the reserve. The MOD Budget is being set for the longer term as part of the comprehensive spending review, and it will form part of those discussions and negotiations.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I am grateful for what the Financial Secretary has said so far. He talked about the current period; could he explain what is the outer end of the envelope for which the Treasury have guaranteed that the money will be additional to the MOD budget? When does that guarantee run out? I accept that it will be part of the CSR.

Photo of John Healey John Healey The Financial Secretary to the Treasury

The hon. Gentleman has answered his own question. It is part of the comprehensive spending review preparations. He cannot expect me to share that with the Committee, even if I was in a position to do so.

The hon. Gentleman also asked about the interaction with some of the other allowances that are rightly paid to our armed forces. The new allowance will be paid separately from the other allowances, such  as the longer separation allowance. In relation to tax credits, he is right; from this year onwards the tax credit regulations have been amended to disregard the allowance as income for tax credit purposes. Prior to that, any operational allowance paid to the armed forces in these circumstances will not reduce the entitlement to tax credits because, as he knows as well as anyone, part of our reforms to the tax credits allow a disregard of income rises up to £25,000.

The hon. Gentleman did not ask me about it but, as he mentioned the interaction with other allowances, he might be interested to know that regulations have been introduced that mean that no national insurance contributions are paid on the operational allowances. Finally, the hon. Gentleman asked how many people are benefiting from the allowance, and the answer is about 12,000.

Question put and agreed to.

Clause 63 ordered to stand part of the Bill.

Clause 64 ordered to stand part of the Bill.