Examination of Witnesses (Questions 60-79)
WEDNESDAY 18 DECEMBER 2002
DR LEWIS
MOONIE, MP, MS
LIZ MCLOUGHLIN,
CBE, AND MR
ALAN BURNHAM
Mr Howarth
60. Minister, can I follow on with this line
of inquiry. I refer to an individual case on which you and I have
corresponded about, Major Leigh Perkins. Quite clearly in this
case here is a man who was discharged from the Army in 1959 on
medical grounds; he retired on account of disability on 28 February
1959. As a result of Major Perry bringing to light these blunders
which have occurred over several governments, several administrations,
he then felt he had an entitlement. I cannot understand why, when
the pensions appeal tribunal has found in his favour, the results
of your discussions with the Inland Revenue have meant that he
is not entitled to claim back the tax which he has paid on that
war disability pension. Notwithstanding the provisions of the
Income and Corporation Taxes Act 1988 which, for the benefit of
those perhaps not immediately familiar with it may I quote from
section 315; "(1) Income from wounds and disability pensions
to which this sub-section applies shall be exempt from income
tax and shall not be reckoned in computing income for any purposes
of the Income Tax Acts. (2) Sub-section (1) above applies to-
... (b) retired pay of disabled officers granted on account of
medical unfitness attributable to or aggravated by naval, military
or airforce service". That seems to me to be crystal clear.
His case seems to exemplify the principle that seems to be wrong
here, which is that the MoD, perhaps in cahoots with the Inland
Revenue, are seeking to find every reason why these men should
not recover the income tax?
(Dr Moonie) I can assure you on that last point that
is not the case. We would do, and in fact always have done, our
best to ensure that everybody gets what they are entitled to.
I am reluctant to go into too much detail on Mr Perkins as an
individual case, but what I can say is that we argued it very
strongly with the Inland Revenue and their rules, because of the
fact that when this award was initially made it was made at zero
per cent, the award was a technical one in the sense—
61. I do not think it was. I think it was subsequently
found, but he is not ill now. He was clearly discharged.
(Dr Moonie) The fact is though that his pension was
calculated at the level of zero. Where that occurs, the Inland
Revenue say that you are not entitled to make the rest of the
non-attributable pension tax free.
Mr Hancock
62. But it does not say that, does it, in the
legislation? It does not say there is an exemption. If you are
dismissed from the Service because you are unfit, and that has
been generally recognised because of your service, it does not
say in the legislation that of course if you get no enhancement
for that, it is zero, that you will have to pay tax on that pension,
does it?
(Dr Moonie) I have to say that this is a matter for
the Inland Revenue, Mr Chairman, and not for me. We have taken
it up with them, they are their rules and that is how they stand.
Mr Howarth
63. But, Minister, my point is that we have
got at least 1,200 cases out there, and there may well be many
more, of people who have served their country who are operating
in complete confusion as a result of a disagreement between two
government departments.
(Dr Moonie) No, they are not.
64. Well, the Ministry of Defence wrote to Major
Perkins—
(Dr Moonie) That is one person, Mr Howarth.
65.
Well, this is someone writing on behalf of the
MoD and this is in 1998. "It is now clear under section 315
of the Income and Corporation Taxes Act 1988", the paragraph
I quoted, "...any Armed Forces pension payment should be
tax free......where this has resulted from service". The
point at issue here is that over a period of time there has been
a degree of confusion and it is not fair that those who are in
your charge should hear one message from your Department which
is then contradicted some years later by the Inland Revenue. I
am trying to be helpful as to how you as a Department and you
as the Minister responsible for veteran affairs, and I salute
the fact that you have taken it on the chin and had this inquiry,
you happen to be the Minister at the moment , how you wrestle
with this problem?
(Dr Moonie) We wrestle with it by wrestling with the
Inland Revenue. We took the view that the pension should be paid
and they took the view that it should not. They are the final
arbiter on taxation matters, not the Ministry of Defence. We had
no other course. The fact remains that there is no read-across
to the other 1,200 whatsoever and I cannot understand why you
are trying to suggest that frankly. There is no read-across whatsoever
to the other cases.[5]
66. Can I then turn to the action so far taken
to rectify errors which have consisted of restoring the tax to
pensions together with the repayment supplements due on a statutory
basis. This restitution consists of simply interest only. Can
you give an undertaking today that those pensioners whose invalidity
pensions have been incorrectly taxed will receive the full amount
of the compound interest which they would have received had they
lent the money to the Government in the first place?
(Dr Moonie) In short, no, I cannot guarantee it, but
what I can say is that it is being looked at very closely and
we will take a decision as early as possible on it. I have the
greatest sympathy for those who have lost out as a result of mistakes
by my Department in the past and I would like to see them properly
compensated for it. However, it is not just a decision for me
and I am sure Mr Howarth will recognise that it is an argument
I have to conduct within the Department and I hope that it will
be successful.
Chairman
67. You will pass on our immense irritation
at this appalling, appalling anomaly please.
(Dr Moonie) Absolutely. There is no doubt about it.
This has been a bad situation from start to finish. We started
to put it right three years ago effectively. We have come a long
way towards it. It was aired in public. I felt it was essential
that I should make it absolutely clear to people because for some
reason, although we announced it, it got no public notice whatsoever
in 1999, but it did this year, so I made a statement on it. I
then asked my officials to look very closely to see if there were
any other errors and we found some, so we asked the National Audit
Office to oversee an internal inquiry into the whole process and
I think it was very right that we did it. I am determined that
this will not happen again, but I could give no guarantee 100
per cent that when you are dealing with hundreds of thousands
of people, you will not make mistakes. What is important is that
the mistakes are picked up and we do not repeat the errors in
future.
Mr Howarth
68. Minister, I would entirely agree with that
and in terms of dealing with this issue of compound interest,
I seem to recall somewhere in the voluminous papers on this, which
I know you recognise, that in the 1970s there was a maximum interest
rate applicable and I hope that that will not be applied given
that there was a high rate of inflation at the time.
(Dr Moonie) In the interests of being absolutely clear
and open about this, the Inland Revenue have discharged their
responsibilities. It is now up to the Ministry of Defence to decide
what additional compensation should be paid and that lies at our
door.
69. You said you will do this as soon as possible,
so can you give us any kind of ballpark date?
(Dr Moonie) The senior official responsible for advising
us on this is currently on leave. As soon as he comes back from
leave, he will be dealing with it. I have indicated in my private
office that I want advice on a decision very quickly and thereafter
we will have to give it. I would certainly expect this to be done
within the timescale of the other cases we are reviewing which
we hope to have completed by the summer, and I would hope I would
get it done much more quickly than that.
70. You are satisfied that all the potential
claimants have been notified, and that you have taken all reasonable
precautions to ensure that those who should have an entitlement
are in a position to know what you are up to?
(Dr Moonie) I cannot be 100 per cent certain, particularly
where the claimant has died, but to the very best of our ability.
The errors which may remain are relatively small in number and
they will be within the files we still have to look at in that
period.
Mr Crausby
71. It appears that even after the review started,
there were further errors in 1999, as the MoD report says, so
to what extent will that be externally looked at? You mentioned
that there has been some sort of review of all of that, but is
there not a case for a rigorous, external audit of all of these
cases to ensure that the review has been properly conducted?
(Dr Moonie) There are two questions here. One is the
process and whether that has been properly looked at and I think
that the excellent report,endorsed by the NAO, has looked at the
process and at the errors which took place. The other is whether
the review itself should be conducted internally or externally.
Frankly, I think that we had to ensure that the people doing this
review were experts in assessing pensions and that is largely
why we decided to do it internally rather than externally. We
put our best people on to it and I think the results speak for
themselves.
72. There are some that would accuse you of
delaying effectively through legal processes so as not to pay,
and it is almost instinctive sometimes of large organisations
to delay in that way. Is there any justification in those accusations?
You have made the point that if someone had failed, they really
should not delay questions of compensation.
(Dr Moonie) I think I pointed to management difficulties
in the 1990s which led to the vast majority of the errors at that
time.
73. Why has it taken so long?
(Dr Moonie) We have spent three years on it. We have
looked at 120,000 files in that time. That is a lot of files and
there is a relatively small number of people whom we can use who
are really capable of assessing them properly. We do not have
a nice, clean, coherent record-keeping system, which we would
rather hope to have in the future using the JPAS system, but I
do not believe that there have been any deliberate delays. I think
there are tendencies in bureaucratic organisations to disbelieve
things, to say, "This cannot be so, it must be right. We
have always done it this way", but these are general rather
than specific facts. I have seen no evidence, nor did the internal
, of any deliberate delay or any deliberate obfuscation, with
the exception of a very rare, if you notice from the paper, instance
of the Admiralty in the 1950s which tried to discourage people
from applying for pensions on the grounds that they wanted to
change the system. The system 50 years on has still not been changed.
74. There are people dying in between. Is it
not open to you to put the record right?
(Dr Moonie) Yes, it is and that is why we have gone
through them as fast as we can. There are quite a few people who
are still dying before receiving due refunds and it is a matter
of very great regret to us. Let there be no mistake about it,
this is something the Department is taking very seriously indeed
and something which we are determined to put right. That is no
compensation and no consolation for those who lost out over the
years when the money would have been of most value to them.
Chairman: We will move on to widows' pensions.
Mr Hancock
75. Perhaps I could draw your attention to the
situation in 1973 when the widow pension scheme was changed from
a third to a half and at that time those members of the Armed
Forces who were still serving were offered the option of buying
in for previous years to count for the half pay for widows. Your
fellow Minister, Mr Ingram, has said that any change would be
cost-neutral if you offered the facility for pre-1973 retirees
to actually buy into the scheme. If it is cost-neutral, and you
said you have to pay special attention to that, and you allowed
the Service personnel pre that date to buy in, why will you not
allow the 1973 Service personnel to buy into the scheme?
(Dr Moonie) Benefits like that are given at the time
they are issued. Once somebody has actually retired, they are
no longer actually a member of the scheme. They are recipients
of the benefits of the scheme, which is different in a legal sense.
It has always been the practice across government that those pensioners
are not allowed to buy back in. They are not allowed to cherry-pick
the bits of the previous benefits which they did not have and
I see no reason to change that in this case, sympathetic though
I am to the fact that they get paid less than other people. The
system was changed in 1973 and for those who were serving then,
the options were changed.
76. But when there was a previous change in
1964, there was a retrospective allowance given to those Service
personnel who served before 1958. I cannot quite understand how
it was right to give retrospective benefits from a third to a
half. Your colleague on the right seems not to agree with that.
(Dr Moonie) I am afraid I did not know. Neither of
us has any knowledge of the 1964 change which you are referring
to.
77. Well, there was a change in the pensions
of pre-1958 Service widows which was retrospectively uplifted
from a third to a half. I am suggesting that if that could be
done then, why is it not possible to do it again?
(Dr Moonie) I very much regret I will have to give
you a note on that because I do not know the answer to it.
Chairman
78. And you will look at the word "retrospectively"
please.
(Dr Moonie) If I could say, I am aware of this in
general terms as one of the occasions on which an exception was
made. What I cannot remember are the reasons why it was made.
I have a feeling in the back of my mind that there was some sort
of trade-off of benefits made across the board which allowed us
to do it, but it would be quite wrong of me to speculate in front
of you this morning.
Mr Cran
79. Minister, this is also on the question of
the half-rate widows' pension and the reason the Committee is
asking this question and really wants a reassurance is because
a Member of this House has raised a question of a constituent.
I am not asking about the specific details of this case at all,
but it is the case of a constituent who was widowed and remarried
after retirement. He had bought into the half-rate widows' pension,
but it transpires, so the Committee understands, that the benefit
going to be received is a fraction of the one that he expected.
Is that a scenario that you recognise and, if it is, could you
explain it and could you give us an assurance that the full value
is given to cases like that?
(Dr Moonie) I do not know whether that is case-specific
or not. Presumably the widower had remarried?
5 Note from Witness: There is no read across
to most of the other 1,200 cases. Back
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