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Mr. Michael Howard (Folkestone and Hythe): I congratulate my hon. Friend on his comprehensive demolition of the principal reason advanced by the Chancellor in justification of his decision. Does my hon. Friend share with me some sympathy for the Paymaster General, who has been placed in an impossible position this evening by the refusal of the Chancellor to accept my invitation to come to the House personally this evening to defend his mean-minded decision; and will my hon. Friend accept my assurance that the next Conservative Government will make in full the payment to the trust that should have been made by the Chancellor this year in accordance with the precedents that my hon. Friend has explained?
Mr. Djanogly: I thank my right hon. and learned Friend for that tremendous intervention. I am sure that many victims across the country will be very grateful for his words and I thank him on their behalf.
The UK has the second largest population of thalidomide victims world wide. The country with the largest such population is Germany, with 2,851 registered survivors. After the UK comes Japan, which has 317 survivors. It is important to realise that, of those three nations, the UK Government are alone in never having agreed directly to compensate thalidomide victims. Indeed, looking at it in that way, not only have the UK Government not had to pay a penny to thalidomide victims, but they have been receiving tax revenues from the payments made by drugs companies for the welfare of victims. I ask the Minister: how fair is that?
All payments made to thalidomiders in Germany are tax free. For a more local comparison, I refer the Minister to section 192 of the Irish Taxes Consolidation Act 1997, which states that any handicap that can be linked with the taking by the individual's mother during her pregnancy of preparations containing thalidomide is to be exempt from income tax and not to be reckoned in computing total income. Accordingly, not only does the current Government's position run totally contrary to the spirit and practice of Government policy since 1974 in terms of dealing with the effects of this terrible tragedy, but their position runs contrary to the practice of every other country I have been able to find, which all basically follow the principle that Government should not make a profit from the victims of thalidomide.
I urge the Government to think again on this matter. Please look at how the victims are still struggling by reason of no fault of their own; look at what every Government since 1974 have done for the victims; look at the tax income that the UK has received from the victims, despite Government payments to the trust; look at the fact that the British Government have never directly given a penny towards the welfare of these victims; look at the fact that every other country not only does not tax its own victims, but gives them taxpayers' money; and then please look again at the Chancellor's mean-spirited and factually incorrect response to this sensible and fair request. The eyes of the country are on the Government. Please do the right thing for the victims of this terrible ongoing tragedy.
The Paymaster General (Dawn Primarolo): I congratulate the hon. Member for Huntingdon (Mr. Djanogly) on securing tonight's Adjournment debate. As Members can probably tell, I have a very bad cold, so I hope that my voice will hold up during my reply.
I intend to explain to the House the decision of the previous Government in 1996 according to the documentation, the basis on which that decision was taken, why we believe that it was correct, and why it should stand. Although a vital piece of the jigsaw was missing from the hon. Gentleman's contribution, it was otherwise excellent, and the whole House will want strongly to add its voice to the points that he made[Interruption.] I caution Conservative Members against commenting until they know what their Government's policy, which is the one in place now, was.
The position is quite clear, and the hon. Gentleman explained it in great detail. First, he noted the incredibly important work that the trust does, and its valuable role in supporting the victims of the tragedyremarkable people who are now approaching middle age. The trust has played a valuable role in enabling them to lead fulfilling lives. As the hon. Gentleman also pointed out, over the years, successive Governments have made significant contributions to the trust. In 1974, the then Labour Government contributed some #5 million in recognition that, in terms of the original settlement, confusion over the tax position may have changed the decision on how much money was paid into the trust. They made a subsequent contribution in 1978, in recognition of the new beneficiaries within the trust's remit, and in fairness to the original payment. That payment was in respect of the setting up of the trust, and of the actual amount that would have been settled. From 1974, the tax position was clear, and I shall explain to the House what it is now.
In 1996, the then Conservative Government made a further payment, but the hon. Gentleman is not correct in saying that it was made on the same basis as that made in 1974. In fact, it was less than it might have been, had it been made on the same basis as the 1974 payment. The hon. Gentleman and the shadow Chancellor, the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), said that the Government have abandoned an important tax concession, which they have not, that there is a long-standing convention that the tax should be disregarded, which there is not, and that not reinstating the tax concession to the trust was reprehensible. Yet the right hon. and learned Gentleman seems conveniently to have forgotten the arrangement made by his Government, and the terms of the settlement to the trust in 1996.
I shall explain the details to the right hon. and learned Gentleman. The then Chief Secretary to the Treasury set out in a letter the basis on which the #7 million payment was to be made to the trust. The letter states very clearly that the payment was not being made for the offset of tax treatment; however, it went further. It said that any payment would
In 1974, the tax position was contentious and the Government responded, but by 1996, the position was clear. There is no confusion. Let me remind the House exactly what tax is due. As the trust is a charity, it claims a repayment of the tax paid on its investment income. [Hon. Members: X Who wrote this?"] We could ask who wrote the disgraceful contributions that seek political advancement from a sensitive and tragic case. [Interruption.] When Ministers in the previous Conservative Government looked at the evidence
The allegations are made in the press release. Conservative Members seek to advance them on the Floor of the House this evening with no reference to the facts of the case. As the trust is a charity, it claims a repayment of the tax paid on its investment income. Some payments made by the trust are taxed. The fact is well recognised. However, there is sometimes a misunderstandingI put it generouslyabout the exact process. How the trust distributes its finances on income support and capital grants means that there is a difference in the tax treatment. Capital grants are not subject to taxation, and that accounts for 57 per cent. of the total distributions. Income distributions are, under certain circumstances, which accounts for 43 per cent. of the distributions.
We can give an example of what would happen on income distributions. Non-taxpayers can reclaim the full amount of tax as a tax credit. Starting rate taxpayersthe 10 per cent. taxpayerscan reclaim #24 of the #34. Basic rate taxpayers can reclaim a proportion#12of that money, and higher rate taxpayers cannot. The central argument advanced by the Thalidomide Trust is that although its members, some 450, may well be entitled to the tax credit, they are not claiming it. This is about the money that the individuals get. The Government have said quite clearly that they are prepared to work with the trust to ensure that those who are entitled to the tax credit get it back. That is precisely what is in the fact sheet produced by the Thalidomide Trust.
This is an important debate about how we take forward the principles of taxation and support for the victims of thalidomide and how we treat others who, in tragic circumstances, find themselves in the same position. The circumstances are not unique.