With this it will be convenient to discuss the following:
Clauses 56 to 125 stand part.
Government amendments 135 and 136.
Clauses 126 to 128 stand part.
Government amendments 137 and 138.
Clause 129 stand part.
Government amendments 139 to 143.
Clauses 130 to 146 stand part.
Government amendment 144.
That schedule 16 be the Sixteenth schedule to the Bill.
Clause 147 stand part.
Government amendment 145.
That schedule 17 be the Seventeenth schedule to the Bill.
Clauses 148 to 150 stand part.
Amendment 195, in clause 151, page 89, line 20, at end add—
‘(7) Consultation shall be undertaken with interested parties prior to the enactment of regulations under this section.
Clause 151 stand part.
Amendment 196, in clause 152, page 90, line 2, at end add—
‘(6) Consultation shall be undertaken with interested parties prior to the enactment of regulations under this section.
Clauses 152 to 176 stand part.
That schedule 18 be the Eighteenth schedule to the Bill.
Clause 177 stand part.
That schedule 19 be the Nineteenth schedule to the Bill.
Clauses 178 and 179 stand part.
Mr Bone, it is a pleasure to serve under your chairmanship on this sunny Tuesday morning. We can make huge progress in this morning’s sitting by debating over 120 clauses. I am sure that you will be relieved to know that I shall not be discussing each clause and schedule in detail individually, but if members of the Committee so wanted, I am sure that I could arrange for that to happen. However, I thought that I would try to set out why we are seeking to replace the existing tax regime for life insurance and what the benefits of the new regime are. Importantly, I also want the Committee to have confidence in that approach, and I want to discuss the consultation that happened between the Treasury and the insurance sector to get to this point.
Clauses 55 to 179 establish a new tax regime for life insurance companies and friendly societies—friendly societies are covered in part 3 of the Bill. The clauses represent a wide-ranging and fundamental revision of both the basis on which life companies’ taxable profits are computed and the detailed rules by which those profits are taxed. The changes will enhance the effectiveness of the tax system and bring the taxation of life companies more in line with that of other companies, as well as with the commercial realities of the life insurance business. In addition, the changes support the Government’s policy of reducing complexity in the tax system.
The UK insurance industry makes an important contribution to our economy. It is the largest in Europe and the third largest in the world. Life insurance companies play a vital role in providing pensions, life and health protection, and investment products. The Association of British Insurers estimates that, in 2010, there were some 21 million pension policies in force, along with 13 million life protection policies and 10 million savings policies. The insurance industry is also an important source of Government revenue, with life insurance companies paying £1.2 billion in corporation tax in 2009, including £720 million paid on the behalf of policyholders.
As I have said, this is a wide-ranging revision of the tax rules for life companies. The package of changes amounts to some 127 pages of legislation in total, with the new core regime contained in fewer than 80 pages. To put that in context, we are repealing some 147 pages of existing primary legislation spread over 22 Acts. There will also be significant reductions in the 80 pages of secondary legislation that support the existing regime. For instance, the regulations concerning friendly societies will be reduced from 38 pages to just seven.
Let me give the Committee some background. The changes are made necessary in part by the solvency II directive—an EU directive looking at the solvency of insurance companies—which triggers a need to change the basis of life insurance taxation in the UK. Currently, one of the unique features of the taxation of life companies is that taxable profits are not, as is the case for companies generally, based on their accounting profits. Instead, taxable profits are derived from regulatory returns made to the Financial Services Authority. Under solvency II, the regulatory returns made by insurance companies to the FSA will no longer provide the information necessary to make the current basis of taxation work. Change is therefore essential.
I will now set out the main areas where we are making changes and explain how we have worked with industry groups to ensure that the rules are workable. The first area is trading profits, which will be calculated on the basis of life companies’ accounting profits. This is a significant change and is welcomed by the industry. It will simplify life company taxation and bring it into line with general tax rules.
Secondly, life companies are uniquely subject to the income minus expenses, or I minus E, basis of taxation. This ensures that tax is collected both on the profits and on the investment income accruing for the benefit of policyholders. This will continue but, unlike now, the scope of I minus E will be restricted to the type of business where it is appropriate to tax shareholder profit and policyholder income together. Life protection business such as term assurance, which does not attract significant investment return, would therefore be excluded from I minus E. This is acknowledged by the industry as a sensible rationalisation. It would simplify the system and eliminate distortions which can lead to competitive disadvantage for some companies.
The third main change is that the system will be simplified further by amalgamating two of the three existing categories of insurance business recognised for tax purposes. The new combined category will comprise what is currently “gross roll-up business”, such as pensions and annuities, and home and health insurance, including critical illness policies. It will also contain life protection business written under the new regime. Again, the industry firmly supports this change.
The fourth change concerns the allocation of income gains and profits. The allocation of income gains and profits between the categories will in future be determined by reference to the commercial activities and processes of individualcompanies. Currently they are determined by statutory formulae which are often arbitrary in their impact and do not reflect commercial reality. Again, the industry very much welcomes this alignment of tax with the commercial nature of the transactions. The fifth and final point is that in a number of areas life companies will be brought within the rules applying to companies generally, simplifying the tax system greatly by reducing the need for special provisions for the sector.
On the question of the tax impact of the changes, those cannot be assessed with certainty. In particular, the tax yield, including transitional arrangements, is sensitive to future movements in equity and bond markets. The Office for Budget Responsibility has forecast the market developments, and that has been used to help project the tax impact of these changes. On the basis of these projections we expect that over the first four years of the new regime, which is the forecasting horizon that we use, the changes will result in an increase in tax receipts as set out in the Red Book.
This is work that the Treasury has conducted in collaboration with the industry and other stakeholders, and their contribution has been vital to ensuring that we get the regime right. The clauses have been subjected to extensive consultation and the process has attracted some positive comments across the board. The Association of British Insurers said that it would like to express its
“appreciation of the consultation process with HMRC which has been open, thorough and very professionally conducted.”
Informal consultation started in 2009 and since then we have maintained close co-operation with the insurance industry and other stakeholders through a series of joint working groups. These working groups have considered the complex and difficult technical issues in detail, and—this relates back to Opposition amendments—we have set up a forum to identify and consider particular concerns of friendly societies and mutual life assurance companies. The work of these groups is continuing and will help to ensure a smooth transition to the new regime.
We have issued two consultation documents and held a series of 13 well-attended open meetings to consider aspects of the new regime. There has been ongoing dialogue with individual insurers, representative and professional bodies and industry advisers. Throughout, consultees have contributed fully and constructively. This has greatly added to our understanding of the issues, and many of the changes we are making owe a great deal to suggestions we have received.
Concerns have been raised in a number of areas, and significant adjustments have been made to the legislation in the light of representations. These include the relief for policyholder deferred tax provisions, the transitional arrangements, the targeted anti-avoidance rules and the carrying forward of trade losses into the new regime. We have sought to accommodate industry concerns, where possible, without putting the Exchequer at risk or introducing unnecessary complication. Overall, the industry has welcomed the collaborative approach we have taken to the consultation process and supports the regime we are introducing.
Since the Bill was introduced, we have continued that consultation, which has highlighted the need for Government amendments to address points of detail in four areas. None of those amendments represents a change of policy; they are technical adjustments to ensure that the rules will operate effectively and as intended. In all but one case, the need for amendments was identified by consultees. The amendments have been discussed with industry representatives and have benefited from the comments received.
The amendments may be placed into four groups. Amendments 135 and 136 amend clause 126, which provides appropriate relief where losses on loan relationships are reflected in both the trading result and the I minus E result. The need for a restriction of losses is acknowledged by the industry, but we received representations that the rule, as currently framed, could restrict relief in certain circumstances where that would be unjustified. The amendments eliminate that possibility.
Amendments 137 to 143 amend clauses 129 and 130. The amendments address transfers of business between connected companies, based on two issues identified by the industry.
Amendment 144 amends paragraph 154 of schedule 16, which addresses the way in which certain reliefs may be carried back to an earlier period so that the full benefit is obtained. Further consultation made it clear that the amendment is needed to ensure that the measure works in all circumstances.
Finally, amendment 145 amends paragraph 27 of schedule 17, which addresses the transition of life companies’ holdings of securities into the new regime. We have become aware that the rules would have permitted indexation allowance to create or enhance a capital loss when disposing of securities, which is not generally permitted under capital gains rules. The amendment ensures that excessive allowable losses do not arise.
Opposition amendments 195 and 196 would prevent the making of regulations under clauses 151 and 152 without prior consultation with interested parties. Unsurprisingly, given the nature of previous amendments tabled by the Opposition, the amendments also require the Chancellor to lay before the House a report on the impact of any such regulations—a recurring theme in this debate.
Clause 151 applies the rules on mutual life assurance companies to friendly societies and permits regulations to modify those rules, as necessary. Regulations have been made under a similar existing power. Clause 152 applies the rules on the transfer of long-term business between companies to friendly societies and also permits regulations to modify those rules, as necessary.
The Government stand firmly behind the idea of mutual co-operation and support on which friendly societies, and the mutual model generally, is founded. The Government are also committed to fostering diversity within the financial services industry, in which friendly societies play an important role. Moreover, the Government fully support the type of consultation and transparency for which amendments 195 and 196 call—I have already talked about the extent of the consultation we have undertaken to deliver the new regime—but the amendments are unnecessary. Regulations under clause 151 have been drafted, and we are already discussing those with the industry. That consultation and liaison will continue, allowing us to monitor the impact and operation of the regulations. Copies of the draft regulations have been provided to the Committee with the letter that my hon. Friend the Exchequer Secretary sent on 11 June.
The regulation-making power under clause 152 rewrites an existing power that has not been used. We have no current plans to make such regulations, and, of course, we would consult if any regulations were necessary.
Those simplifications should be seen alongside other tax changes we have made, or are making, that will benefit the life insurance industry. We are making major changes to the taxation of foreign profits, which will reduce compliance burdens, provide flexibility to UK headquartered groups and make solvency II-related, cross-border restructuring easier. Additionally, the industry will benefit from the branch exemption introduced last year and the reduction we are making to the corporation tax rate.
This package of tax reforms enjoys the broad support of the life insurance industry, providing the UK with a more effective, commercially orientated regime for the taxation of life companies, simplifying the tax code and making Britain an even more attractive place to do business. I commend the clauses, schedules and Government amendments to the Committee.
It is a pleasure to serve under your chairmanship this morning, Mr Bone.
I will speak to the provisions and Government amendments relating to clauses 55 to 149, and my hon. Friend the Member for Kilmarnock and Loudoun will deal with the remaining clauses in the group, which covers a large chunk of the Bill. As the Minister set out, the proposals are mainly non-contentious and are, for the most part, supported by the insurance industry. He explained well that the provisions represent the downstream consequence of the transposition into UK regulations of the European directive on insurance and life insurance capital adequacy, known as solvency II.
Although it is tempting to debate the wider merits and pitfalls of the solvency II regime—there are serious concerns about the impact of those changes on pensioners, on those paying premiums for their life insurance products, and on annuitants whom the changes may hit—it would not be appropriate to dwell excessively on those bigger questions at this juncture. We are debating today how Her Majesty’s Revenue and Customs calculates the taxes that our UK insurance companies ought to pay. As I understand it, and as the Minister has said, there are no substantive changes to the amount due from the sector. Insurance firms have not made any strenuous representations against the clauses and support parts of the changes.
In essence, our understanding is that the clauses preserve roughly the same quantum of tax revenue from the sector, but empower HMRC to use new means of calculating the sums due. The Financial Services Authority currently receives data about insurance and company transactions, and balance-sheet information, in a form that fits old regulatory requirements and the returns that were submitted, so that those can be properly monitored. Solvency II fundamentally restructures the nature of the regulation, and the restructuring of returns to the FSA as a consequence is provided for in the Bill.
Although the clauses are not contentious in nature, I have one or two queries that I hope the Minister will address. He has partly answered my first question, but will he clarify what total revenue changes are anticipated from the different divisions of the insurance sector as a result of the reforms? Although the overall impact may not affect the current projections, are there any particular sectors in the insurance industry that the changes may affect more or less than others?
The Minister referred to this point in his comments, but will he clarify what the anticipated costs are of implementing the administrative changes, both to HMRC and the insurance sector? The alterations are complex and bureaucratic, and presumably their implementation will carry a cost. Will the Minister clarify what the impact assessment says on that point?
What does the Minister predict will happen to insurance company profits over the medium term? Will they be adversely affected by the double-dip recession? Is there any HMRC internal analysis of how that tax base may vary in the years ahead, either because of solvency II or because of other pressures on the sector in general?
Chapter 5 sets out the rate of tax applicable to with-profits policyholders’ share of profits. What information will be sent to those with-profits policyholders on how their share will be taxed? Will it be left to customers to search that out for themselves, or will insurance companies be providing new information for them? I presume that no changes will be made to taxation at source—PAYE and so on—but will the Minister confirm that?
Will the Minister elaborate on clause 112 in chapter 6, in which there is a change to the indexation return on gilt-edged securities? Is this connected to the Government’s changes in indexation from the retail prices index to the consumer prices index, or are there other explanations? In chapter 8 there are provisions affecting overseas insurance firms that do business in the UK and across the EU. Are these changes likely to affect the competitive ability of firms, whether British or from abroad, to trade and do business in the UK?
Finally, in chapter 12 there is a set of powers to be granted to the Minister to make changes to the legislation through secondary legislation. Can the Minister assure the Committee that any statutory instruments that substantially change the terms of life assurance business will require an affirmative resolution and will need to be approved by a vote on the Floor of the House, rather than being dealt with by negative resolution?
It is a pleasure to be back in Committee, and I am looking forward to our debates under your chairmanship, Mr Bone. I refer Members to my entries in the Register of Members’ Financial Interests in relation to the Co-operative and my membership of the Kilmarnock football club supporters’ trust.
I shall speak to amendment 195 to clause 151, and amendment 196 to clause 152. As Members will be aware, friendly societies and mutual insurers have been around for hundreds of years, and the early meetings of the friendly societies were often social gatherings at which people paid their subscriptions. We can therefore say that there is nothing new in the big society and people coming together to work for the benefit of themselves and their communities. Also, those of us in what is described as the Facebook generation may note that friendly societies were a very early form of social networking, with people coming together to share common interests. People joined friendly societies in large numbers, and over time the friendly societies and mutuals began to represent specific trades and professions. By the late 1800s, I understand that there were around 27,000 registered societies.
It is important to recognise that friendly societies and mutual insurers were often the only way working people could ensure that they had help in their old age, or in times of ill health. In those days, having no income often meant a life of begging or the poorhouse, and the importance of mutual societies to their members, given the tremendous social service that they provided, and that people provided for themselves and their communities, cannot be overstated. Of course, that is why successive Governments encouraged membership of those societies. Membership did drop off, perhaps as a result of the introduction of the welfare state, but even as recently as 1995 over half of the UK insurance industry was in mutual ownership.
I am one of those who regret the fact that a lot of time had to be spent defending the principles of mutuality and trying to ensure that people did not make a fast buck out of demutualisation—that is a debate for another day—but we have to recognise that large-scale demutualisation contributed to shrinkage of the sector. Today there are fewer than 300 friendly societies and mutual insurers, with a mutual share of around 5 per cent. of the UK insurance sector. Nevertheless, the ethos of those remaining societies remains consistent with their origins: the aim is to help people take better control of their finances within an organisation that is run for, and owned by, its members. We may not have the quantity of organisations now, but I would argue that we certainly still have the quality.
As we know, many mutual organisations are very proud of their heritage, and of providing members with the savings plans, mortgages and insurance that they need. Of course, the mutual sector nowadays is diverse. Arguably, organisations such as housing associations, various local community clubs, credit unions, employee-owned bodies and specialist organisations such as football supporters’ trusts and community mutuals are following that long heritage and tradition, and we are also seeing the development of new mutuals in the public sector—NHS foundation trusts, leisure trusts, co-operative schools and community housing—some of which have been controversial.
The important point—I shall explain later why I stress this—is that the mutual philosophy is built on a sense of ownership, and of members belonging to an organisation and trusting it to work in their best interests and for the interests of the wider community; it also allows participation in the democratic process.
As mutuals are of course owned by their members, they do not have obligations to external shareholders. They are free to focus entirely on their members’ needs and are a successful business model. As we have heard, there are mutuals within all sectors of financial services—banks, building societies, the friendly societies that these clauses refer to, insurers and health care providers. They can offer savings and investments—more recently they have been focusing on children’s savings—and mortgages, pensions and health care. It is estimated that the mutual sector in the UK accounts for over £95 billion in revenue, and affects in one way or another the life of one in three UK citizens. Around 20 million people in the UK are estimated to be members of at least one mutual, and over 900,000 people are working in the sector. Globally, mutuals’ aggregate turnover is equivalent to the world’s 10th biggest economy.
To come to the issue of the clauses and the part of the Bill that are before us, as we have heard from the Minister, friendly societies are treated for the purposes of corporation tax in the same way as life insurance companies, but with a number of modifications to reflect their special status—that is, they are not taxable on their trading result and some of their business is exempt. As we have heard, this treatment is reproduced in the new legislation by excluding them from the definition of an insurance company for the purposes of part 2 of the Finance Bill—the rules applicable to insurance companies. Part 3 re-extends the rules applicable to insurance companies to friendly societies within specific limits and with specific modifications.
Clause 151 provides that the long-term business of a friendly society will be taxed in the same way as that of a mutual insurance company, but with a subsection providing for exemptions, which are dealt with in clauses 153 to 169. There is also a subsection allowing for secondary legislation to provide exceptions to the mutual life insurance treatment and modifications. As we have heard, those measures reproduce existing legislation, under which regulations have been drawn up, as is permitted by the clauses, taking into account the fact that the regulatory terminology for friendly societies may well be different from that for life insurance companies.
In a number of cases, there are additional categories of business to which the investment returns must be apportioned, and regulations are required so that the appropriate tax rules can be applied to friendly societies. The Minister talked about the consultation on the regulations. Those regulations have to be recast entirely, because the primary legislation to which they point is, of course, different. There are a number of important issues to consider under those rules. I am pleased to see that the new legislation preserves the principle of mutuality in the same way as the current legislation does. However, some people might argue that there is nothing in the primary legislation to prevent secondary legislation from excluding certain categories of business that HMRC perceives as being not bona fide mutuals. It could be argued that this risk is already present under the current legislation. I think I heard the Minister give a commitment to the mutual sector, but it would perhaps be helpful for him to restate an assurance that if any risk to that principle appears, he will ensure that the secondary legislation deals with that, so that the principle of mutuality is not in any way undermined. I am sure that, in his discussions with the industry, that will be taken forward.
I understand that HMRC, in the context of the present reforms, is not envisaging any general policy changes towards friendly societies, which is helpful. As the Minister said, there is an improvement in the way the proposals in the Bill are being taken forward, in particular as regards simplification. Under the new legislation, all gross roll-up business, pension business, overseas life assurance business, life reinsurance business, individual savings accounts and child trust funds are to be taxed on the basis of their real trading profits, rather than, as the Minister said, under the I minus E system. Therefore a friendly society will no longer need to prepare trading computations for those businesses, as the profits will simply be ignored for corporation tax purposes, hopefully making life simpler.
The exemptions from corporation tax on income and gains attributable to certain classes of business are all preserved, particularly for unregistered friendly societies with income not exceeding £160 a year, in clause 171. Certain categories of long-term business, with current limits and conditions for exempt life assurance businesses, are dealt with in clauses 153 to 162. Part 2 also changes the way income gains and profits are apportioned between business categories as of 1 January 2013, and replaces the current rigid formulae with a new, more realistic commercial allocation method. That means that friendly societies, which also fall within the new rules by virtue of being treated in the same way as mutual insurance companies, will have to agree the new method with HMRC as early as possible. I understand—again, the Minister referred to this—that the industry does not feel that this will be a particular problem. Indeed, the changes are considered welcome improvements.
The transfer of business rules applicable to life assurance companies are to be applied to friendly societies. Again, this is broadly in line with the current rules and is particularly important for preserving continuity. There is a new targeted anti-avoidance rule applicable to life insurance business transfers where one of the main purposes of entering one-on-one arrangements is to secure a tax advantage. There is a clearance procedure to pre-empt its application. By virtue of clause 152, this will extend not only to transfers of engagement between friendly societies, and to transfers between insurance companies and friendly societies, but to amalgamations of friendly societies or their conversion into insurance companies. As I understand it, that is intended to be widely cast because of the tax planning opportunities represented by such projects.
Generally, we think that the primary legislation proposed would have its intended effect. Schedule 18, which makes a number of consequential amendments, carries through the new rules to the rest of the tax legislation. I understand that no questions have been raised by the industry on it. Schedule 19 provides for continuity between the current legislation and the new rules, and it looks as though that will work as intended. However, I want to mention a couple of areas where we have concerns, and which we want the Government to monitor. I heard what the Minister said about that, and why he believes our amendments are not necessary.
We tabled our amendments because there is some concern that the regulations relating to clauses 151 and 152 may have a retrospective effect. Given the potential vulnerabilities relating to mutuality and the transfer of business considerations, we simply want the Government to be required to consult with industry and to lay a review of the impact of any changes in the Library. I appreciate that there are further opportunities to modify the legislation to prevent any emerging unfairness via the regulations drawn up under clauses 151 and 152. I am sure that the Minister will give us an assurance that he will work carefully to deal with the differences in terminology relating to issues pertaining to friendly societies and to the wider mutual insurance sector. Although the general principles and most of the clauses we are considering are largely not contentious, past experience suggests that there tends be less scrutiny of the wording of secondary legislation, so there is perhaps all the more reason to consult on that and bring it forward, as the Minister has done.
The Minister referred to the fact that there is a theme running through our amendments. Hopefully the Government will appreciate that that theme is there because we believe in the importance of consultation and proper scrutiny. I will wait for the Minister’s response before deciding whether to press the amendments to a Division.
Having gone through the previous clauses almost litigiously, we now appear to be rushing at a huge rate, taking vast amounts of the Bill in one go, rather than giving it the line-by-line, word-by-word and comma-by-comma scrutiny that would be more appropriate to a legislature with 650 Members.
Thank you for that information, Mr Bone.
On the question of unintended consequences, if we think back to the last Finance Bill, we may recall what happened when the draw-down pension issue failed to be identified. Some 300,000 pensioners across the country are now losing, in the case of my constituents, 60% of their pension, not because the Government wanted to victimise those hard-working, successful business people who had invested in private pensions, but because, somehow, changes sneaked into the Finance Bill had unintended consequences. Someone, doubtless a mandarin in the Treasury, got it wrong. One can forgive Ministers for not being on top of every minute detail. Looking at the level of detail in these clauses, one does not envy Ministers who are attempting to understand every jot and tittle.
Again, it is a pleasure to serve under your chairmanship, Mr Bone. I am extremely concerned that the hon. Member for Bassetlaw is undermining ministerial responsibility, which is a basic principle of our constitution. I have great confidence that the Ministers represented here know every detail and sentence of the Bill.
I would take the hon. Gentleman more seriously if he had not voted repeatedly to allow the European Union to impose its will on this Committee and this Parliament in setting British taxation levels, which is a choice that he and others have made during our proceedings.
Mutuals and friendly societies are, of course, the big society writ large. We have another name for them: trade unions. That is what the big society is all about, and it is a shame that, in the raft of legislation they have introduced, the Government have not learned from the mistake of the previous Labour Government, who failed to give those friendly societies known as trade unions proper authority on issues such as pensions.
An interesting observation on the financial crisis is that those European countries that allow the trade unions a proper stake in insurance and pensions, because of the tripartite arrangements that were started post-war, are those where the financial institutions have been more robust. Sweden, Norway and Denmark, as opposed to Iceland—the one member of the so-called Scandinavian bloc that went in a different direction after the war—have been more robust, as have the Netherlands and, ironically, small, little Belgium. That key factor warrants further examination.
The Government have not brought forward a whole raft of legislation to correct that anomaly in Britain’s financial sector, which is a shame because that would do much to underpin a vibrant, strong and consumer-trusted financial services sector in this country. That is not the question before us, however, so it is a matter for another day.
Looking at what is now emerging from the Budget, one finds that a toast tax and a storage tax were hidden away. Every day a new covert tax on the British people emerges that the Government have failed to outline. Are any such covert taxes that we need to know about hidden in these clauses? Will the provisions have any unintended consequences?
I appreciate, to return to my introductory remarks, that that creates a dilemma for the Minister, who is assiduous without question among all Government Ministers. Ministers have had to cover for the Chancellor repeatedly by doing U-turns on his behalf, and there is no question but that a job swap would be in the interests of the Government, the political party concerned, and the country. I recommend that instantly to the Minister’s Chief Whip, who is not here, and to those with such powers, but—
Clause 55, Mr Bone, and the consequential amendments. In all seriousness, I am developing an argument to support my point. What will the Minister do if, over the next year, unintended consequences emerge that he cannot outline, by definition, because amendments have not been made at the Committee stage? That is the point of comparison with draw-down pensions. The Government and Ministers appear paralysed when acting to correct an error, whether they are hiding behind their red boxes or behind good, earnest civil servants from Brussels. Ministers are hiding away when it comes to correcting a major, technical anomaly created by the previous Budget. They do not know what to do and are therefore not coming forward, even to instigate debate on what we, the legislators, might advise them to do to get out of the hole that they have created.
With this complex area, if unintended consequences emerge in the next 12 months, will the Minister tell the Committee the precise course of action that he will undertake, so that we can be reassured? If we collectively do not spot something in the provisions today, but a problem emerges later because of the technical complexity, we need a guarantee that the Minister will bring the matter to the House instantly to give us the opportunity to correct any errors.
Let me first correct an error made by the hon. Gentleman, who presented a rosy view of countries where there has been strong trade union representation and a tripartite system of pensions. I remind him, however, that not only was Belgium without a Government for 535 days, but in Denmark, we have repeatedly seen bank failures, and cross-border bank failures have happened in Belgium and the Netherlands. Perhaps the hon. Gentleman was late because he was studying those matters in more detail, and if so, I recommend that he is late for this afternoon’s sitting too, so that he can pay a bit more attention to what has happened in such havens of trade union-engendered stability. As you might ask me what clause that relates to, Mr Bone, the answer is none of them, so I will deal with the questions raised so far in the debate.
The hon. Member for Newcastle upon Tyne North asked whether any particular parts of the industry would not be affected. We do not calculate the tax impact in that level of detail, but we have sought to consult fully with the industry to ensure that we get the rules right. There was the process of consultation that I set out, and we have tabled amendments to the Bill at this stage in order to deal with some unintended consequences, so when such problems are found, we listen, as the hon. Member for Bassetlaw will be pleased to know, and we try to get them right.
The hon. Lady also asked about the Bill’s impact, in terms of burdens on businesses. Although there will be some one-off familiarisation and training costs for tax specialists, the measure simplifies the tax regime. Bringing the tax computations more closely into line with accounting procedures, rather than regulatory returns, will help to bring benefits to businesses in the long term. Bringing the tax computations more closely into line with accounting procedures, rather than regulatory returns, will help bring benefits to businesses in the long term.
The hon. Lady asked whether I could forecast the medium-term profits of life-assurance companies. I assure her that if I were able to do so accurately, my talents would be used down the river and not in this Committee Room. The profitability of those companies depends on returns on investments and, of course, the best help that we can give is to tackle the legacy we were left by the previous Government and create a more stable economy. I am sure she will welcome the fact that the consumer prices index fell today.
The hon. Lady asked whether these changes will make UK industry less competitive. I do not believe that these changes will damage the competitiveness of the UK insurance sector compared to foreign companies; that is why we have engaged closely with the industry in the design of this and will maintain close links with the industry and discuss the implementation and operation of the new regime regularly. Of course, industry is not slow to tell us when things are not going quite according to plan.
The hon. Lady asked whether it would require new information for policyholders. No new information is required for policyholders and there is no reason why it should have an impact on PAYE, upon which she sought clarification. The changes she referred to in the indexation of gilts had nothing to do with the RPI/CPI change. The hon. Lady asked about the process for parliamentary scrutiny of regulations. We are following the precedent set in previous legislation and the statutory instruments are by the negative procedure, but, of course, she and others are welcome to pray against those if she feels there is need for a debate on those statutory instruments. I look forward to that.
I can assure the hon. Member for Kilmarnock and Loudoun that Kilmarnock FC does not fall within the legislation, unless it happens to be a friendly society selling insurance products—I suspect not. The Government stand very firmly behind the ideals of mutual co-operation and support on which the friendly society movement and the mutual model generally are founded. All life companies and friendly societies have to be brought within the new rules, because the existing regime will no longer work for them under solvency II, but we have been very clear that we are not making any changes to the fundamental principles on which mutual insurers are based. We have made specific consultation arrangements for the mutual and friendly society sector in order to ensure that any particular concerns are fully considered, which is why I do not think that the hon. Lady’s amendments are necessary. The fact that we are consulting with the sector at the moment demonstrates that they are unnecessary.
The hon. Lady asked whether the changes were necessary for friendly societies and whether they would have a disproportionate impact. If we were to maintain the existing regime for friendly societies, an additional set of computations would be required. Societies would need accounts under the solvency II regime and the existing regime. I do not think that that is efficient. We are able, as a consequence of this move, to cut the number of pages of regulations for existing friendly societies from 38 to 7; that is of use to them and I hope it is welcomed by them. The hon. Lady should be reassured, as the sector should be, that we will always consult on that. She raised the issue of the retrospective impact of the proposed instruments. Again, we are talking to the sector about those and should be able to clarify any concerns the sector has.
The hon. Member for Bassetlaw touched on pensions. There is some press coverage to suggest that some of the taxation issues related to solvency II will have an impact on pensions; that is not the case. With that, I hope that the Committee will see this large and capacious group of new clauses pass into legislation.