The clause adds a new section to the special tax rules dealing with corporate members of the Lloyd’s insurance market. It aims to counter a loss-buying scheme reported to Revenue and Customs under the avoidance scheme disclosure rules. The scheme involves companies buying tax losses from loss-making corporate members of the Lloyd’s insurance market, thus ceasing their underwriting activities. The clause will close that window by requiring that the group relationship between a corporate member and company that claims group relief to exist from the last day of the year in which the insurance business was written to the first day of the year in which the claim to group relief is made. The rule is narrowly targeted and will apply only to losses of a corporate member’s final year of writing insurance business. The rule will restore the usual group relief principle that relief for losses incurred in a year will be available only to companies related to the corporate member in that same year, but it will not affect ordinary commercial acquisitions in reorganisations when the newly created group relationship is part of ongoing economic activity.
The amendment arose from discussions with Lloyd’s. It will refine the definition of “reinsurance to close premium” so that it includes “other consideration”. “Reinsurance to close” is the mechanism by which a Lloyd’s syndicate closes its account. The commercial definition of “reinsurance to close” has evolved over time and the amendment will ensure that the tax rule will reflect the definition in Lloyd’s own rule.
I hope, Mr. Gale, that you do not mind that I have put the amendment in the broader context of the clause. It has been part of a wider consultative exercise on tax matters that we have had with Lloyd’s and with representatives of the wholesale insurance market over the past six months. Representatives of the Lloyd’s market will not be surprised that we have proposed bringing Lloyd’s syndicates into line with other companies. Industry commentators agree that the provision is narrowly targeted and not unreasonable. It was discussed with Lloyd’s experts in advance of the publication of the detailed clauses.
As I have said, the provision is part of a wider context under the auspices of the high-level group on City competitiveness, which has discussed a number of tax measures and wider market reforms aimed at enhancing the competitiveness of the Lloyd’s market—an important part of the City of London. I am therefore grateful for the work of the Lloyd’s market and particularly to Lord Levene for his leadership on that issue and for wider co-operation over the past eight months or so. Within the context of that productive work to enhance competitiveness, the change is necessary to bring the Lloyd’s market into line with our wider approach to taxation in that area and the amendment will close a loophole to ensure that the legislation is properly effective. On that basis, I commend the amendment and the clause to the Committee.
I want to say two things. First, I welcome the work that Lord Levene is leading on improving competitiveness of the Lloyd’s insurance market. That market has been under pressure in recent years—we have seen a number of wholesale reinsurers relocate from the UK to Bermuda. It is therefore important to take appropriate action to protect and strengthen that market. Secondly, with regard to the amendment, I ask the Minister what “other consideration” might include?
The definition in the original clause 32 was based on one already in use in tax legislation specific to Lloyd’s, which we had no reason to suspect was not operating as had been intended. The change in Lloyd’s rules to that definition only came to light during consultation with industry representatives on the financial clauses and was made in response to comments from Lloyd’s and other industry representatives.
The answer to the hon. Member for Fareham’s question is that “other consideration” applies to anything other than money. The existing definition to which I have referred was in section 107 of the Finance Act 2000 and will be repealed by schedule 11 to clause 41 of the Bill. Therefore, there is no need for a further change in definition.
I think that I am grateful to the Minister for his clarification. I think that he is saying that one of the considerations that can be part of the reinsurance to close process is non-monetary. Having worked in the insurance market prior to coming to the House, I am still at a loss as to what that consideration might be as part of a normal insurance transaction.
I was rather hoping that my hon. Friend the Member for Wolverhampton, South-West, in his normal diligent manner, might have found some drafting irregularity in the explanatory notes that he could have drawn to our attention.
The hon. Member for Fareham is quite right that when I said “anything other than money”, I was referring to something that is non-monetary. It is true that “non-monetary” is a slightly more technical way of saying it, but they are probably the same. I apologise for slipping away from the complexity of tax jargon to a more colloquial way of saying the same thing. [Laughter.] Who writes these things?
The answer is that the measure follows the Lloyd’s byelaw and future-proofs the legislation in case anybody comes along with some other consideration of a non-monetary or anything-other-than-money nature, which might cause a difficulty.
I am struggling because we are discussing a currently unforeseeable case. Given that, we want to ensure that were such an unforeseeable circumstance to transpire, we would have pre-empted it. Pre-empting a currently unforeseeable circumstance is not easy to define other than in the most general of terms—hence, the phrase “other consideration”. It says here that that could be anything, such as the assignment of rights. I am sure that the hon. Gentleman will understand that perfectly, given his declared expertise in this area. I hope that I have provided sufficient clarity to the Committee for it to move forward.