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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