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Thalidomide Trust

9th December 2002

The Thalidomide Trust, which is based in my constituency, was established in 1973 to administer ongoing compensation offered initially by the Distillers company to the victims of thalidomide.

10.29 pm

Mr. Jonathan Djanogly (Huntingdon): The Thalidomide Trust, which is based in my constituency, was established in 1973 to administer ongoing compensation offered initially by the Distillers company to the victims of thalidomide. The trust is responsible for supporting all the British survivors of the thalidomide tragedy, currently numbering some 450 individuals.

Many of the beneficiaries, most of whom are aged between 39 and 42, are now raising families and engaging in a variety of careers and activities. To give some idea of the severity of the disabilities faced by the survivors, about 10 have no hands, arms or legs; a further 100 have either no arms or no legs, or so-called flipper arms or legs; and the majority of the remainder have short limbs, particularly arms, and hands with no thumbs.

It is important to point out that as the victims age, their needs are changing. Many are experiencing deterioration of their health and medical condition, which is both making life today more difficult and causing them to worry about the future. For example, some are finding that, because the lack of some limbs has caused them to overuse others, arthritis and similar complaints are gravely compounding the disabilities that they have worked long and hard to overcome.

It is worth pointing out that thalidomide victims do not fit the typical description of a disabled person-someone who has all their limbs, but requires the use of a wheelchair. Thalidomide victims have unique needs-for example, they might be unable to reach buttons at ticket barriers, or to work locks and catches, or to carry loads owing to their having deformed shoulder joints. Those problems will not diminish with the passing of time; in fact they will certainly become worse. They were a factor in the generous decision made in 2000 by Diageo-a successor company to Distillers-to pay a further #32.5 million to the trust at present day values.

The trust was set up as a charity because it was believed that its objects, being charitable, would result in all distributions made to beneficiaries being tax exempt, but that proved not to be the case. However, the then Government agreed that there had been a genuine misunderstanding about the tax treatment of the payments made to beneficiaries by the trust. On that basis, in 1974, the Government paid a sum of £5 million to the trust to offset the tax payable on distributions. Further payments totalling £12.8 million were made to the trust in 1975, 1979 and 1996 by Distillers and its successor company, Guinness.

It is important to note that each time a request was made by the trust to the Government, such a request was made on the basis of offsetting the effect of tax on the distributions of the trust, and the same formula for calculating the offset was used in each case. Another important point is that previous Governments' payments to the trust do not set any sort of precedent for other charities, which might give the Government reason not to wish to give the traditional relief to the Thalidomide Trust again. That is because a class action compensation settlement being made today would normally be established as a structured settlement, with payments in all normal circumstances being tax exempt.

Even taking previous Governments' tax payments into account, it could not be said that the trust has not paid any tax-indeed, although Governments have paid £12.8 million to the trust since 1974, they have received taxes of more than £15.5 million from the trust, and are likely to take another £20 million in tax receipts between 2002 and 2022, thus providing a Treasury profit over the years of about £23 million. In practice, about £12 million of that tax has been recovered by beneficiaries claiming tax allowances, but that still leaves the Government approximately £11 million in profit.

The tax position of thalidomide beneficiaries is that victims without other sources of income are able to reclaim the difference between the tax that the trust deducts from distributions to them and their personal allowance of the basic rate of tax. That means that beneficiaries can achieve tax reclaims typically a year after they have received the payments, although, unfortunately, it is believed by the trust that many of the beneficiaries do not take advantage of that, either because of their lack of understanding of the system, or because of the need to employ accountants to prepare their tax returns for them.

To return to the current position, if the formula that was applied to previous extensions to the original Distillers covenant were to be used, the Government should now be paying the trust £6.1 million. The Government have implied that the trust has a significant pot of money, and that that in itself is a reason for it to pay tax. Although the covenanted sums may indeed sound significant, they are relatively modest compared with many modern-day court settlements, and in any event are less following recent stock market falls. The money needs to last for a long time, and current annual payments to victims range from between £5,000 and £25,000 a year, the average annual payment being only £11,000. Unfortunately, however, on 30 July this year the Chancellor turned down the trust's request to be treated in the way that every past Government had allowed. As a result, no Treasury payment is now being offered in respect of the recent Diageo covenant. The decision has now been confirmed in a letter that I received from the Chancellor this morning.

Many people, including the trustees and certainly the victims themselves-some of whom are here today-many of their supporters across the country and, indeed, over 80 Members of Parliament who signed early-day motion 107 have been extremely perturbed and disappointed by the Government's decision.

The Government's reasons for the rejection are set out in a letter from the Chancellor dated 30 July this year. The first general point is the Chancellor's statement that

"the Government greatly values the work of the Trust in supporting the victims of the Thalidomide tragedy".

How well that claim sits with the fact that this is the first Government to refuse tax relief is a judgment that I will leave others to make. I think it worth noting, however, that my predecessor, the right hon. John Major, first wrote to the Chancellor requesting the granting of relief on 14 February 2001. He sent a further letter on 30 April 2001, asking for a reply. Following my own election in June 2001, I asked for an update by way of a written question on 18 July 2001, and then wrote to the Chancellor asking for replies to Mr. Major's letter on 32 January 2002, and again on 15 April 2002. Finally I asked for a reply by way of a further written question on 10 June 2002, to which I received a one-word reply from the Chief Secretary to the Treasury, namely XShortly". Given that this was hardly a new issue, having been a settled course of action since 1974, I feel that the Government's 17-month delay in responding sits uneasily with their claim to value the trust's work. None the less, I shall address the Chancellor's key contention as set out in his letter. He wrote

"The Trust put forward the same case in 1995 and, although the Government of the day did make a payment in 1996 with £7 million, this was on the explicit understanding (made clear in the Department of Health press release at the time) that this was a 'final' and 'once and for all' payment, made in recognition of the unique and tragic circumstances surrounding the Thalidomide disaster and not to be offset for taxation."

I have previously explained to Members that, although the circumstances are certainly unique and tragic, they are almost certainly ongoing. Indeed, the trust may need to last for another 40 years or more until there are no survivors left. Furthermore, each Government payment to the trust has been stated to be full and final in respect of the taxation arising from each further covenant, and the situation here is exactly the same. I have now received a copy of the original letter from the Prime Minister's private secretary, dated 8 November 1974. It states

"The Inland Revenue made it clear all along that they could give no assurance that all payments from the Trust would be tax free, although clearly there has been some genuine misunderstanding on this point. In view of this, the Government decided to make a once-and-for-all capital payment of £5 million to the Trust, which will increase the income available to the Trust in a way, which should at least offset the effects of taxation. It will, of course, be for the Trustees to deal with this additional assistance to individual children in accordance with the terms of the Trust. In this way, the Government hopes to ensure that the Thalidomide children are not prejudiced and at the same time avoid any possible doubt as to the tax consideration applying to any settlement if any comparable tragic case should arise in the future."

The point, therefore, is that every previous Government payment has been treated as a once-and-for-all settlement in relation to this matter. For the Government to say that because the Chancellor in 1995 also stated that the then new covenant should be final means that a payment should not be made simply does not fit with the facts. I also note that in 1974 the then Government saw their method of repaying tax as a way of differentiating their treatment of thalidomide from that of other charities, so as not to set a precedent.

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.

10.44 pm

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