Schedule 9 - Insurance companies etc
Finance Bill
7:15 pm
Christopher Huhne (Shadow Minister, Treasury; Eastleigh, Liberal Democrat)
Thank you, Sir Nicholas. It is normally pronounced “hewn”, as in rough-hewn, but you gave an alternative pronunciation. [Interruption.] I see that many of us will probably be rejoicing in a different nomenclature by the end of this Standing Committee.
The amendment would have the somewhat radical effect of deleting the powers given to the Treasury under the Bill to amend by order any of the key provisions governing the taxation of life insurance companies. Why do I suggest anything quite so radical? Let us go back a little to the story of how the provisions in the Bill were first formulated. This seems to be a classic case of a rather desperate Treasury casting about for an easy hit in the corporate sector. For many years, the Treasury has eyed enviously the surplus built up by life insurers over and above what their regulator, now the Financial Services Authority, believes to be the appropriate level of assets needed to meet their obligations to their customers. Such surplus assets could be taxed at a higher rate than a shareholder’s funds than they would if they were to be left undisturbed.
Those surplus assets are clearly defined by the FSA in respect of with-profits business, and they were flagged up as a potential tax base in the pre-Budget report, with draft regulations and a letter on 2 December last year. Now, however, the whole basis of the proposals has changed. Instead of taxing the FSA-defined surplus assets in one part of the life insurance business, Ministers are proposing to tax surplus assets in another part of the business entirely, namely those in non-profit funds. Moreover, the proposal is to do so where the company concerned has taken steps towards a court scheme, separating its own shareholders’ funds from those accruing to its customers. That brainwave has evidently come pretty late, because it only emerged in draft regulations on 17 June.
Please note, Sir Nicholas, that the entire basis of the proposed tax on life insurers therefore changed between December and June. Please note, too, that Ministers have not claimed—because they cannot do so—that these proposals involve any closing of loopholes or abolition of tax avoidance. There is no tax avoidance under the current rules, which are of long standing. There is no scheme involved that has been revealed through tax scheme disclosure. In that respect, I disagree with the remarks made by the hon. Member for Runnymede and Weybridge on Second Reading; he appeared to imply that there might be a little jiggery-pokery on the avoidance front. Not so. All we have is a blameless part of the corporate landscape, innocently tilling its furrows in the savings field, suddenly being set on for an estimated £30 million to £35 million by an evidently indigent Treasury.
Indeed, Ministers were sufficiently embarrassed by that expedient that they introduced a sunset clause on their powers. They can have a go at life insurers’ profits on whatever basis they please, but the blank cheque is to be genteelly constrained to between 1 January 2005 and 1 October 2006, unless they manage to wrest back their scruples and extend the period to 1 October 2007 as allowed by new section 431A(5). If the powers to introduce such a fundamental change in the taxation of life insurers are to go, the sunset clause can go too.