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Army Attributable Pensions

3.32 pm

The Parliamentary Under-Secretary of State for Defence (Dr. Lewis Moonie): As Minister with responsibility for veterans affairs, Mr. Speaker, I have come to the House to offer a statement, both to clarify the matter of the taxation of attributable Army invaliding pensions and to give an apology.

Service personnel retiring on ill-health grounds are eligible for a war disablement pension from the War Pensions Agency if their illnesses or injuries are attributable to service. Since 1973, personnel have also been eligible for a service attributable pension under the armed forces pension scheme. Before 1973, pensions were paid early to those invalided out of service. Those pensions should be tax free when the injury is attributable to service.

Owing to an administrative error by the Army pensions office, following, I believe, a change of legislation in the early 1950s, a number of Army pensioners have had their attributable invaliding pension mistakenly taxed. This has therefore affected such attributable pensioners over a period of some 50 years. The error is deeply regrettable, as is the time that it took to identify it. We offer our unreserved apology to those pensioners who were affected and to the relatives of those who died before we were able to make restitution.

The error was recognised in 1998 as a result of the efforts of an Army pensioner, Major John Perry. Major Perry deserves to be commended, as it was his efforts and persistence that brought the error to light. It is unfortunate that his early complaints were not dealt with satisfactorily. He appealed, and when his case was brought to the attention of the central pensions policy branch at the Ministry of Defence, the error was recognised and the points at issue conceded in 1998. Ministers were made aware of the error in September 1998, and Parliament was informed of progress on rectifying the mistake on 8 June 1999 in answer to a parliamentary question tabled by my hon. Friend the Member for Gedling (Vernon Coaker).

The Government are not merely reacting to today's news. The issue has not arisen in the past couple of days. I am pleased to report that, since 1998, the Ministry of Defence has taken extensive measures to identify pensioners and their widows who might be affected and to ensure a refund from the Inland Revenue. That has included the manual trawling of the records of more than 20,000 pensioners and widows. Information has been provided to ex-service and war widows associations, which have been most helpful in advertising the mistake and the mechanism for applying for a refund.

The Royal British Legion publicised the error to its 600,000 members in its magazine Legion in January 1999. The War Widows Association circulated information to its 55,000 members at about the same time. Importantly, we believe that we have identified the majority of those affected, but I have to say that we are keen to find any we might have missed. These people have paid tax when there was no need for them to do so and that is wrong. We have a duty to rectify the situation and to provide recompense. It is not possible to give a precise estimate of the final cost of refunds until all claimants have been identified and paid. However, our current assessment is that the total cost may be in the order of £30 million.

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It is important to note that the mistake did not apply to the same category of pensioners from the Royal Navy or the Royal Air Force. In the past, the administration of the different service pensions was entirely independent and there was a lack of co-ordination in addressing such matters. Policy functions are now centralised and I believe that an error of this sort is significantly less likely.

The Ministry of Defence intends further publicity to ensure that those affected have the opportunity to recover the tax they have incorrectly paid. We have so far identified 1,003 affected cases. Refunds have been made in all but 26 of those cases, in which the details are still being clarified. Any pensioner in receipt of an invaliding pension between 1952 and now who believes that they may have been affected by this error should write to the Army Pensions Office in Glasgow.

The error is deeply regretted and I look forward to informing the House when all cases have been satisfactorily settled.

Mr. Desmond Swayne (New Forest, West): I thank the Minister for his statement and associate the Opposition with the deep regret that he expressed and his apology to those who have been affected. It is as well to remember that these are vulnerable people to whom we owe a great debt—now in more senses than one.

I was surprised, though, when I discovered that a statement was to be made on this matter today. There were any number of issues on which I might have expected a statement from Defence Ministers, not least of which is Paul Bergne's view of the chaos at Bagram airport, or the A400M. Why are we being given a statement today—and especially one that has been so heavily trailed in the BBC and The Daily Telegraph? [Interruption.] It is all very well for Labour Members to moan, but I recall what the Minister said in his written answer of 7 November, which appears to have been definitive on the matter. Having given an abridged version of the statement that he has just made, he stated:

Andrew Mackinlay (Thurrock): So he's surprised you.

Mr. Swayne: He has surprised me, and I should like to know what has happened between 7 November and today to prompt this statement. One would hate to think that it was another instance of news management being used to cover up some other bad news.

None the less, I think that this is a very important matter and I welcome the opportunity to ask a number of questions about the way in which the Government have conducted their inquiry.

My hon. Friend the Member for Ryedale (Mr. Greenway) tabled a parliamentary question as a consequence of a constituency case that had been brought to his attention. I want to ask several questions, and I ask hon. Members to bear with me because we are considering complex matters. The Army personnel centre wrote to my hon. Friend's constituent, Major Richard Leigh Perkins of the Royal Leicestershire Regiment, on 9 October 1998 to

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tell him that the problem might apply to him. After further correspondence, my hon. Friend wrote to the Minister on 24 September 1999, saying:

I certainly agree.

When my hon. Friend's constituent applied for compensation, he was told that his disability pension was not paid to him as result of his being disabled while in service. It took two years to get a tribunal to overturn that finding and to rule that he was entitled to the compensation. He was then told—would you believe it, Mr. Deputy Speaker?—that any payment in excess of the past two years would be taxed as a result of Treasury rules.

That is surreal. We have reached the circumlocution office. The payment has to be made because it was mistakenly taxed, but any amount in excess of the two years will have to be taxed because of Treasury rules. I know that the Minister will confirm that those rules do not apply, because we are considering a Government mistake. [Interruption.] It is all very well Labour Members shouting, but vulnerable people are not aware of the facts and the compensation that may be payable to them.

People such as Major Perkins have still not been paid, notwithstanding the Minister's statement. They believe that burdens are being placed on them and that the matter is "cloaked in secrecy", to use their words. The hon. Gentleman will have read the bitter words of Major Perry in The Daily Telegraph today. I ask him to bear in mind the fact that many of our veterans feel bitter; we must make every effort to dispel that feeling.

How many other people like Major Perkins are there? What action is the Minister taking to ascertain whether other people are waiting for compensation? What action is he taking to ascertain the number of widows who may require compensation? What is he doing to ensure that the families of those who have subsequently died and are owed compensation are identified and notified of what might be available?

The Minister has said that he estimates that the problem may cost £30 million to rectify. Will he confirm that that cannot be charged to the defence budget, but will come out of the Treasury's contingency reserve? Will he also confirm that it will not affect what may be available for the defence budget?

I ask the Minister to redouble his efforts to identify people who may be owed outstanding payments. They are among our most vulnerable and most deserving people.

Dr. Moonie rose

Andrew Mackinlay: Tell him to go away.

Dr. Moonie: What temptation.

I thank the hon. Member for New Forest, West (Mr. Swayne) for his early remarks and I apologise to Conservative Front-Bench Members and to the Liberal Democrats for the tardiness in showing them a copy of the statement. I gave it to them not long after I received the final version.

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When there is great public interest in an issue, it is incumbent on the Government to consider it carefully and provide amplification and clarification, especially when it is based on thin information. Many details were substantively inaccurate.

I can tell the hon. Gentleman that Major Perkins's benefits were reviewed as part of the exercise, but as the War Pensions Agency had not accepted his invaliding condition as attributable to service, no corrective action was required and his pension remained taxable. Following a successful appeal by Major Perkins, the agency accepted that his condition was attributable to service, but it did not backdate the assessment to the date of his retirement. It was effective only from 25 August 1999.

The degree of Major Perkins's disability was assessed at nil per cent., and notification of this award was received. That might sound complicated, but it is done in that way so that, if there is a change in his condition, the level of the award can be raised at a future date. Arrangements have been made for Major Perkins to receive a refund of tax paid since 25 August 1999, but that was not backdated to the date of his retirement. I am looking closely at this issue at present, and I can assure him and his Member of Parliament, the hon. Member for Ryedale (Mr. Greenway), that the matter will be dealt with as quickly as possible.

The numbers still to be found are difficult to quantify. We have looked at more than 20,000 records—about 23,000, I think—and found 1,000 people who were liable for a repayment. Of these, 182 came from the period before 1973—of whom 73 are widows—and 785 from the period since that date, of whom two are widows. Widows represent about 5 per cent. of all those whom we are considering, which leads me to wonder whether there are more widows among the records that we have not been able to access, probably owing to the people involved having died some time ago. If the hon. Gentleman had listened a bit more carefully to my statement, he would know that we have taken great care to publicise this provision through the War Widows Association. That publicity has gone to 50,000 war widows as a consequence, and I hope that they, in turn, will have talked to others about it.

With regard to whether I should take further action, that was not thought necessary in November. However, I have looked at the matter again, and I believe that, because the Government are responsible collectively for what was done in their name in the past, we should leave no stone unturned in attempting to find any further people who are liable, and ensuring that they are given payment. On the hon. Gentleman's last point, I can tell him that the costs will be borne by the Inland Revenue.

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