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The noble Baroness said: Amendment No. 4 is grouped with the clause stand part debate. The aim of this amendment is to probe some of the details of the
 
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Commonwealth Secretariat tax system in light of the proposed exemption from income tax in Clause 3. Albeit that the Explanatory Notes and the regulatory impact assessment suggest that the changes in this Bill would result in little expense to the taxpayer, little expense is still a cost. I have heard this before from the Government. All costs, including minor ones, still add up.

The amendment would remove lines 20 and 21, the reference to "salaries and emoluments" from the proposed new Clause 5A(1) in Clause 3; this was designed as a peg on which to hang this debate. I understand this is by no means technically desirable, as it probably widens the immunity to income tax across everything. The Minister informed the House at Second Reading that the Commonwealth Secretariat, the only organisation covered by this Bill, which is based in the UK, employs up to 280 staff. Will she please clarify how many of those staff are UK citizens? How many of those 280 may be covered by those extended immunities and privileges? They must have some rough idea as to the numbers needed.

I would also be interested to know the current rates of taxation for the Commonwealth Secretariat staff, and whether the Minister can enlighten the Committee as to any proposed changes to these rates, unless this Bill is put in place. For comparison, would the Minister be so kind as to let us know how this measures up to the staff of the Foreign and Commonwealth Office who work in High Commissions? Will UK citizens who work for the Commonwealth Secretariat end up being treated more preferentially than Foreign and Commonwealth Office staff, or vice versa?

I presume that the Commonwealth Secretariat staff will be paying tax on savings and investments in this country that are not defined as "salaries and emoluments" in Section 5A(1). I look to the Minister for assurances on this. In doing so, it would be helpful if she could clarify what the rate of tax will be on such holdings and if that will be at the highest marginal rate. I beg to move.

Lord Wallace of Saltaire: It may help if I speak briefly to this, although I am conscious that we do not wish to take too much time on the next amendment or two if we are to complete Committee stage by 7.30 p.m., which I hope that we can. I press the Government again to expand on the principles that lie behind the degrees of immunity from domestic taxation that are available for international organisations. We are dealing here with income tax; I am also conscious that excise and VAT are issues from which for some purposes some members of international organisations are also exempt.

I stress again that we are in a situation in which—while accepting the Minister's remarks that some of these are relatively long-standing, five to 10 years in the past—the speed at which we might expect new international organisations and agencies to arise, to which Britain will rightly become a member, is not likely to slow. We thoroughly support British membership in these organisations; they are a necessary part of how we manage an interdependent global and regional order, but one must look at the growth of special exemptions for
 
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privileged classes. That goes along entirely with our scepticism about offshore financial centres and some of the queries that we make about multinational corporations and their ability to evade paying domestic taxation.

We are asking the Government for a definite commitment, by the time we reach Report stage, to a Government review of this situation as it moves on, not only looking at the issues at which we are looking now, but at how the Government wish to approach this in general terms as new proposals come up.

Baroness Crawley: I thank noble Lords for their contributions. I am mindful of the time; I hope that the noble Lords who have spoken will find the answers to their several questions in my speaking notes on the amendment and on clause stand part. Separately, I will come to the question asked by the noble Baroness, Lady Rawlings, about the position regarding income tax payments by Commonwealth Secretariat staff.

Clause 3 as it stands confers exemption from UK income tax on all staff of the secretariat in respect of salaries and emoluments that they receive from the secretariat. The effect of the amendment is to extend the exemption from income tax to all income sources. For example, where a staff member of the secretariat receives payment for employment outside the secretariat, that staff member would also be exempt from income tax on that income, which had nothing to do with their work for the secretariat. That surely cannot be the intention of the noble Baroness.

Other examples of sources from which staff may derive income include interest from investments, building society accounts, share dividends. It is important that the exemption from income tax is not widened unnecessarily to cover these other sources, which we believe would be the effect of the amendment.

We cannot accept Amendment No. 4. To do so would be to accord staff of the secretariat relief from income tax greater than that accorded to staff of all other international organisations and diplomatic missions based in the United Kingdom. It would therefore be without precedent and could not be justified and would of course result in a loss to the UK Exchequer. The Commonwealth Secretariat has not requested such relief from us and for those reasons we cannot accept the amendment to the Bill.

I turn to the Motion on Clause 3 stand part. In response to the issues raised, the Bill will bring the tax arrangements at the Commonwealth Secretariat in line with the situation in most other international organisations, and especially commonwealth organisations such as the Commonwealth Foundation, the Commonwealth Telecommunications Organisation and the Commonwealth Agricultural Bureau International.

In practice, the Commonwealth Secretariat already operates an internal tax system but via a complicated, inefficient and time-consuming money-go-round. The UK is required to repay to the secretariat the income tax
 
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paid by staff on their salaries in accordance with the memorandum of the Commonwealth Secretariat agreed by heads of Commonwealth Governments in 1965. In order to meet their commitments under the memorandum, the Government agreed a special and unique set of arrangements with the secretariat. All secretariat staff are liable to UK income tax on their salaries. PAYE is operated by the secretariat for all staff, apart from overseas senior officers. In the case of overseas senior officers, the secretariat provides the Inland Revenue with an annual statement of the salaries paid. The Inland Revenue raises assessments based on the grossed-up amounts and notifies the secretariat of the tax due.

Money flows in a circle. PAYE deductions are paid monthly by the secretariat to the Inland Revenue; assessments in relation to overseas senior officers should be paid annually; the Inland Revenue passes the money to Her Majesty's Treasury; the FCO then reimburses the Commonwealth Secretariat from a ring-fenced fund provided by Her Majesty's Treasury specifically for refunding income tax. That is the money-go-round.

Ending this inefficient money-go-round should provide efficiency gains for the secretariat; for the Inland Revenue; for Her Majesty's Treasury; and for the FCO. That is why we want Clause 3 to stand part of the Bill.

In answer to the specific question asked by the noble Baroness, Lady Rawlings, all staff of the Secretariat are liable to UK tax on their salaries. PAYE is operated by the secretariat for all staff, apart from overseas officers. The reimbursement has been made in the way I suggested. I hope that Members of the Committee will have patience with me if I write to them on other specific tax questions.

Baroness Falkner of Margravine: On a point of clarification, the noble Baroness told us that all staff are subject to UK income tax and PAYE but with the exception of senior staff. Will she confirm our understanding that all staff of a certain grade, which includes all senior diplomatic staff, are subject to it? If that is correct, what number is affected?

Baroness Crawley: Perhaps I may provide the noble Baroness with that information in writing. I would rather be accurate than quick.

Lord Pearson of Rannoch: Surely all those people who live in this country enjoy all the services which this country provides. Why should they be let off tax?

Baroness Crawley: They are not.

Lord Pearson of Rannoch: The senior ones are. Many of us thought that the noble Baroness said that the senior ones are. Can she clarify that?

Baroness Crawley: Perhaps I may clarify that. There are 36 senior officers in our definition. All the staff of the secretariat are liable to UK income tax on their salaries. PAYE is operated by the secretariat for all staff, apart from overseas senior officers. The FCO
 
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reimburses the secretariat for all PAYE deductions paid to the Inland Revenue. In the case of the overseas senior officers, the secretariat should provide the Inland Revenue with an annual statement of the salaries paid. The Inland Revenue raises assessments on the grossed-up amounts and notifies the secretariat of the tax that is due. The secretariat arranges the payment which is refunded by the FCO.

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