I will be relatively brief, because the clause is perhaps not hugely controversial as far as politicians are concerned, although I am sure that there has been some considerable debate within the industry to ensure that the clause, eventually tabled by the Government, makes changes that it can at least live with, if not what the industry necessarily would have tabled.
The clause will amend the tax treatment of premiums incurred by the corporate bodies in Lloyd’s for member-level stop-loss insurance. It aims to align the timing of the tax deduction for the premiums with the recognition of the profits to which they relate. The premiums incurred by the corporate bodies in Lloyd’s for stop-loss insurance taken out at member level will be taxed on the declaration basis and not on an annual basis, as is currently the case.
It is important to recognise that the declaration basis is a tax treatment specific to Lloyd’s. It allows the recognition of the profit or loss arising directly from the corporate body’s syndicate membership for any particular underwriting year to be deferred for tax purposes until after that underwriting year has closed. The underwriting year closes after three years, with the result that the profit or loss is recognised for tax purposes in year four, the period in which the profit or loss is declared. The measure also includes an anti-avoidance provision in respect of quota share contracts.
As I said at the outset, I do not intend to go through the whole history of the issue. However, following the announcement of the measure in Budget 2011, the Government held informal consultations, as I understand it, with Lloyd’s and other interested parties. Following the consultation, when the draft legislation was published, the Government decided to make further provisions to deal with multi-year contracts and renewals of contracts taken out before 6 December 2011.
It is important to recognise that the new rules will affect only stop-loss policies, which are defined for such purposes as any insurance taken out by the corporate member against losses in its underwriting business except for quota share contracts.
I have a question for the Minister. The summary of impacts indicates that the measure is expected to
“increase receipts by approximately £200 million a year over the period in which the timing advantage unwinds. The final costing will be subject to scrutiny by the Office for Budget Responsibility”.
Is the estimate still the same? Has any revision been made to that due to the work done so far, or will we have to wait to see how that plays out in future years?
It is a pleasure to serve under your chairmanship this afternoon, Mr Bone.
As the hon. Member for Kilmarnock and Loudoun said, the measure is a straightforward one, addressing the issue that emerges when corporates in Lloyd’s take out cover against losses and have claimed the cost of that in advance of the profits being incurred, and the timing difference that works in their favour.
We have had quite extensive discussions with Lloyd’s, as the hon. Lady referred to, so she got this point right: the measure has been greeted with a degree of support—“consent”, I suppose, is probably a better way of describing it. It applies only to corporates, not individuals.
The estimate referred to by the hon. Lady is the estimate we gave at the time of the autumn statement. We have no reason to believe that the estimate is in any way incorrect. We expect it to raise the revenue that we indicated at that time.