(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

Part of Finance Bill – in a Public Bill Committee at 9:00 am on 24 May 2007.

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Photo of Edward Balls Edward Balls The Economic Secretary to the Treasury 9:00, 24 May 2007

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.