I beg to move amendment No. 120, in schedule 7, page 118, line 23, after ‘being’ insert
‘all of the assets of the company’s long-term insurance fund which are’.
The amendments would make a number of minor technical changes to the schedule and I think that you have agreed to take some minor amendments to schedules 8 and 9 at the same time, Mr. Gale. All those technical amendments arise as a result of representations made by the insurance industry and they reflect the detail of the consultation undertaken in recent months.
That may make for brevity in our proceedings, but it would mean that the scrutiny process would be all the poorer.
I shall not ask questions about every amendment, because that might try the Committee’s patience—although I am tempted—but will the Economic Secretary explain amendment No. 105, in which the words “linked assets” are replaced with
“assets linked to the relevant business so far as so referable”?
I am surprised, because given the quality and fairness of the Opposition I was expecting probing questions about the group of amendments, but I am happy to put the issues in greater context. Paragraph 17 of schedule 7 rewrites section 432C of the Income and Corporation Taxes Acts 1988. However, a late change to the drafting approach here was not followed consistently through the whole section. Government amendment No. 105 ensures that the language is consistent.
Amendment No. 129 is a good example of the openness and trust between the industry and the Government that has been built up during the course of this major consultation on life insurance company taxation. As drafted in the Finance Bill, new section 444ABD of the Taxes Act 1998 gave what commentators described as an over-generous treatment of certain losses, which could lead to double counting. We are removing the part about losses, but that is not the end of the story. HMRC and the industry are continuing to discuss the tax treatment of transfers of business for reasons that I shall explain in due course and that we will discuss when we come to the stand part debate on the clause, if we have not already had it. I may have referred to some of those matters when I made my introductory remarks. If a revised or more focused rule about losses is needed, it can be done in the regulations. Amendments Nos. 121 and 122 amend schedule 7 and are purely consequential on amendment No. 129.
Amendments made: No. 122, in schedule 7, page 126, leave out lines 12 and 13 and insert ‘section 444ABD(1).’
No. 123, in schedule 7, page 130, line 35, leave out ‘in relation to that category of business’.
No. 124, in schedule 7, page 130, line 35, at end insert—
‘(3A) Where the relevant income arises from foreign currency assets, the whole of the foreign tax is attributable to gross roll-up business, unless the case is one where subsection (7) below applies.”.’.
No. 125, in schedule 7, page 130, line 40, leave out from ‘for’ to end of line 42 and insert
‘the words following “is” substitute “gross roll-up business.”
(7) In subsection (6)—
(a) omit “or 432D” (in both places), and
(b) for “the category of business in question” and “that category” substitute “gross roll-up business”.
(7A) In subsection (7), for—
(a) “the category of business in question”, and
(b) “that category”,
substitute “gross roll-up business”.’.
No. 87, in schedule 7, page 132, line 8, after ‘(b)’ insert ‘of subsection (6)’.
No. 126, in schedule 7, page 133, line 5, leave out ‘subsection (1)’ and insert ‘subsections (1) and (1A)’.—[Ed Balls.]
As I indicated on clause 37, this is a simplification that has proceeded with the support of the insurance sector, and the engagement of its advisers. As the Economic Secretary rightly pointed out, this new spirit of openness and consultation comes from the consequences of the announcement made in autumn 2005, which caused considerable unhappiness and uncertainty in the life insurance sector. This is the second year running that we have discussed changes to the insurance sector. There were significant reforms in 2003, 2004, 2005, 2006 and 2007. It would be helpful if Economic Secretary could indicate whether we are going to have to go back round the hurdles on the matter in 2008, or whether he feels that this is a settled set of reforms that are unlikely to see major changes.
I have a detailed question about schedule 7. As I understand it, the losses of the gross roll-up business cannot be carried back for 12 months, whereas losses of ordinary businesses and enterprises can be. Why are life assurance businesses being treated differently in this context from other types of business? Can the Economic Secretary illuminate the Committee a little more on the issue of transfers, to which he alluded in the first group of amendments? My assumption is that transfers within a life insurance company should not give rise to a tax loss or gain. He gave the impression that that aspect of these rules has not been pinned down yet. It would he helpful to have greater clarity on that matter.
On the former point, prior to 2006, there had been previous Finance Bills in which there were changes to life insurance and taxation. However, they had all been incremental and not first-principled. It was discovered in the autumn of 2005 that the operation of the life assurance taxation regime was so complex that neither Her Majesty’s Revenue and Customs nor the industry itself fully understood how the rules worked and how they interacted with a rapidly changing insurance world. An HMRC decision, announced in debates at that time, gave the impression of a small cost, which turned out to be a potentially substantial cost until the change was modified.
In order to avoid such problems in future, greater dialogue or consultation was needed, and we also needed to simplify the regime from first principles, which is what has been happening in the past year. The consultation and the changes we are introducing now are materially different from the changes to the tax regime for life assurance businesses in previous Finance Bills.
As I said, consultation is still ongoing on some matters, and our detailed technical amendments to the schedule following consultation are testimony to that fact. It would be foolish to rule out coming back next year or on Report with further detailed, consequential amendments following this reform and no member of the Committee, or anyone in HMRC or in the industry would want to do so. However, we will not need to make a first principle reform, as has been done in the last year.
If we make more progress in any respect on the matters I that listed a moment ago, including the transfers of business and apportionment of income contingent to the loans and funding arrangements of structural assets, we will be happy to return with further proposals in 2008. We will give the Committee a detailed update on the operation of the regime so far in a pre-Budget report, so there will be plenty of time for discussion and consultation if changes are needed next year. I will reply to the question on transfers asked by the hon. Member for Fareham when we come to clause 39 and schedule 9.
We have made a substantial amount of progress on this complex area; the clauses, schedules and relevant amendments before us are not controversial for the industry. They do not give everything that people want, but they go a substantial way towards doing so, and I hope that the Committee will agree to the schedule.