Welcome back to the Chair, Mr. Atkinson. May I mention in passing the letter that I have just written to members of the Committee? It encloses regulations for schedule 3 and some explanations regarding order-making powers, and I hope hon. Members will have the opportunity to look at it.
In response to the points made by the hon. Member for Hammersmith and Fulham before the break, in relation to clause 5 and schedule 1, I hope to reassure him on some of the perfectly understandable concerns that he raised. First, he asked why we are taking the action nowor how had the matter arisen. During the drafting of the Income Tax Act 2007, lawyers made the point that granting personal allowances solely on the fact that somebody is a Commonwealth citizen would be discrimination on the basis of nationality and therefore should not be continued. They advised that the law needed to be changed as soon as was practical and we have been looking at various options, taking a bit of time. This is the first opportunity that we have had since then to put the decision right.
That is rather what I expected. Have the Government considered the knock-on effects? What impact might that ruling have on other aspects that are defined purely on the basis of nationality, such as the eligibility to vote in this country?
I will discuss the implications of the measure and the changes that we are making here later. For now, I will say that if other problems of that kind were raised, they would need to be addressed in the same way. I do not think that that is the case in the example cited by the hon. Gentleman, but there may well be other circumstances in which steps would need to be taken.
No, there is no implication for EU nationals. The matter is purely about people who are not resident in the UK but, up until now, have been entitled to personal allowances in UK tax on the sole basis of being Commonwealth citizens. Hence, it is rather unusual. The hon. Gentleman expressed a concern on behalf of his constituents, and, of course, if they are his constituents, by definition they are resident in the UK and will therefore continue to benefit from allowances in the normal way.
Most Commonwealth citizens with income liable to tax in the UK will still be able to claim UK personal allowance. That is either, as I have said, because they live here or because they qualify under other provisions. I will run through what some of those provisions are.
To be affected by the change, a person must be non-resident in the UK. If they are resident here, they are qualified in the normal way, but even if they were non-resident, there would be other provisions, under which most will probably be eligible for personal allowances and reliefs.
Those provisions were set out in the Income Tax Act 2007, and they include, for example, anyone who
(a) is resident in the Isle of Man or the Channel Islands,
(b) has previously resided in the United Kingdom and is resident abroad for the sake of the health of
(i) the individual, or
(ii) a member of the individuals family who is resident with the individual,
(c) is a person who is or has been employed in the service of the Crown,
I think the hon. Gentleman referred to nurses working with the Ministry of Defence as an example, and their position should be safeguarded by that particular provision
(d) is employed in the service of any territory under Her Majestys protection,
(e) is employed in the service of a missionary society, or
(f) is a person whose late spouse or late civil partner was employed in the service of the Crown.
A wide range of people who are non-resident and are Commonwealth citizens could still benefit from the allowances on the basis of those provisions.
The right hon. Gentleman mentioned employees of the Crown and various other categories. Will other public sector employees be included? For example, I mentioned the SS Windrush generation who came over and were employed predominantly by London Transport. Will employees who have since gone back to their home country be covered?
I do not think that a London Transport employee would count as an employee of the Crown, but they might qualify under the other provisions that I have set out; it would depend on their circumstances. The hon. Gentleman made the point about the 14 territories where double taxation agreements are not in place. They are all quite small in relative terms. I have no doubt that we could find people who would lose personal allowances as a result of the measure, but the question is whether they should be advantaged relative to somebody from a non-Commonwealth country who is in the same position. The legal advice is clear that they should not be. The measure simply enacts that decision.
The right hon. Gentleman says that the numbers who would be affected are very small, but he has not answered my question about what those numbers might be and what kind of study the Treasury has done on the numbers involved, which could be rather a lot.
The 2001 census gives one an idea of the number of people involved who are resident in the UK or have not returned to their home country8,265 from St. Lucia and 7,091 from St. Vincent and the Grenadines, not to mention Tanzania and Cameroon. Substantial populations have returned to their home country. If the numbers are small, the right hon. Gentleman must have some idea what they are.
No, I do not. The numbers that the hon. Gentleman just read out refer to people who are resident in the UK and receive tax allowances on that basis. My point is that the group we are talking about are people who were in that position in the past but have since gone back to their home country and are still benefiting from personal tax allowances. I put it to him that that is quite a small group.
I shall tell the right hon. Gentleman why I quoted those numbers. I am perfectly well aware that those are people who in 2001 were in the UK and are not affected by the clause. I merely point out that they form quite substantial parts of some of our populations in this countryfor example, about 3 per cent. of the black Caribbean population of this country. In all likelihood, the numbers who have returned to their home country, or indeed gone to a third Commonwealth country that is on the list, could be considerable. I am rather disturbed that the Minister does not seem to have any firmer numbers on the people we are dealing with here.
In an attempt to be helpful, let me give the hon. Gentleman some data in the case of Tanzania, which is the country on his list with the highest number of citizens coming to the UK. In 2007, 75 individuals came to the UK with work permits; 890 came for full-time study; 1,255 were given extended right to remain, including 900 students; and 360 became British citizens. Very few students or those in the UK for short visits will have any UK source income when they return to Tanzania. That is the basis on which I say that the majority will not be affected. They would have to be people who, for some reason, were getting income from the UK but were not in the UK any longer. Pensioners are covered elsewhere, as I have said.
If we were able to identify a few people who had lost out, an alternative method of computation that may limit their liabilities is set out in sections 811 to 814 of the Income Tax (Earnings and Pensions) Act 2003. That computation disregards certain types of income, including some pensions such as the statutory retirement pension or a pension provided under a registered pension scheme; some savings and investment income; and some social security payments.
I hope that the hon. Gentleman feels that those who have served the countrythose who have worked for London Transport, for exampleare unlikely to be affected and could take advantage of the provisions under the 2003 legislation. That is over and above the protection provided by the fact that income, such as bank account interest and foreign dividends, can be paid gross to non-residents so there would be no tax liability.
Will the right hon. Gentleman say more about what discussions he has had with the high commissions of the 14 countries concerned? Have the Government attempted to publicise in the local media the changes of those 14 countries, for example? Have they contacted any of the individuals in the 14 countries?
The hon. Gentleman is making a valiant effort, so I shall give him one more reassuring piece of information. As we set out in the Red Book, the measure has been scored as raising negligible yield. I am not saying that no one will be affected, but the measure will not bring in significant additional tax revenue to the Exchequer. We are aligning the position for Commonwealth citizens with that for all other non-European economic area citizens who receive United Kingdom-source income. There have not been discussions with the individual Governments concerned, but the measure will not come into effect until April next year so there will be the opportunity to rewrite guidance and advise those who are affected.
The hon. Gentleman is perfectly right to draw attention to potential concerns, and I hope that I have reassured him that the measure is quite minor. The matter was identified a couple of years ago as needing to be put right, which the clause and schedule are doing.
As I understand it from legal advice, there would not be a legal basis for taking such action. We are not in a position to discriminate in that way. The clause puts the position right and removes the discrimination.