Clause 48

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

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Photo of David Gauke David Gauke Shadow Minister (Treasury) 6:30, 20 May 2008

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?