Clause 169 - Insurance companies

Finance Bill – in a Public Bill Committee at 7:45 pm on 20th May 2003.

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

Photo of John Healey John Healey The Economic Secretary to the Treasury

Clause 169 and schedule 33 make a number of significant changes to the taxation of life assurance companies. They are designed to stop avoidance and close loopholes, but they also make some changes that the industry has been seeking for some time. The provisions stopping avoidance and closing loopholes cover three main areas: case 1 or trading profits, capital gains and transfers of business. I shall explain those areas in more detail when we debate schedule 33 and related amendments shortly.

I should explain the process of consultation and detailed work that lies behind the clause and the schedule. On 23 December last year, the Inland Revenue issued a detailed press release setting out the Government's proposals. That was followed in January by draft clauses and detailed explanatory notes on those clauses. Since the publication of the press release and the clauses there has been extensive consultation between Revenue and Treasury officials, with representatives of the industry and individual companies. As a result of those discussions, a number of significant changes have been made to the draft clauses.

The main thrust of the changes has been to reduce the compliance burden on all companies while retaining the effectiveness of the anti-avoidance measures that are intended to apply to the few companies that have sought to exploit the loopholes. Clause 169 and schedule 33 strike a fair balance between stopping avoidance and closing loopholes,

and making a modest reduction in the tax taken from the business. I commend the clause to the Committee.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary to the Treasury

I begin by congratulating my right hon. Friend the Member for Fylde because part of the changes embodies that for which he has been arguing for many years in relation to the capital tax gains regime for insurance companies.

Before we get into the detail of schedule 33, regarding which I have received extensive representations, it has struck me that there is more complexity in the provisions. There are some little bits of stealth tax here and there. The insurance industry is hardly in a state ripe for picking in terms of extra taxation, and what has emerged in the Bill is not what the industry had entirely expected from the preceding consultations. The deduction for policyholder tax is obviously welcome. There is a lot of strong feeling that amounts that would not be taxed under normal savings principles will now be taxed as for a life assurer, which is unreasonable. The treatment of normal transfers to shareholders has also attracted a great deal of criticism.

May I flag in advance that most of the amendments are probing amendments, but that amendments Nos. 133 and 134, which I would describe as the Scottish Widows and Friends Provident point, are the most important? I hope that the Government will have some good news for us on that front.

Question put and agreed to.

Clause 169 ordered to stand part of the Bill.