(Except clauses 1, 3, 7, 8, 12, 20, 21, 25, 67 and 81 to 84, schedules 1, 18, 22 and 23, and new clauses relating to microgeneration) - Clause 58
Finance Bill

Securitisation companies

Question proposed, That the clause stand part of the Bill.

9:00 am
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Edward Balls (Economic Secretary, HM Treasury; Normanton, Labour)

On a point of order, Mr. Illsley. Following exchanges in the Committee on Tuesday about the circulation of courtesy letters concerning amendments, the Treasury has looked into the matter and the shadow Chief Secretary has received a letter from the Chief Secretary on this matter. Our investigations show that in recent years it has not been our practice to circulate courtesy letters giving advance notice of the tabling of amendments to all members of the Committee. However, following your guidance, Mr. Illsley, we will do so in future and we have circulated all such letters for this Bill to hon. Members, both electronically and in hard copy. I regret any inconvenience that the confusion has caused you or any member of the Committee.

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Mark Francois (Shadow Minister (Europe), Foreign Affairs; Rayleigh, Conservative)

Further to that point of order, and very briefly, Mr. Illsley. I am grateful to the Economic Secretary for having looked into the matter. He has dealt with it correctly, we are grateful for what he has said and we need not detain the Committee any longer on that point. Perhaps we can now crack on and concentrate on the Bill.

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Eric Illsley (Barnsley Central, Labour)

I think that draws a line under that episode.

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Theresa Villiers (Shadow Chief Secretary To the Treasury, Treasury; Chipping Barnet, Conservative)

It is a pleasure to welcome you to the Chair, Mr. Illsley, on this sunny morning for our last sitting before the Whitsun recess.

I welcome clause 58 and the extension of the provisions of the Finance Act 2005, which enables securitisation companies to continue to use UK generally accepted accounting practice to draw up their accounts on an interim and temporary basis. Were they to shift to international financial reporting standards, as required by European Union regulation, their trading securities would have to be accounted for on a market-to-market basis. That would lead to significant volatility, which could undermine their credit ratings, which are so critical for such companies.

I do not propose to repeat the remarks that I made last year on the extension—very similar to this one—provided by the Finance Act 2006, save to reiterate that we are talking about a business that is worth trillions of pounds. The health of the securitisation sector is vital in maintaining a competitive edge for the City of London. It is also critical for securing financial market liquidity and keeping down the cost of business borrowing and finance. Therefore it is vital that the Committee takes care of this clause and gets the issue right. The measure extends a temporary regime, pending the adoption of a permanent framework for the taxation and accounting systems to be used by securitisation companies.

Last year, I asked the Paymaster General when she expected that long-term regime to be in place. Her response was that that was expected by January of this year. I was, therefore, pleased to note that the Taxation of Securitisation Companies Regulations 2006 were adopted by the House in December. However, the extension of the temporary regime features in the Bill because not all securitisation companies are covered by the 2006 regulations. Given the critical importance of securitisation and, in particular, of its international mobility—it could easily head offshore—I urge the Economic Secy, as I did last year, to complete the job of establishing a full regime for the accounting and taxation of securitisation companies. It would be useful if he could update the Committee on progress. How extensive is the coverage of the regulations that put in place a permanent regime for certain securitisation companies? What proportion of the securitisation market is still outside the scope of the permanent regime and thus covered by the clause?

The regulations seem only to cover companies with exclusively financial assets. When will the Government deal with other types of securitisation companies that include rental streams in their portfolios and other non-financial assets? Are the Government looking at plans to meet the needs of the insurance industry whose securitisation vehicles certainly fall outside the December regulations? I am not even sure that they are inside the temporary regulations. Will the Economic Secretary confirm the current status of insurance-related securitisation vehicles?

Proposed new subsection (7B) permits the Government to take a different approach to various types of securitisation companies. Given the importance of the issue, it would be useful if the Economic Secretary could explain how the Government propose to deal with the different types of company and how they will be divided up for the purposes of both the temporary rules and hopefully the new permanent ones? Will he set out the rationale for the differential treatment of the various types of securitisation company and explain the operation of the payments condition that determines whether a company can qualify to use the regime provided for in the December 2006 regulations?

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Edward Balls (Economic Secretary, HM Treasury; Normanton, Labour)

The hon. Lady is right. We are discussing an important sector of our financial services industry. It is also part of the industry that is exposed to international competition and developments, so it is important that we get the provision right and do so in a way that is flexible and meets the needs of particular parts of the industry, given their different needs and concerns.

As the hon. Lady said, the regulations that we introduced for companies in December 2006 apply to the securitisation of financial assets. Those regulations were warmly welcomed by the capital markets industry. A further set of regulations will be needed for particular types of securitisation, such as insurance and property. Her Majesty’s Revenue and Customs is in discussion with interested parties in the insurance and other sectors and, subject to satisfactorily identifying the issues that need to be addressed in each case, we expect to lay regulations for those sectors by the end of the year.

The fact is that different types of securitisation present particular issues. With the securitisation of financial assets, the volatility is caused by accounting standards. With insurance securitisation, there is the interaction between the tax rules and life insurance companies, and with the special regulatory regime for insurance companies. They are relatively complicated matters and it is appropriate that, in some cases, rules are dedicated to particular types of securitisation. Indeed, that is what the industry asked us to do in the consultations.

As the hon. Lady knows, the Finance Act 2005 was necessarily widely drawn to ensure that companies that had entered into securitisations were not affected adversely by changes to accounting standards. It remains our intention to devise appropriate permanent rules for companies engaged in securitisations. However, some companies need special rules and have particular group structures or other characteristics, which made it difficult for them to fit into the first set of regulations that were introduced in December and widely welcomed.

When the first set of regulations was laid in December, the Government gave an undertaking that the interim regime would continue as long as necessary. That is the case and that is what the industry is asking us to do. The interim regime expires on 1 January 2008 and regulations made under the clause will allow the regime to be extended for those companies for which it is necessary. As with all the work on such types of companies, the regulations will be developed in consultation with the capital markets sector. The consultation is ongoing, so while we have moved where we can on the timetable set by the Paymaster General last year, we are responding to the concerns of the industry in the particular areas where we need to do more work. We hope to lay regulations for those areas by the end of the year. In the meantime, we shall be extending the temporary regime in response to requests.

To allow the work to continue, the powers under which the regulations are made need to be amended to cater for a wider range of incidental and consequential amendments. We might need to reconsider the interaction of capital gains tax laws in the case of securitisation involving real estate, for example. In addition, the interim regime under which securitisation companies are taxed in accordance with former accounting standards will need to be continued for companies for which permanent regulations have not been made, in a manner that is tailored to the needs of those companies. The clause allows for the extension of that interim regime. They are small, technical changes, but as the hon. Lady said, they are of particular importance to the industry.

The hon. Lady asked how the payments condition will work. All cash must be paid out within 18 months, which is similar to the rules for accounts under UK GAAP, to ensure that companies are not cash money boxes. Extensive HMRC guidance will be placed in the public domain to help people through that technical area. I hope that she and the Committee are satisfied that our consultation will be sensitive to the needs of particular sectors and with the differential way in which we will try to move to a permanent regime, and that we are working in full consultation with the industry.

Question put and agreed to.

Clause 58 ordered to stand part of the Bill.