Clause 47

Finance Bill – in a Public Bill Committee at 9:30 am on 11th June 2009.

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Equalisation reserves for Lloyd’s corporate and partnership members

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

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The clause has found widespread support within the insurance sector. There was a differential in the tax treatment of equalisation reserves between conventional insurance companies and those people who participated at Lloyd’s, particularly the corporate partnership members. The clause tries to address an important issue that has emerged over the past couple  of years: for a certain group of reinsurers, it has become increasingly more attractive, for tax and regulatory reasons, to move their redomicile activities from the UK to Bermuda. The clause should help to redress some of the competitive issues. Will the Minster say a little more about what else the Government are doing to address the competitive challenge that exists in reinsurance, because London has been seen as the primary insurance market? Lloyd’s has a strong brand globally and is an important part of our financial services sector, but there has been that shift from London to Bermuda, and several people have questioned whether the Government are doing enough to reverse that move.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

The hon. Gentleman is absolutely right that that provision has been welcomed by the reinsurance industry, which has certainly been pressing us on this for a considerable time. The clause will put in place Treasury power to make regulations that will extend the benefit of tax relief on making equalisation reserves to corporate and partnership members of the Lloyd’s insurance market. He is right to point out that general insurance companies currently benefit from relief when they are required by the Financial Services Authority, as the insurance regulator, to make equalisation reserves, but Lloyd’s members are not required to do so. Essentially, we are seeking to level the playing field, and that has been welcomed by Lloyd’s.

The regulations—a draft is available to the Committee—follow the existing rules that apply to general insurance companies and are suitably adapted to grant tax relief where Lloyd’s members choose to maintain notional reserves equivalent to the equalisation reserves maintained by general insurance companies. The clause increases fairness and helps the competitiveness of the UK insurance market.

More generally on competitiveness, the hon. Gentleman will be aware that groups take into account a range of factors when reviewing their domicile, including regulation and its effect on credit ratings, the availability and quality of local staff, professional support services, infrastructure and also tax. We believe that London shapes up well as an attractive environment and a world-leading, professional centre with support and an unsurpassed insurance industry presence and experience.

The UK corporate tax burden compares favourably with those of similarly developed countries. Luke Savage, the finance director of Lloyd’s, has expressed strong support for the measure, which is expected to make a significant difference to members’ tax bills and improve Lloyd’s market competitiveness compared with other general insurers. That addresses the hon. Gentleman’s point about Bermuda and other jurisdictions. The Government will always want to keep these matters under review, but the clause has been welcomed by Lloyd’s and the industry. We are acutely aware of the need for a competitive regime, but tax is not the only consideration.

Photo of John Pugh John Pugh Shadow Minister (Health), Shadow Minister (Treasury)

Does the Minister recognise that Bermuda, like the Cayman Islands, is a Crown dependency and that there is unfinished work to be done? It is not just a question of making a competitive environment; it is about doing something about a regime over which we have some control.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I accept the hon. Gentleman’s point. He will be aware of the work being done on tax havens and other jurisdictions, and of the extensive amount of work involved in insolvency. It is important that we, as a Government, continue to work closely with the industry to discuss the impact of the proposed solvency II changes, and the competitive position more generally, and to take appropriate action where needed to ensure that the UK maintains its pre-eminent position in the world’s insurance markets.

Question put and agreed to.

Clause 47 accordingly ordered to stand part of the Bill.

Clause 48 ordered to stand part of the Bill.