Clause 33

Part of Finance Bill – in a Public Bill Committee at 11:00 am on 9th June 2009.

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Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 11:00 am, 9th June 2009

I have a quick question. I understand the clause’s intentions; the Minister and I have discussed the Financial Services Compensation Scheme in other arenas on more occasions than I care to remember.

The clause centres on the tax treatment of interest and assumes that a depositor will get back their funds in full from the FSCS, which is the way in which the scheme has operated during the current financial crisis; in effect, the Government have issued an unlimited guarantee where the scheme has been called upon for retail depositors. However, the scheme’s rules, as outlined in the Financial Services Authority’s handbook, actually limit compensation to £50,000. If we return to a more stable financial climate and the £50,000 rule applies, a depositor with a deposit of £60,000 will only get £50,000 back, but will earn some interest on that money from the date that the scheme comes into force, in respect of their institution, and the date that the money is paid to the depositor. Will the interest they receive be treated as compensation, and therefore free of tax, or as interest and be taxable?