The Bank paid Rosemary Leigh-Pemberton's costs when she went to events such as International Monetary Fund annual meetings in Washington and other cities, as well as economic conferences and summits. But the Inland Revenue decided they were a perk of her husband's job and classified them as a taxable benefit in kind.
The salary compensation to cover the Inland Revenue bill helped to boost Mr Leigh-Pemberton's earnings last year to pounds 209,165, excluding pension contributions - an increase of 27 per cent on a year earlier - according to the Bank's annual report, published yesterday.
This is the biggest earnings increase recorded in the governor's 10 years in office, and exceeds the 17 per cent rise that caused a political row in 1991.
The Bank said the travel benefit payment last year was made up of pounds 3,288 for the current financial year to February and pounds 12,568 for the previous five years. Without the back payment, his earnings increase was 17.6 per cent. The salary increase took place at the beginning of last year, and this year the governor's pay has been frozen. In each of the past two years he has waived pounds 34,000 of his salary.
The travel perk payment came after the Bank lost a two and a half year argument with the Inland Revenue over the tax treatment of travel abroad by the wives of the governor, his deputy and a number of bank directors.
The surprise tax bill raises the question of how far cabinet ministers, including the Chancellor, have been hit with tax demands because their wives have accompanied them abroad on official visits.
The Chancellor's wife often goes to the same functions as those attended by Mrs Leigh-Pemberton. The Treasury refused to comment on Norman Lamont's personal tax position, but confirmed that his wife, Rosemary, attended international conferences and meetings with him.
The Inland Revenue said there were no special exemptions on the travel benefit for the wives of ministers or MPs, who were treated the same as everybody else. It said it was very unlikely that exemptions would be given, except in cases such as a spouse carrying out secretarial duties that no one else could do.
The Inland Revenue denied there had been any recent change of policy over perks, contradicting claims from the City, but said that it had recently been diverting more resources to checking on Schedule E payments. Companies were also becoming better aware of their obligations and reporting the benefits, a spokeswoman said .
The Bank of England said it did not regard the travel costs as a benefit in kind because wives were expected to go with their husbands on some trips as part of the performance of their Bank duties. But a spokesman admitted that the Inland Revenue had taken a different view and 'eventually we reached agreeement'. A settlement was reached under which a proportion of the costs was paid.
The annual report includes a further pounds 9,000 of payments to other directors, which like the governor's are described as for 'notional benefits of travel on Bank business for the years 1987-88 to 1992-93'.
The compensation payments are thought to have been increased to allow for the fact that since they are included in earnings they are also taxable.
The bulk of the other payments is understood to be for the travels of Mrs Vanessa George, wife of Eddie George, Mr Leigh-Pemberton's deputy, who is to take on the top job from July.
He announced last week that when he took over the top job he would freeze his salary for five years at the same level as the present governor's, but without Mr Leigh-Pemberton's pounds 34,000 waiver. That will put him on pounds 227,000.
Mr George has earned pounds 190,000 as deputy over the past 12 months (an 18 per cent increase over the previous year), including the compensation for his wife's travel tax, so he will get a near pounds 40,000 rise for his promotion.
The annual report also showed a big increase in pension contributions to the governor and directors, from pounds 28,000 to pounds 123,000 last year. Officials said this was not a catch-up payment to the governor but was spread across the board.
Liferaft for small banks, page 33
View from City Road, page 34Reuse content