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Clause 48

Finance Bill – in a Public Bill Committee at 6:30 pm on 20th May 2008.

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Armed forces: the Council Tax Relief

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

Photo of David Gauke David Gauke Shadow Minister (Treasury)

Clause 48 exempts from tax payments to certain members of Her Majesty’s forces under the Ministry of Defence new armed forces council tax relief scheme. The Opposition welcome attempts to assist our armed services. I think that the Committee will not disagree that our armed services do a fantastic job for this country and, indeed, for the rest of the world. It is right that they should be treated well. Today is not the  time to debate at greater length the military covenant and the relationship between the Government and the armed forces. The armed forces council tax relief scheme is an attempt to cover a certain amount of lost ground for the Government, but it is welcome none the less. It is quite right that it should be exempt from tax.

I want, however, to make one or two points. Paragraph 4 of the explanatory notes to the clause states:

“Following an announcement by the Secretary of State for Defence on 25 October 2007, payments under the Ministry of Defence’s new Armed Forces Council Tax Relief scheme are due to start from 1 April 2008.”

I checked that and there is an inaccuracy. The announcement was made on 25 September, not 25 October. I am sure that that is an entirely innocent mistake, but the context of the original announcement on 25 September was the Labour party conference in Bournemouth. The speech was made by the Secretary of State for Defence in what was believed to be a pre-election conference. How long ago that seems.

One or two points in that announcement attracted some criticism. First, the original proposal related only to members of the armed forces serving in Iraq and Afghanistan. On 28 January, the scheme was extended to include other places in the world such as the Balkans. It also appeared that the scheme was to be funded entirely from the existing MOD budget. Although it provided a happy announcement for the Government at their party conference, it was going to be funded by cuts elsewhere in the MOD budget.

The proposal in September was somewhat hurried. Will the Minister explain when the Treasury first became aware that it might result in a tax liability for members of the armed forces? The measures before us were proposed to ensure that the council tax relief scheme would be exempt from tax payments. Will the Minister also clarify the position for national insurance contributions? Again, the explanatory notes state:

“Secondary legislation will introduce a parallel disregard for National Insurance Contributions purposes.”

Clearly, under the clause, the council tax relief scheme will be exempt for income tax purposes from April 2008. From the passage of the National Insurance Contributions Bill earlier this year, my understanding of national insurance contributions is that they are determined by a forward-looking process. It is therefore necessary to pass secondary legislation for the next year. I may well be wrong on this, but will the Minister confirm that the disregard for national insurance contributions will not start until April 2009, so there will be an additional national contributions liability for members of the armed services benefiting from the armed forces council tax relief scheme?

Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

First, it is a pleasure to be in Committee this afternoon under your chairmanship, Mr. Hood. I have enjoyed listening to the discussions.

I do not believe that the national insurance effect will take exactly the form that the hon. Member for South-West Hertfordshire suggested. I will make a few general comments. I understand from my advice that the announcement was made in October, but I will double-check in the light of what he said.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I have among my notes the report from the BBC’s website, which gives the date as 25 September.

Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

I apologise. I acknowledge that it was September when my right hon. Friend the Secretary of State for Defence announced the introduction of the new scheme of tax-free council tax relief for members of the armed forces who are deployed on operations overseas. I do not want to go into the history, but it is clear that from 1 October 2007, the areas that attract operational allowance, namely Afghanistan and Iraq, will give rise to council tax relief, but from 1 February, service in other operational zones has been specified—that is, as I understand it, overseas operations, including British Forces South Atlantic Islands, Bahrain, Bosnia, Diego Garcia, Kosovo, Kuwait, Oman, Qatar, and deployed Royal Navy ships in receipt of the overseas deployment welfare package, and UN operations. The Ministry of Defence has the power to amend the specified areas from time to time.

The NICs changes will take effect from April this year, and secondary legislation was introduced with that effect to ensure that the relief is disregarded for NICs. I do not agree with the hon. Gentleman’s description of the reasons why the proposal was introduced. We have a compact with the British Army, and certainly British soldiers whom I meet from my constituency acknowledge the genuine commitment that the Government have made to British armed forces. They believe to some degree that we do not receive fair acknowledgement for our work to ensure that our armed forces are supported in every way.

The payment of the council tax relief and what we are discussing today are important steps to ensure that our armed forces receive council tax relief as intended. Many of them endure danger in difficult circumstances, and we believe that the relief should not be taxed, thereby ensuring that they receive the maximum benefit. The clause will cover all payments of council tax relief to the armed forces from April this year, and I hope that the clause will stand part of the Bill.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I am grateful for that clarification, although I stand by my point that the matter has been hurried. The Minister did not confirm the time at which the Treasury was first aware of council tax relief being potentially taxable, but none the less we welcome the clause.

Question put and agreed to.

Clause 48 ordered to stand part of the Bill.

Photo of Bob Blizzard Bob Blizzard Assistant Whip

Before I move the motion to adjourn, may I point out that we are in the third week of this Committee? When we came into this room, the clock was five minutes ahead of the time on the monitor. I understand that we are using the time on the monitor, but it is confusing to have two time references in the same room, and I wonder whether I could look to you, Mr. Hood, to ensure that the clock is put right before we meet again.

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

Before I put the Question on the motion to adjourn, may I say that I noticed that and mentioned it to the Clerk this morning?

Further consideration adjourned.—[Bob Blizzard.]

Adjourned accordingly at sixteen minutes to Seven o’clock till Thursday 22 May at Nine o’clock.