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Mr. Hands: I do not think that that is in the scope of today’s debate, but I certainly do not think that our national MPs are worth only a fifth of our MEPs.
Mr. Mark Todd (South Derbyshire) (Lab): I do not want to stray too far, but perhaps the hon. Gentleman could consider the proportionality of media attention given to the expenses of the two categories.
Mr. Hands: The hon. Gentleman makes a very interesting point. In recent months perhaps five times the media attention has been given to ourselves as has been given to MEPs. Over the years, MEPs have been given a little attention, but perhaps a little more light should be shone on those things. I commend, again, my party colleagues in the European Parliament who have published the excellent document “Our commitment to the British people”. That is a code governing expenses and allowances for Conservative MEPs, to which I refer the hon. Gentleman.
Mr. Graham Stuart (Beverley and Holderness) (Con): Does my hon. Friend agree that finance Bill clauses such as this would be better scrutinised and understood by our constituents if we turned away from the list system under which practically nobody knows who their MEPs are, and returned to a constituency system in which representatives were elected on a first-past-the-post basis?
The Chairman: Order. Nice try, but no good.
Mr. Hands: I am sure that we are all grateful for your guidance on that particular matter, Mr. Atkinson.
I return to Open Europe’s comparison, as it is important here. According to that comparison, based on the respective Parliaments’ budget allocations, national MPs at Westminster claim £148,297 in allowances each year on average, while our counterparts in Brussels can claim up to £363,000 per annum, which is two and a half times as much. Furthermore, MEPs, in contrast to national MPs, do not have to produce receipts to claim their allowances, although that is changing. Mr. Atkinson, I apologise if this is outside the scope of today’s discussion, but I am yet to hear of plans for any Liberal Democrat or UK Independence party MEPs to publish their receipts.
Importantly, the Open Europe study found that 22 UK MEPs retiring this year will receive a share of a £20 million pay-off, in both pensions and benefits. Each will be paid—
The Chairman: Order. We are straying again. The clause is to do with tax.
Mr. Hands: Thank you for that guidance, Mr. Atkinson. I was coming on to describe the tax on those pensions and benefits. Each of those MEPs will be paid up to two years’ salary to help them adjust to their new life, and will share a £10 million index-linked pension pot. This is where the important matter of the transitional payments comes in. Earlier, I mentioned the Government’s argument that the tax treatment of those transitional payments is essentially the same as the tax treatment of redundancy payments in the private sector. I am going to doubt whether that is the case. That is the importance of the transitional payments. Each of those MEPs gets a transitional payment of more than £30,000, up to £55,000 to close their offices and lay off staff, and a pension worth between £175,000 and £235,000.
It is not entirely clear to me whether those extremely generous transitional payments and pensions will be subject to the tax regime that was in place prior to 2009 or the one that will be in place afterwards, or whether some choice might be involved. The explanatory notes state that existing MEPs can chose to
“retain their existing remuneration package.”
Does that apply to the tax treatment of moneys that they receive after 2009, if they have stood down? In other words, will Community taxes or UK taxes be paid on those transitional payments? That is not entirely clear. I read in The Times of 2 June that the first £30,000 of the transitional allowance will be tax-free, but who will tax the amounts on top of that is not yet clear.
As we debate the clause, we should be mindful of the generosity of the regime in Brussels, but to be fair, and in the interests of balance, the degree of generosity is the cause of some dispute. The head of the UK office of the European Parliament recently told The Guardian that an MEP’s allowances are
“comparable to an MP’s allowance”,
and accused British media reports of being “inaccurate or tendentious”. Open Europe’s analysis, however, is extensive and attributive, and I have yet to see any detailed counter argument.
Mr. Mark Field (Cities of London and Westminster) (Con): My hon. Friend and I, as central London Members, are perhaps unaffected by this, but will he also note that there is a similar scam in section 292 of the Income Tax (Earnings and Pensions) Act 2003, which ensures that the additional cost allowances are tax-free? That is basically a scam that our own MPs play on each other, and one hopes that the Treasury will pay immediate and urgent attention to ensuring this particular situation is entirely—
Mr. Hands: I thank my hon. Friend for that intervention.
Mr. Binley: On a point of order, Mr. Atkinson. Is the word scam a parliamentary term and should I feel offended?
The Chairman: I think it is a suitable word and I hope the hon. Gentleman does not feel too offended. I am sure he is robust enough.
Mr. Hands: It would be dangerous for me to give an opinion on my hon. Friend’s intervention. He has made his point and perhaps it might be more appropriate for others to respond in due course when considering any reforms of the allowance structure in this place. Nevertheless, the UK office of the European Parliament misleadingly claims that MEPs’ pension rights are the same as for a Westminster MP when in fact, under the new rules coming into force following the European elections and giving rise to clause 56, MEPs will be entitled to a far more generous pension scheme than MPs. My understanding of the MPs’ pension scheme is that if we contribute the standard 10 per cent. of our salary over a 10-year period—that is, a whole year’s salary of £63,291, although I am not sure that is the latest figure—we will have access to a pension of £15,822 per annum.
By contrast, under the new rules to come into force after the election, MEPs will receive an annual pension of £27,954 which is almost twice as much, after paying in nothing from their own salaries over the same 10-year period. This is what Open Europe has said about the whole package:
“The European Parliament has introduced some reforms to come into force after tomorrow. However, under the new rules, UK MEPs will get a huge payrise, and while receipts will for the first time have to be produced for travel expenses, the vast majority of expenses will continue to be available without a receipt. On top of that, the pension becomes even more generous than before—dwarfing the pension that national MPs are entitled to.”
When we debate the tax treatment of MEPs, we need to be aware of what we are paying for, previously directly and now to be indirectly.
Another aspect on which the Government will need to provide reassurance is what happens to MEPs and whether they need to pay any tax to the Belgian or French national authorities if they declare themselves to be resident in Belgium or France—the two locations of the Parliament. With the new tax for the benefit of the Communities, are MEPs now exempted from Belgian taxation if they are mainly resident in Brussels? I do not know the answer. That question has probably cropped up on a number of occasions over the decades but I am not sure of the situation.
One of my London MEPs wanted me to raise a question relating to the tax treatment of those who are or might be deemed non-domiciled MEPs. Independent of any questions relating to MEPS, it would appear that HMRC is increasingly taking the view that EU citizens working in the UK are generally to be treated as non-domiciled. There is a very important issue in London. My constituency has the second highest proportion of non-UK EU citizens in the country. Kensington and Chelsea is the first and the two Cities is probably the third or fourth along with Camden. That means that over 9 per cent. of my constituency are non-UK EU nationals. There is an important point about whether they will normally be deemed non-domiciled, which I believe is the view increasingly taken by HMRC.
Interesting questions arise with MEPs who were not previously UK residents. Let me try to explain by using a specific example. This question to date has been more theoretical than practical. I recall that either in the 1984 or 1989 European Parliamentary elections, David—now Lord—Steel stood in Italy to become an Italian MEP, if my schoolboy memory is correct.
Mr. Binley: He did not win.
Mr. Hands: I think my hon. Friend is right. I cannot remember whether he had any chance of winning, but that is a debate for another day. Other than that, I am not aware of a trans-national MEP either coming from the UK or representing the UK. However, as Dr. Tanner pointed out to me, that changed on 4 June, with the election of Marta Andreasen as an MEP for the south-east of England. Some might argue that her election was a little incongruous for UKIP, but that would be to digress. I must say that I have no personal axe to grind against Ms Andreasen at all. In fact, three or four years ago I spent a pleasant half-hour or so with her on the Commons Terrace, being briefed on the hows and whys of the EU not having its accounts properly signed off. She seemed to be a very pleasant lady and I have nothing against her being elected in this way. I am just using her example, more or less at the request of one of my MEP colleagues, to try to establish what the status might be of somebody who is a non-domiciled but UK-resident MEP.
11 am
So, looking at Ms Andreasen’s case from a tax perspective, it throws up more questions than answers about clause 56. This particular MEP for the south-east of England was, as I understand it, born in Argentina of Danish descent, is married to a Spaniard and lives in Spain and has been elected to a Parliament that is based in both Belgium and France. For a moment, I will ignore the policy of UKIP that all UK citizens working in the UK should require a work permit; I will ignore it as I do not think that it is within the scope of today’s debate.
However, I want to pose a tax question. Ms Andreasen seems to be someone who is not domiciled in the UK but she may also wish to declare herself to be resident here. Therefore, are the Government expecting that this type of MEP will be taxed only by the new tax for the benefit of the Communities, or do they expect that a non-domiciled UK MEP will also be subject to UK taxation? Furthermore, how will the Government’s proposals for non-doms, as outlined in the Finance Act 2008, be applied to non-dom MEPs if they are also deemed to be resident in the UK?
As we know, timing can be key with the Government when it comes to changing the remuneration and tax treatment of politicians. In last year’s debate on the severance payments for the Mayor of London, we saw just before the election that the Government seemed especially keen on a favourable tax treatment and severance package for any outgoing Mayor. The timing for that was really most curious; I think that it was in the last days of April 2008. The Government told us that the severance payments given to Greater London assembly members and to outgoing Mayors would be akin to private sector redundancy arrangements. They argued that the same was true for Members of Parliament here. As I understand it, a MP who retires here is treated in the same way as one who offers themselves for election but fails to be elected; at least that was the situation until it was reviewed last year.
Thanks to the Finance Act 2008, similar arrangements will be in place for the GLA. The payment is not so much the equivalent of a redundancy payment in the private sector; it is a payment that will be made in all cases to MPs, Mayors and Greater London assembly members when they stand down.
The same now appears to be the case with MEPs and the Government’s treatment of them, according to clause 56 and the explanatory notes. Clause 56(2), which is about termination payments, puts the new scheme on to the same basis as the old scheme and gives exemption to EU termination payments in the same way as House of Commons termination payments. Nevertheless, it is still worth pointing out that these rules, for both sets of parliamentarians, are more favourable than those affecting the vast majority of the population. If there was an entitlement in an ordinary employee’s contract along similar lines, it would normally be taxable in full and the first £30,000 would not be tax-free, as is the case with MEPs. I think that the HMRC website says:
“While the first £30,000 of redundancy can be received tax-free, this tax-free limit only applies to ex-gratia payments, which means those made to compensate for the end of employment. Therefore, unpaid wages, notice period payments and bonuses are taxed as normal employment income.”
So it would be helpful to have a clarification of the tax status of the termination payment of £30,000—in fact, it is more than £30,000—paid to MEPs.
As I have said, this matter, in relation to termination payments, was debated with regard to the Mayor of London and the Greater London assembly in the discussions about the Finance Act 2008. The general rule is that redundancy payments of up to £30,000 are not taxable if they are ex gratia and are not provided under the terms of the contract of employment. Interestingly, HMRC has been seeking to widen the definition of what is provided for in the specific terms of a contract to benefits that are provided on a routine or customary basis upon termination. Employees have long been able to argue at tribunal that something has been customary in their employment, so it is understandable that HMRC now seeks to extend that logic to attack payments that are non-contractual, but customary on termination of employment.
Yet, once again, in this year’s Finance Bill HMRC seems quite happy to allow tax-free termination payments to politicians. I certainly do not argue that Members of Parliament should have special treatment—in fact, quite the opposite. Why, therefore, are payments like this given favourable statutory tax treatment when any other termination payment has to be defended on a case-by-case basis against the Revenue? It is not clear why Members of Parliament, MEPs and Mayors of London should be offered statutory protection from such a challenge. I would again be grateful for the Minister’s views.
Mr. Bone: I think I am going to take issue with my hon. Friend here and ask him to explain the logic. Redundancy is where a job disappears, normally because the company is closing down or is having to cut back. The position disappears. In the case of politicians, the position is not disappearing but involuntarily the person is not allowed to continue in that post. I can understand why there is different tax treatment.
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