New Clause. — (Exemption from tax of efficiency grants and training allowances of Reserve Forces.)

Orders of the Day — Finance Bill – in the House of Commons am 12:00 am ar 16 Mehefin 1947.

Danfonwch hysbysiad imi am ddadleuon fel hyn

The annual efficiency grant or training allowance to all ranks of the Royal Naval Reserve, the Royal Naval Volunteer Reserve, the Territorial Army and the Royal Air Force Volunteer Reserve shall not be regarded as income for any of the Income Tax Acts during the current financial year.—[Lord John Hope.]

Brought up, and read the First time.

10.0 p.m.

Photo of Lord John Hope Lord John Hope , Midlothian and Peeblesshire Northern

I beg to move, "That the Clause be read a Second time."

I do not propose to detain the Committee for long or to go into very much detail which, if necessary, can be dealt with by my hon. Friends. The appeal here is essentially on psychological grounds. I do not think that hon. Members on any side of the Committee would deny the difficulty likely to be encountered in getting enough volunteers to man the Forces concerned, nor do I think there would be any dispute about the importance of these volunteer services. If the Government want to encourage volunteer service, it is not the best way to go about it to tax the bounty involved. These men will suffer a good deal of inconvenience and a good many disadvantages compared with those of their fellows who do not undertake voluntary service. All those things considered, I hope the Government will accept this suggestion in the spirit in which it is offered. If the Government would accept a suitable slogan to implement it, I suggest, "A parade a day keeps the doctor away."

Photo of Mr Marcus Lipton Mr Marcus Lipton , Lambeth Brixton

I gladly support this new Clause. It represents, perhaps in better words than I am able to use, the intention of the new Clause, "Territorial Army grants and allowances to be exempt from Income Tax," which I put on the Order Paper and which has not been called. At least, this indicates that there is a widespread measure of support in all quarters of the Committee for this proposal. I should like to give an idea of what is involved. In the first instance, rightly or wrongly, the efficiency grant is not paid to officers of the Territorial Army, so that whatever concession is granted in respect of that grant it must inevitably and exclusively be for the benefit of other ranks in the Territorial Army and the equivalent in the Navy and the Air Force. The expense allowance which is payable to all ranks amounts to the not very large sum of 1s. 6d. for a two-hour drill.

That, at the moment, is subject to tax under P.A.Y.E. It is hardly likely that every recruit to the Territorial Army or other branch of the Services will become entitled to the efficiency grant, because the £5 bounty is payable only on completion of 40 basic training periods and 15 days' camp, in the case of recruits, or 30 obligatory training periods and 15 days' camp, in the case of trained men. There is a further efficiency grant of £3 annually which may be earned, in respect of voluntary training, by payment at the rate of 1s., subject to a maximum of 30s., for each voluntary training period performed over and above the requirements I have mentioned. There is, in addition, an efficiency payment of another 30s, which may be paid to each man who is certified by his commanding officer as efficient, that is to say, has completed the requirements laid down for trained men and is capable of filling his place in the unit's establishment.

The imposition of a tax on either the expenses allowance or the efficiency grant is a penalisation of those volunteers who do their best to make themselves efficient. In these circumstances, I hope that this request is not so far down the list of requests by suppliants for the Chancellor's largesse as to be too low in the queue. It is, in my view, quite indefensible that men giving up their spare time for national service should be out of pocket by it, and the equivalent of a drink in the canteen after a couple of hours in the drill hall is as reasonable as the refund of travelling expenses. This is the sort of pinprick which annoys people and serves no useful purpose. I am quite sure that the Chancellor, who is as anxious as anyone else to maintain and support the voluntary principle, will be kindly disposed towards this proposal, which is not put forward in a spirit of partisanship in any part of the Committee, and that he will give it favourable consideration.

Photo of General Sir George Jeffreys General Sir George Jeffreys , Petersfield

I also wish to support the new Clause. The Clause, which includes all ranks of all auxiliary services, is similar to that put down by the hon. and gallant Member for Brixton (Lieut.-Colonel Lipton), to which I put my name. I support it as chairman of a Territorial Force Association, and, as such, I am very anxious that there should be every possible inducement, and no possible deterrent, to recruiting. I hope the Chancellor will note that this new Clause is supported by hon. Members on both sides of the Committee. I am certain hon. Members are united in one thing, namely, in their anxiety to do everything possible for the Territorial and Auxiliary Forces and to help and encourage the recruiting for these Forces It is almost unnecessary to add that, certainly so far as hon. Members on this side of the Committee are concerned, and I am sure hon. Members opposite also, party questions do not enter into this matter in any way. I believe also that the War Office and other Service Departments are in favour of this concession, and would welcome any concession which the Chancellor might see fit to make in this regard.

When some weeks ago I asked some questions on this matter and inquired of the Chancellor if he realised that the charging of Income Tax on efficiency grants and training allowances would prove a deterrent to recruiting he appeared—although, possibly, I mistook his attitude—not to agree. I would like, therefore, to try to show what the position is. We are trying very hard indeed to get recruits for the Territorial Army, and recruiting is proceeding very slowly indeed. Under the new scheme, the Territorial Army has to be ready at the shortest notice. It is no longer a question of coming up for training on mobilisation. Therefore, the recruits who can be taken at this stage must be trained men who have already served their time and gained their experience, who will keep the Territorial Army going and who will form the cadre until the annual intake of Reservists under the universal service scheme begins. Many such men—although they have their loyalties, especially to their own units—are apt to feel, not unnaturally, that they have done their bit, and are apt to ask themselves why they should do any more and volunteer for further service. To attract them, these efficiency grants and training allowances are offered. They are not very handsome, but they are appreciable if they are received intact by those for whom they are intended. When those men are told that these efficiency grants and training allowances are subject to Income Tax—in other words, that the Government are giving with one hand and taking away with the other—they are apt to say, "We do not think it is good enough."

I am certain the Chancellor desires recruiting to be successful, and that he wishes well to the Territorial Army and the voluntary system, and I hope from that point of view that he will look favourably on this new Clause. But when he considers it, as no doubt he must, from the point of view of the Revenue, I hope he will realise that the loss of revenue due to making this concession would be very small, even if the Territorial and Auxiliary Forces were to be fully recruited, as we hope they will be. It will not be a large sum. Reference has been made to the sum of is. 6d. an hour. That, as regards the training allowance, is not a very large sum. If, on the other hand, as I fear may be the case, the charge of Income Tax on these allowances and grants is insisted upon, recruiting may not merely hang fire as it is doing now, but it may practically cease. There will be little or nothing in the way of grants or allowances to tax. If, on the other hand, the Territorial Army is fully recruited, or fairly fully recruited, the income even then will be a tiny little item in the national Budget of income. I hope, therefore, that, from the point of view of revenue, the Chancellor of the Exchequer may think that this is not worth while and- may make the concession accordingly.

10.15 p.m.

There is one further point, the point of annoyance; and it is a big point. If we ask people to volunteer for service, and ask them to undertake certain duties, and if we say we shall give them certain allowances for doing so and certain efficiency grants, and if then they find that they are being made to give particulars of their incomes, to see how these grants will affect their incomes, it will cause great annoyance. One man who already has a large income—at any rate, a larger income than another—will have to pay full tax, a comparatively high tax; another man, who has a small income, will have to pay nothing. It will all mean a good deal of accounting, and many men will be paying different amounts.

When I questioned the Chancellor of the Exchequer also as to how and by whom this Income Tax would be collected, his answer was, by the Army; and, presumably, it will be the same in the case of the Navy and the Auxiliary Air Force. That would be all right in the case of a Regular unit with a full staff, but a Territorial unit has only a small permanent staff. In some cases there are not more than two on the permanent staff, who have all kinds of other duties, the care of equipment and arms, and so forth, to carry out. It is perfectly certain that, in cases where drills are going on at different drill halls, possibly separated by a considerable number of miles, this collection, or accounting, at any rate, will fall upon the Territorial officers, and it may fall upon them after they have done duty at the drills, and that after a long day's civil work. They will have to mark up particulars of Income Tax by men attending the drills. I think it will be agreed that this will be for them a very uncongenial duty. For the others, after they have performed their drills, to state and give particulars about their Income Tax, to give their code numbers, and one thing and another, may be found even more uncongenial still.

I think it is perfectly certain that this process will be very unpopular with all ranks of the Territorial and Auxiliary Forces. I hope very much, therefore, that the Chancellor may see his way to forego what I am certain must be a very small income, derived after a not inconsiderable amount of trouble and a certain amount of irritation and annoyance. I hope very much he will grant this concession, which, I am certain, will prove of the utmost value to the recruiting campaign.

Photo of Mr Tom Driberg Mr Tom Driberg , Maldon

I am very glad to be able to say a few words in support of this new Clause. Personally I cannot understand why Income Tax was levied upon this training allowance at all—this very modest training allowance, which is an allowance, as we have heard from my hon. Friends, intended to meet the modest out-of-pocket expenses of Territorials and others when they are at evening training away from their homes. The Board of Inland Revenue itself gives exemption—I think I have got the definition right—to expenses "which are incurred over and above those which a person would normally incur had he not been required to travel—i.e. the extra cost of living away from home." Surely that applies to meals taken at or near a drill hall miles from a man's own home? The definition applies to expenses arising in the course of employment. Surely, a fortiori, it should apply to expenses arising in the course of duty—duty undertaken not for the pleasure or the profit of the people concerned, but in the national interest?

There is one comparison which I hope will slightly impress my right hon. Friend. It seems to me to be a fairly close parallel. He will correct me if I am wrong, but I believe that the subsistence allowance given to members of the Forces when travelling is exempt from tax. Surely that is a pretty close parallel? I am not sure that the case for the bounty is quite so strong as the case for the training allowance, since it is an annually recurring payment. None the less, apart from that, it seems to me that it is essentially comparable with, for instance, the bounty paid to soldiers re-engaging in the Regular Army, which is tax-free. Also, war gratuities are tax free. Perhaps this is a closer parallel: I gather that an undertaking has been given to the Royal Observer Corps that any emoluments up to £20 can be disregarded. I hope that my right hon. Friend will be able to meet hon. Members on both sides of the Committee who are pressing him about this matter, both on the training allowance and also, if possible, on the bounty.

The hon. and gallant Member for Petersfield (Sir G. Jeffreys) very rightly emphasised the amount of extra paper work which will have to be done, at unit level, for a very small return indeed. That, I suggest, will greatly inconvenience not only the territorial units and others concerned, on that side of it, but also the Inland Revenue people, who will be called upon to do a great deal of complicated extra work, in the way of notifying liability and collecting the tax, for a very small return. Finally I entirely agree with those hon. Members who have said that, although this may be a minor irritant, none the less it is proving, in certain cases, as I have seen in my own county, a definite deterrent to men willing to volunteer for Territorial service.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

We have had a very interesting series of speeches, and this, as has been truly said, is not a party matter. We all desire that the Territorial Army shall flourish, together with the other bodies mentioned in the new Clause which we are now discussing. The question is how far I can go in meeting the claims that have been put forward, without certain inconveniences, which I will state frankly to the Committee. I am anxious to go as far as I can. There are several separate points here. There was an earlier proposed new Clause on the Order Paper, which was not moved, but which is also relevant—(Territorial Army grants and allowancesto be exempt from Income Tax). In the new Clause which we are discussing, special reference is made to the annual efficiency grant and to the training allowances of the various Armed Forces. The annual efficiency grant, as its name implies, is an annual grant, and I tell the Committee frankly that here is my chief difficulty in going all the way to meet the arguments put forward. Being an annual grant it is, by its nature, subject to Income Tax. It is an annual payment, forming part of the annual incomings, each year, of the person concerned. I will come back to that in a moment. This annual aspect does present to me certain difficulties in accepting the proposal under that head.

On the other hand, the training expenses allowance does stand, as it seems to me, very near to a subsistence allowance, and a subsistence allowance we can, quite properly, in accord with our practice in other Income Tax fields, exempt from Income Tax liability. It has been truly said by my hon. Friend the Member for Maldon (Mr. Driberg) that travelling expenses are already exempt from Income Tax, quite properly; and I think I can see my way to bring the training expenses allowance for the Territorial Army and these other Armed Forces into line with the travelling expenses and subsistence allowances. I will be prepared, and gladly, to put down on Report a proposal to exempt the training expenses allowance.

On the other hand I want to speak frankly about my difficulty over the annual bonus or efficiency pay—it is said, with great persuasiveness, that we desire to stimulate recruitment. Of course we do, but we have resisted—and I think I have found support from all quarters on this—proposals that Income Tax should be used as an instrument for creating the greater attractiveness of one occupation as against another. Discussions have taken place about the under-manned industries, and proposals have sometimes been made to me, which I have had to reject, that we should give remission of Income Tax on what is admittedly income. If we were to say, as we would be compelled to say, that this is income, judged by ordinary standards, and is thereby subject to tax, but since we desire to encourage the Territorials and other bodies, we will treat it for this purpose as though it were not income to make more attractive entry into these Forces, then I should be led along a slippery slope which I have hitherto refused to tread.

Photo of Sir Allan Noble Sir Allan Noble , Chelsea

I wonder whether the Chancellor of the Exchequer would care to say how the recruiting for these voluntary Forces has been going?

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

That question should obviously be addressed to the Service Ministers. We all desire that recruiting shall go well, but that does not affect the logical argument I was trying to put to the Committee.

Photo of Lord John Hope Lord John Hope , Midlothian and Peeblesshire Northern

Surely, it is not tall to compare voluntary service in these Forces with industry? This is something these men are doing in their spare time, and it does not clash with industry at all.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

I am seeking to put this matter in a perfectly friendly fashion, and I am not trying to score points in any way. In a sense, all these other forms of work are voluntary. For instance, sometimes I am asked why we cannot exempt overtime earnings in certain sections of industry. We had all that out last year, and I think the Committee were satisfied that it would be completely impracticable to do that administratively. There is a certain analogy there, although I do not want to press it too far. We have there something which is admittedly within the terms of the general conception of taxable income. I do not think there can be any point of difference, apart from the argument of making entry into the Territorial Army more attractive, on the question that these annual payments are taxable income. If it were not the Territorial Army we were considering, but some occupation about which we were not particularly interested, where work could be done in spare time and on a voluntary basis, which paid a bounty, no one would desire that taxable income ought not to he returned for Income Tax purposes

The only argument we are considering now is whether this is desirable to encourage entry into the Forces. I have had to resist the argument for using Income Tax as an inducement to get people to do one thing rather than another on the grounds that the former would be in the national interest. That is my difficulty. Although I am prepared to meet the case in regard to training allowances, T do not feel able to meet the case in regard to annual bonuses. I hope this will meet the wishes of hon. Members, because I started with the desire to meet them on this new Clause as far as I could; but reflecting on the queries which would follow if I accepted the principle that a thing ought not to be taxed merely because of a desire to encourage something, I fear I am not able to accept it.

10.30 p.m.

I have studied carefully what the hon. and gallant Member for Petersfield (Sir G. Jeffreys) said, and I think one should look into the aspects of administration. I can reassure the hon. and gallant Gentleman with regard to the modes of payment and the question of the work which would be thrown on to Territorial Army pay offices. I am able to say that we can arrange that there will be no deduction at all at the Territorial Army level of any Income Tax from any of these payments. We will undertake to reduce the amount of work to be thrown on to the pay officers and other officers of the Territorial Army. These emoluments will be paid in full without any deductions at all, and in so far as any adjustment is required, in the Income Tax liability of the person concerned, it will be adjusted in the P.A.Y.E., without any deduction needing to be made at the pay office. I hope that, administratively, that will be helpful. Psychologically, I hope also it will go some little distance to meet the case which has been put to me so persuasively tonight. I am prepared to ease the administrative burden. I will go along the road as far as the training allowances are concerned, and I will put down a new Clause to give effect to that, but I cannot agree that the bounty shall not be chargeable.

Photo of Viscount  Turnour Viscount Turnour , Horsham

I would like to say a word on this matter. I apologise if I stand between my hon. Friends and the Committee, but I would like to speak because of long associations with the Territorial Army and with Territorial Associations, and because I would also try to persuade the Chancellor to accept this Clause. Having heard what the Chancellor has said, I would express my thanks to him for what he has accepted. I would also like to thank my hon. and gallant Friend, the Member for Petersfield (Sir G. Jeffreys) who put the case so succinctly and tactfully. I was sorry the Chancellor, in his closing words, should have shut his mind to the allowance for the bounty. I would like to ask something about the point he made on the possible effect there might be on other concessions he would be asked to make. He used the argument, I think, that he did not want, by means of remissions of taxation, to make one occupation appear more beneficial than another. My first argument on that point would be that this is not an occupation. Surely it must be realised that this is not an occupation at all. It really is a point of terrific difference. I cannot say much because one would get out of Order; I sympathise with the Chancellor's point of view but to make one occupation appear more favourable than another is what has been done by the Government by other means in the case of the miners. It is being done in other fields, apart from pure finance, by certain actions which have been taken. My main answer is that this is not an occupation.

The second point is—and here I am sure my gallant Friends behind me, all of whom have had experience of Territorials will agree—that recruiting is a very special thing. Many Regular soldiers, whether members of this House or not, have not the least idea of what constitutes the essence of Territorial recruiting. I will say what I believe to be the essence of it. It is something or other you offer to the Territorials, either by way of appeals to their patriotism, or by some financial inducement and compensatory advantages for having to give up, in many cases, their annual holidays and in some cases of unpatriotic employers, their pay as well. In other words, you have to find some compensatory grant. We must not get on to a Territorial Debate on this new Clause, but it is notorious, as has been pointed out in this Debate, that we are not getting the men for the volunteer Army. We want, therefore, to do something striking. I want to use exactly the opposite argument to that used by the right hon. Gentleman in the first part of his speech and say, "Do something striking; give a discrimination and preference." While this may be difficult by the ordinary processes that we are bound to adopt in connection with Income Tax Law, here is a special case for a concession because it is so important to get these men.

In my opinion—and I think of my hon. Friends behind me, and hon. Gentlemen below the Gangway opposite, who have had long experience of the Territorials—it will be infinitely harder to get Territorials under the conditions of the present Act than it was in the old days, for this psychological reason. In the old days, Territorials served with other volunteers. They regarded themselves, to use a legal phrase, sui generis—with pride that they were something different, that they were Territorials and volunteers. Now, they are to be lumped together with the conscript soldiers. Therefore, I really would ask the right hon. Gentleman to give further consideration to this matter. I hope he will not finally close his mind to it between now and the Report stage because, believe me, if he could make the concession suggested in this very admirable new Clause it would have a very beneficial effect on the Territorials.

Photo of Lieut-Colonel David Rees-Williams Lieut-Colonel David Rees-Williams , Croydon South

I was disappointed that the Chancellor of the Exchequer could not see his way clear to make this allowance in respect of the bounty, but I appreciate his reason that it would have caused difficulties in other ways and I will not press him on those grounds. His sympathy, I know, is fully with the Territorial Army, and if he possibly could make an allowance I am sure he would. I speak with some feeling on this matter because I am a member of the Territorial Army and have been for many years. It is true that the War Office have put me on the unemployed list and it is not likely that I will again qualify for a bounty, but it may be that I shall do so if I am called upon to serve again, when I shall be ready if the need arises. The subsistence allowance is a different matter. The position is that in the old days—I was for some years a company commander and later a battery commander in the Territorial Army—we had sometimes considerable difficulty in recruiting men. If this little allowance is not made tax free tonight I believe it will have a serious effect indeed upon recruiting.

I agree with the noble Lord in that I do not think the War Office understand the Territorial Army, and I do not believe the Regulars do, either. May I show the background against which the Territorial Army worked. My own battery in South Wales was mainly composed of miners, tin plate workers and steel workers, the best troops in the world. What used to happen was that these men came up from the pits and out of the steel works, washed, put on uniforms and went to the drill hall. They would have felt rather bitter if their allowance, out of which they could buy a pint of beer, was taxed. That is a very different thing from the annual bounty which is paid in camp presumably at the end of the year.

Photo of Sir Arthur Harvey Sir Arthur Harvey , Macclesfield

On a point of order. The hon. Member keeps referring to the Territorial Army. Surely this new Clause applies not only to the Territorial Army, but to the Auxiliary Air Force and the Naval Reserve. Why does the hon. Member confine himself to the Territorial Army?

Photo of Lieut-Colonel David Rees-Williams Lieut-Colonel David Rees-Williams , Croydon South

I am confining myself to the Territorial Army, because it is the service about which I know something. If the hon. and gallant Member has knowledge of the other auxiliary forces, he can enlighten us on the special conditions which apply in them. I can only speak of the Territorial Army. I do not believe that the Chancellor's failure to meet the hon. Member for Midlothian and Peebles (Lord John Hope) who moved this new Clause will have any effect on Territorial recruiting. Before the war, the bounty was taxed. May I say again, as one who is interested in the Territorial Army, and served in it from the rank of private to Lieut.-Colonel, that I am rather surprised at the great interest taken by hon. Members on the other side of the Committee in the Territorial Army tonight. We were crying out before the war, for many years, for interest to be taken in the Territorial Army by the party opposite.

Photo of Viscount  Turnour Viscount Turnour , Horsham

May I point out that in the 1914 War the number of Tory Members of Parliament who served as officers in the Territorial Army in that war, was, I think, 50, compared with 10 in the Liberal Party. In view of that, and the devoted service of many on this side of the Committee, I hope the hon. Member will withdraw those offensive remarks.

Photo of Lieut-Colonel David Rees-Williams Lieut-Colonel David Rees-Williams , Croydon South

I did not include the noble Lord in my comments. I was talking about the attitude of the Tory political party between the two world wars. Hon. Members must know that it was the Tory political party which in 1933—

Photo of Mr Hubert Beaumont Mr Hubert Beaumont , Batley and Morley

The hon. Member is completely out of Order. On the matter which is before the Committee we cannot have a Debate on the attitude of the Tory Party to the Territorials in 1933.

Photo of Lieut-Colonel David Rees-Williams Lieut-Colonel David Rees-Williams , Croydon South

I was just going to point out that in that year they sent the Territorial Army to camp without any pay.

Photo of Mr Hubert Beaumont Mr Hubert Beaumont , Batley and Morley

Even then, the hon. Member is not dealing with the new Clause which is under discussion.

Photo of Lieut-Colonel David Rees-Williams Lieut-Colonel David Rees-Williams , Croydon South

The opposition has said that the tax on the bounty will affect recruiting. I am only pointing out that they sent the Territorial Army to camp without any pay, and that did not necessarily affect recruiting. That was the Conservative policy of 1933. I think the Chancellor of the Exchequer is to be praised for making the concession which he has made. Furthermore, it must he remembered that the bounty was taxable before the war. Why did not a Conservative Chancellor of the Exchequer before the war allow the bounty to be tax free? I think we have every reason tonight to thank the Chancellor for this concession to the Territorial Army.

Photo of Colonel Ralph Glyn Colonel Ralph Glyn , Abingdon

It is unfortunate that such remarks should have been made in this Debate, but I do not think that any hon. Member wishes to deal with anything but the new Clause. I think, too, that many of us appreciate the difficulty in which the Chancellor finds himself through the fact that this is an annual payment. But nowadays, efficiency in all the Services is of a high order in view of the large number of new weapons which a man must master.

I only rise to ask the right hon. Gentleman whether, if a change were devised in a way in which efficiency would be assessed to suit all three services, whereby it would not be an annual grant but an ad hoc grant, it would solve this difficulty. If the Services were able to work out a new system in which a man would receive a grant in accordance with his ability to handle weapons, would not the Chancellor of the Exchequer's difficulty be removed?

10.45 p.m.

Photo of Sir Toby Low Sir Toby Low , Blackpool North

I would like to expand the point put forward by the hon. Member for Abingdon (Sir R. Glyn). The Chancellor of the Exchequer has told the Committee that he is very anxious to do all he can to assist the volunteer forces, and I am not asking on behalf of the Territorial Army or any particular force. I believe it is true that under the short service scheme applicable, I believe, to any of the Services, the gratuity paid at the end of their service to members who take the engagement is exempted from tax. If that is so, and their engagement is spread over four or five years, why cannot the right hon. Gentleman treat this annual bounty, payable to men called up for a stated period—otherwise they suffer some penalty—in the same way? Take the example of a man who volunteers for the Territorial Army, taking a four-year engagement and remaining in the Territorial Army for four years. Suppose his bounty is £8 a year, could not the Chancellor of the Exchequer treat that as if it were a gratuity of £32 at the end of his four years. He would therefore equate it with the gratuity, which is exempt from tax, of the man who joins up for a short-term engagement of five years. If the Chancellor of the Exchequer is really anxious, and I am sure that he is, to do all he can for these volunteer forces, why does he not treat the bounty in that way?

If he is unwilling to go as far as I suggest, will he consult with his right hon. Friends who have not done the Committee the honour of being here tonight. There may be some good reason why they are not here, but this is a matter in which we on this side are very interested. Hon. Members behind the right hon. Gentleman are also very interested, and it would have been of value to the Committee to have his right hon. Friends here tonight. If he will not go as far as I have suggested, will he consult with his right hon. Friends so that those who join these volunteer Forces are given gratuities at the end of the period of their engagement, and are granted those gratuities exempt from tax in the same way as those entering short-service engagements are given tax-free gratuities at the end of their service? Perhaps the Chancellor of the Exchequer has not thought about this before and would like longer to think about it. I suggest that he should tell the Committee that he will think about it and come to the House with a suggestion on the Report stage.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

I am quite prepared to think about it, having listened to the last two speakers who have made a helpful suggestion, although I am still not quite sure that it gets us over the hump. I will be perfectly frank with the Committee. My difficulty is to exempt annual payments of income. Supposing we could transform the payment so that it no longer had an annual character, then it would make it easier. On the other hand, I do not think the other ranks would want to wait for four years before they touched the bounty.

Photo of Mr Marcus Lipton Mr Marcus Lipton , Lambeth Brixton

Officers do not get bounties.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

In some formations they do, but we are now covering wider ground. I will look at it again. I am anxious to be conciliatory, but I must also be on guard against compromising a certain position—I do not want to call it a principle. It is a position. We have to be careful with regard to any action as a result of which we might be run off our feet with other Clauses which would be quite as plausible. I will do my best to exercise my ingenuity, but whether it will be equal to this rather difficult task I do not know. Perhaps the Committee will take on account the offer which I have made with regard to training allowances and the administrative simplification I have suggested. I will have a look at the other matter, but I do ask the Committee not to feel disappointed or think I have failed in active consideration if in the end I find it impossible. I have already given some study to the question and have done my best, and perhaps the Committee would leave it at that?

Photo of Lieut-Commander Joseph Braithwaite Lieut-Commander Joseph Braithwaite , Holderness

I only want to ask the right hon. Gentleman one question arising out of his first speech. May I say how much I welcome both speeches he has made? I think my noble friend will feel well satisfied with the reception which has been given to this new Clause. In his first speech the Chancellor of the Exchequer indicated that, whatever else might happen, there would be no deduction from the bounty when it was paid through the Naval, Military or Air Force channels, and that it would be paid in full without In- come Tax deduction. I did not quite follow what was going to happen next—whether it was going to get caught up in the whirlpool of P.A.Y.E. and be deducted through the man's firm. In that case it might not be noticed but would be absorbed in his civilian life. Or will some demand be received by the serving man later from the Inland Revenue? If so, it would not have the soothing effect which the Chancellor suggested. It may be that in this financial year, with the raising of the earned income allowance, it might well disappear in the whirlpool of P.A.Y.E. I merely want to know what will happen.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

It will be adjusted through the personal allowance. It will not come any more within the purview of the Territorial Army or other formations. The hon. and gallant Gentleman has repeated a point I made, which is that the gradual extension of Income Tax reliefs will mean that in many cases there will be no liability whatever.

Photo of Sir Arthur Harvey Sir Arthur Harvey , Macclesfield

I think the Chancellor of the Exchequer has gone a considerable way to satisfy our wishes in this matter. I want to point out that the Air Force is concerned quite as much as the other two services. There is only one point I would like to make. If the Chancellor of the Exchequer would wait until the four years are served, he will have the use of the money for four years; and I am sure it will help to get extra men into the Service. I beg the Chancellor, where a gratuity for a short-service commission is concerned, to pay the — after the four years voluntary service, and everyone will be happy.

Photo of Lord John Hope Lord John Hope , Midlothian and Peeblesshire Northern

The Chancellor has expressed certain doubts, but I am sure we will be able to overcome these difficulties. In view of the most helpful attitude he has adopted towards this Clause, I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.