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of widespread consultation with members of the ABI and with bodies representing the company sector of the London market.

After considering the pattern of claims experience in this country for a period of 12 years, the working party has recommended that equalisation reserves would be suitable for a number of volatile classes of business. It has looked at the experience peaks of claims. I have already mentioned property, but others include marine, aviation, nuclear and certain reinsurance business. Reinsurers have borne much of the brunt of recent catastrophes and they need equalisation reserves just as much as direct insurers. It is thought that, following Kobe, much of the reinsurance loss will be incurred in the London market.

The ABI's proposals envisage that payment into the reserve would be based on a proportion of premiums. Withdrawals would be triggered where there were exceptional levels of claims. Maximum levels would be laid down for the reserves as it would be neither reasonable to expect companies to hold excessive reserves nor, if tax relief is granted, for the Treasury to allow unlimited amounts of deferred tax. I know that that is an issue on which the hon. Member for Edinburgh, Central (Mr. Darling) has written and spoken at some length. It is proposed that the rules should be varied according to the different classes of business, with those of a less volatile nature having smaller reserving requirements than those that are more volatile. The details of the scheme are not yet finalised. The DTI and the Inland Revenue are reviewing the working party's proposals. It is proposed to issue a consultative document in the spring, setting out the detailed proposals for comment by the industry. Once again, those could become the subject of regulations.

If the results of the consultation are looked upon favourably by the Chancellor, there would be an opportunity to announce tax relief in the November 1995 Budget, with the scheme coming into operation at the beginning of next year. The urgency of the Bill is that, without it, no scheme could be established before 1997 at the earliest. The House has fully supported the single market generally and, by approving the regulations implementing the third directives for both life and general insurance business, it has supported the single market for insurance in particular. It has also supported a regime of prudential regulation for insurance companies, in the interests of policyholders.

The Bill is good for consumers, for policyholders and for the industry. It is good for Britain because it will enable it to hold its place in the world insurance market. The Bill would further the cause of UK companies in the single market and their prudential supervision. I commend it to the House.

1.18 pm

Mr. Stuart Bell (Middlesbrough): The House is grateful to the hon. Member for Hertfordshire, North (Mr. Heald) not only for presenting the Bill, but for the way in which he did it. He mentioned added security, smooth premiums and, interestingly, Japan and our insurance companies that are competing there. In all my briefings we have talked about Europe, especially France and Germany, but we have never talked about Japan. The hon. Gentleman also mentioned Lloyd's--I shall return to that in a moment-- and he referred to competitive


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disadvantage. He has given us not only the outline of his Bill, but the reasons why he feels it should be passed by the House today. As I said earlier to the Minister, victory has a thousand fathers and so, too, does a successful private Member's Bill. The Bill has the support of the Government and of the Opposition. The hon. Member for Hertfordshire, North referred to my hon. Friend the Member for Edinburgh, Central (Mr. Darling). The Bill has the support of the Department of Trade and Industry, and of the Association of British Insurers, notwithstanding Lloyd's lukewarm approach, which is less vigorous than I would appreciate and would wish. It calls itself an innocent bystander, but says that, if the Bill is passed, it will take advantage of it. Does the Bill, however, have the support of the Treasury? That is the key to the debate and to the questions involved. Does it have the support of the Inland Revenue? I imagine that the Bill is a framework. It will give powers to the DTI, but the big question is: how will the Inland Revenue and the Treasury view the Bill? I stand to be corrected, but I think that I am right in saying that, if the Bill passes into law and regulations are created by the DTI, they will be as dust if the Revenue and the Chancellor of the Exchequer are not satisfied with the scheme. I do not say for a moment that they will not encourage or approve the scheme, but they will need to be convinced that tax relief should be given on the claims equalisation reserves.

As I said, the Inland Revenue has its own rules in the United Kingdom. They allow carry-back of losses over a three-year period. That is not felt, however, to give insurance companies the same ability to deal with fluctuating results as our European competitors. As the hon. Member for Hertfordshire, North said, the single market legislation that was passed was widely accepted in the House. There is general agreement that Europe should at least be a free trade area. If that is the view of many of our Euro-sceptic and Euro-rebel friends, they too would welcome today's legislation. We are all Europeans now, and we hear often enough that there should be a level playing field in relation to insurance, taxation and competition. Only a few weeks ago, I stood in the centre circle at St. James' Park and looked down to one goal and then to the other goal. There was no sight of Eric Cantona on that occasion. I take credit for that. I had a look around but he was not there. There is no such thing as a level playing field. No football pitch is straight and the level playing field is a metaphorical myth that we like to perpetuate in the furtherance of any argument that we advance.

The insurance industry is telling us that, if the European insurance industry has claims equalisation reserves, this country should have them too. If they are good enough for the French and the Germans, they are good enough for us, and they are certainly good enough for our insurance industry.

Last July, the third non-life directive came into effect. United Kingdom companies are now in more direct competition with European insurance companies. The hon. Member for Hertfordshire, North talked about competitive disadvantage. I am glad to see that my hon. Friend the Member for Bolsover (Mr. Skinner) has joined us.


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I always treat the idea of competitiveness with a certain dose of scepticism. Often in the past, competitiveness has been synonymous with unemployment, with jobs lost and with cuts. The burden of work then increases for people who stay in work on short-term contracts, so I am always a little worried when we talk about competitiveness. I am not sure that we are in a position to compete with the French and Germans in the world of insurance at this stage. It is early for us to be in competition with them. I noted that Commercial Union recently bought out a French insurance company. It wishes to implant itself in that sector simply by buying a company, rather than by selling insurance.

Competitiveness is rather like a level playing field. We have to consider it and agree on it, but it is not necessarily the big argument, although I understand why the insurance industry pushes that view with the Inland Revenue and the Treasury in seeking to persuade them that it needs tax relief to become competitive. It is the buzz word at the moment. That is the buzz word of the moment and I hope that the Treasury and the Inland Revenue will accept it as such.

In his book "The View from No. 11", Lord Lawson said that Parliament--the same goes for the Executive--can do two things: it can legislate and it can create a fiscal framework. It can introduce tax relief and make tax adjustments. The Bill seeks to establish the necessary legislative framework and the fiscal framework will have to follow. The adjustment to the latter has been a long time coming and my hon. Friend the Member for Edinburgh, Central (Mr. Darling) raised the matter in the Committees examining previous Finance Bills. In his 1993 Budget, the Chancellor of the Exchequer accepted that there could be a case for claims equalisation reserves with tax reliefs. As has been said, there was a consultation document in July 1993; there have been consultations with the Inland Revenue, and certainly with the Department of Trade and Industry; and there will be a further consultation document in spring.

Mr. Dennis Skinner (Bolsover): I have been listening carefully to my hon. Friend. If tax relief is being granted to insurance companies, the Exchequer will lose some revenue. Someone will have to make up for the lost tax, so the suggested intervention will result in the ordinary taxpayer paying more. As is the case with debt relief given to banks which write off irrecoverable debts, someone has to pick up the tab. How much money are we talking about? Has my hon. Friend got any figures?

Mr. Bell: My hon. Friend makes a valid point. Of course, that also works in reverse, in that, if the Government are saying, as the Prime Minister did the other day, that they want to reduce income tax to 20 per cent., they might not accept this scheme which takes money from the Revenue. As my hon. Friend said, the crux of the matter is how much it will cost. It is why the Inland Revenue and the Treasury have not so far said that they will support the scheme. We shall have to sit down and discuss the pounds, shillings and pence, as we used to say before decimalisation, but we shall not do so in Committee because, if the Bill is granted a Second Reading today, its Committee stage will be short.


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There have been various consultation exercises and new regulations are coming to provide a final opportunity for the industry and Parliament to examine all the issues. At the end of the day, we shall want to know the views of the Inland Revenue and the Treasury. It may be said:

"Though the mills of God grind slowly, yet they grind exceeding small",

but certainly not as slowly as the mills of Whitehall. It has taken two years to get this far, and we are not yet out of the thicket of Whitehall legislation, procedures and bureaucracy. After a statutory framework, we are hoping for the smack of decisiveness and firm government. We hope that the Chancellor and the Inland Revenue will go along with these proposals.

Nevertheless, the Association of British Insurers is to be congratulated on taking the initiative and reviewing possible fiscal and other distortions in the industry arising from the creation of the single market. As the House may have perceived, the Inland Revenue has yet to be convinced. In an era when shareholders are avid for ever higher dividends, it might be helpful to insurance companies to create claims equalisation reserves. It might be helpful to take funds from the balance sheet where they appear as profits and transfer them across as reserves, thus reducing the amount that shareholders perceive as being available for their dividends.

Mr. Skinner: From the second part of what my hon. Friend has just said, can we assume that, if the Bill is passed, it will allow insurance companies to put large sums in their reserves to offset any hurricanes or whatever that result in large insurance claims? Is it the case that tax relief could not be introduced under the Bill, but could come later only if the Government decided to introduce it? The insurance companies, therefore, would be doing something of a technical nature. If the Government and the Inland Revenue agreed to tax relief, the insurance companies could benefit from it. In itself, the Bill is a mechanical exercise which enables insurance companies to be prepared if the Government and the Inland Revenue come to an agreement.

Mr. Bell: I am grateful to my hon. Friend. I almost said that this is the house that Jack built. It is actually the house that the hon. Member for Hertfordshire, North has built. This is a small, three-clause Bill which will provide the framework within which the Department of Trade and Industry can put a house together. Whether that house is populated by claims equalisation reserves will then depend on the Treasury. This is not a finance Bill. In a sense, it is a harmonisation Bill which harmonises our legislation with that of France and Germany within the framework of the European Community where tax relief is allowed.

I was talking about shareholders and about their seeking ever higher dividends. I was talking about the advantage of taking what are now profits off the balance sheet and placing them into reserves. That would reduce the amount that shareholders perceived to be available for dividends, which would add to the stability of the industry.

The Bill may also help to reverse the trend in our business community for dividends to be the be all and end all of owning shares. Companies are destabilised and the amount available for research and development is reduced simply to keep the share price high and to keep the predator at bay. I am a great believer in the law of the


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unforeseen consequence. If one of the unforeseen consequences of the Bill is that it reverses that trend, I welcome it.

Mr. Skinner: My hon. Friend has referred three times to the fact that the Bill will bring us in line with the European Community. I am not a supporter of the Common Market. I know that many Labour Members have a different view; I am unreconstructed. I think that the Common Market is grinding to a halt. If anything stops in its tracks, the next movement is in reverse. That is what is happening to the Common Market.

Can the Bill stand on its own irrespective of what happens in France, Germany or any other country? In other words, it has nothing to do with the Community. Is my hon. Friend merely saying en passant that other countries in the Common Market have such legislation already? Can he assure me that the Bill has no European Community context?

Mr. Bell: I can give my hon. Friend that assurance. I made a slight tactical error, because I sought to incite Euro-rebels and Euro-sceptics on the Conservative Benches. I signally failed to do that, although I managed to rouse a Euro-sceptic on my side. Nevertheless, my hon. Friend's point is right. The Bill is, in computer terms, stand-alone legislation. After completing its passage through the House, it will stand alone as a beneficial framework for the insurance industry.

I hate to go back to the weather forecaster who told us all that there would not be a hurricane, after which the hurricane came along and swept the roofs off our buildings. We sometimes have volatile weather conditions; we have hurricanes and unforeseen situations. The framework will enable insurance companies to set aside reserves for such situations. The technical details of the framework have been worked out by the Association of British Insurers, but are in line with what the Treasury perceives to be in the national interest. I note, too, that the accumulated claims equalisation reserves will add to a company's solvency. I imagine--no doubt the Minister will be able to confirm it today--that any claim equalisation reserves would be in addition to the present solvency margin requirements, which are regularly scrutinised by the Department of Trade and Industry's division of insurance overseers.

In my opening remarks, I said that the hon. Member for Hertfordshire, North mentioned Lloyd's and that the Bill had the support of Lloyd's, even though Lloyd's is not affected by its provisions. Lloyd's has its own special reserve fund available only to individual names. My slight criticism of Lloyd's earlier, which I wish to repeat, is that it should bestir itself somewhat to ensure that, in the event of there being a claims equalisation reserve framework, it is a part of that framework for its corporate capital providers. If the future of Lloyd's is to be underpinned by such corporations, it is essential that it has the same claims equalisation reserve framework with the same tax relief as insurance companies.

We should all be conscious of the contribution that Lloyd's has made to our national economy--some £16,000 million to the United Kingdom's invisible earnings since 1984. If we are back to level playing fields, to mythological metaphors, the level playing field should also cover Lloyd's corporate providers as well as the rest of the insurance industry.


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I hope that I have convinced Conservative Members of our great support for this Bill and I hope that I have satisfied my hon. Friend the Member for Bolsover that my heart and mind are in the right place.

1.36 pm

Mr. John Greenway (Ryedale): I shall begin by trying to give the hon. Member for Bolsover (Mr. Skinner) some reassurances because he has raised one or two pertinent points, on which we need to comment. As I understand it, the Treasury and the Department of Trade and Industry, in consulting the Association of British Insurers about the provision of equalisation reserves, have made it clear--it was in the consultation document--that any tax relief would have to be financed by compensating charges elsewhere.

In other words, the Treasury is not looking at this issue in the light of giving away revenue to the insurance industry. I hope that that reassures the hon. Gentleman that we are not talking about the corporate boardrooms of the City of London being wealthier as a consequence of the Bill and that there would be certain tax neutrality.

In addition, in any event, the Finance Act 1994 provided for the introduction of insurance premium tax in October. Now, all policyholders effectively have to pay 2.5 per cent. tax on their premiums. So the insurance industry is already contributing about £800 million of additional revenue to the Exchequer from that mechanism alone.

The only thing that my hon. Friend the Member for Hertfordshire, North (Mr. Heald) could have mentioned, in what I thought was a excellent presentation of the proposals--I do not say that disparagingly--was that policyholders will benefit if the Bill is passed. We are talking not so much about the ability of United Kingdom insurance companies, especially in the domestic market, to compete in international markets, although that is important in respect of international business, as I shall say in a moment, as about whether our insurance companies have the financial strength that they need to continue to provide insurance for our domestic market.

When we debated insurance premium tax, I well remember right hon. and hon. Members on the Labour Benches expressing concern that some cherry picking by insurers was already making it difficult for some people to get the insurance that they needed. The cost of insurance was undoubtedly a factor. If companies do not have the reserves that they require to continue to underwrite business, with the experience of bad losses, there is only one way in which they can recover money--to put up the premiums.

If companies have the reserves to meet their claims--and that is what the Bill is about--they do not have to raise their premiums by quite so much. I hope that that will help the hon. Member for Bolsover. I am glad that he is here and is taking an interest in the debate. If he were not here, the hon. Member for Middlesbrough (Mr. Bell) would be the only Opposition Member present. The hon. Member for Middlesbrough has to be present, as he is the Opposition Front-Bench spokesman. He has a very clear understanding of these matters and much of what he said today made a lot of sense.

Mr. Skinner: The thing that intrigues me is that, every day of the week since this Tory Government came to power, I have been told--as the rest of the country has


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been told--that the only way to make things happen in the world of economics and finance is to allow the market to be totally unrestrained. We are told that the market will settle everything and that the Government cannot intervene. They can shut pits and do all sorts of things like that. The Government must not intervene. However, here we have a gang of Tories in the House on a Friday who want the Government to intervene, on a fairly substantial scale, in the insurance market because the unrestrained market forces cannot resolve the problem for the Tories' insurance companies, many of which have Tory Members on their boards. The Tories are saying that they want the Government to intervene and to back them up. That is roughly why I find this whole thing very intriguing. From Monday to Thursday, the Government tell us that we should not intervene--

Madam Deputy Speaker (Dame Janet Fookes): Order.

Mr. Skinner: And now Madam Deputy Speaker is intervening.

Madam Deputy Speaker: Yes, Madam Deputy Speaker is intervening because interventions should, by their nature, be short. The hon. Member for Bolsover (Mr. Skinner) was making a speech.

Mr. Greenway: It is not Back-Bench Tory Members who are seeking to intervene: it involves all parties. The Bill has all-party support. It certainly has the support of many people who no doubt will vote for the Labour party, as they have done in the past, who work in the insurance industry. Not everyone in the insurance industry votes for the Conservative party. Those people would be disappointed if they thought an important measure for the future of the industry in which they work did not have the support of all Opposition Members. I congratulate my hon. Friend the Member for Hertfordshire, North on his success in the ballot and on choosing this important issue. The all-party insurance and financial services group, which I chair, has for almost five years taken a very close interest in this matter.

As my hon. Friend the Under-Secretary of State for Corporate Affairs is aware, we have made many representations to Ministers about the issue and that is partly why the working party was established and why the matter has been brought to the first hurdle of introducing the enabling legislation to allow the Department of Trade and Industry to require companies to make the reserves so that the scheme can be up and running.

The issue was seen initially as, and, as the hon. Member for Middlesbrough pointed out, remains essentially, a single market issue. However, that does not mean that we should underestimate the international dimension. My hon. Friend the Member for Hertfordshire, North referred to Japan. The international market based in London is extremely important and it will benefit greatly from the Bill. However, as I have already said, there is a very important secondary objective, which is the need to preserve the strength of the insurance industry which, despite recent setbacks, is one of the United Kingdom's greatest success stories. It is very important in terms of jobs and invisible earnings.


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London remains the world's pre-eminent insurance marketplace. United Kingdom invisible earnings from insurance were £4.6 billion in 1993. A very large part of that was accounted for by international business transacted in the London market. That is quite distinct from our domestic market, to which I have already alluded in trying to reassure the hon. Member for Bolsover.

It is important to recognise that about 60 per cent. of that market is accounted for by insurance and reinsurance companies, not Lloyd's. Lloyd's has about 40 per cent. I agree with the hon. Member for Middlesbrough that, if the Bill becomes an Act and such a scheme, which we all want, is created, it must apply to Lloyd's corporate capital. It would find it difficult to compete for the capital that it would need for the corporate market unless the scheme applied to it. I shall certainly encourage it to take a healthy interest in the matter.

To be fair to Lloyd's, it did not raise the issue. It is the companies which need those reserves. It is inconceivable that the Conservative Government, of all Governments, should not seek to support that important industry.

A further point about taxation, which I hope again will help the hon. Member for Bolsover, is that such a provision would mean more business, not less business, being transacted. The insurance industry contributes significantly to the Treasury's coffers. It is the old law of diminishing returns: if we do not help the industry to obtain business, the volume of business will reduce and it will pay less tax. In every respect, the measure will at least be self-financing and it is more than likely to help to contribute more revenue, not less, to the Exchequer.

I have worked in the insurance industry for 25 years. I declare that general interest. I work closely with brokers, but this is not really a broker issue. We are not seeking special favours or the introduction of arrangements that would give the United Kingdom a competitive advantage. On the contrary, we are seeking to ensure that the United Kingdom is not disadvantaged.

The hon. Member for Middlesbrough made the good point that there is no such thing as a level playing field. He is right. One can make sure that the rules and regulations are the same, but there is one reason above all why the hon. Gentleman is right and why London will benefit from the measure, and it is that pre-eminent skills are based in London. The world's leading actuaries, underwriters, brokers, loss adjusters and so on are based in London. If taxation arrangements in London are on a fair and equitable basis with the rest of the world--that is not easy; we are talking about Europe--the unique advantage of London, from all its experience, will come into play. That is why the United Kingdom can win an even bigger share of that important market.

London is unique, for the reasons that I have stated. However, in recent years it has become more apparent that it is nonsense to treat the insurance business, particularly aspects which can involve catastrophic losses, as an annual profit and loss exercise for taxation purposes. An annual profit and loss period does not embrace the cycle of profit and loss on insurance. Catastrophes do not occur every year--if they did, they would not be catastrophes. By their very nature, they occur once every three, four or five years. The best examples in modern times are the dreadful winds that hit the south-east of England, in particular in 1987 and again in 1990.


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My hon. Friend the Member for Hertfordshire, North referred also to the position in Japan, which highlights how, for example, marine and aviation losses can accumulate. All of a sudden, there are two or three incidents and then nothing on the same scale for three, four or five years. It is too soon to tell, I understand, the UK market's exposure to what happened in that dreadful earthquake in Japan except from the television pictures that I saw of that horrific incident. How fortunate we are in the United Kingdom that we have never experienced anything like that. The television pictures of Kobe harbour showed marine cargoes, and I bet that many of them were insured through the London market. A fair bit will be insured through Lloyd's, but, as the hon. Member for Bolsover pointed out, Lloyd's is not affected by the Bill.

That example shows the importance of ensuring the financial strength of the insurance industry so that it is able to meet claims and not put up premiums with swingeing effects following a knee-jerk reaction. Setting aside premium income to reserve in good years to meet liabilities in bad years--it is as simple as that. That is what the Bill is about.

The key question is whether that reserve should attract tax relief. I believe that it should. It certainly has tax relief in France and Germany, and that provides the single market dimension. We need the same arrangements because, as the single market of domestic business develops, it will provide greater opportunity for UK domestic insurers to penetrate the market on the continent. The disadvantage of having no tax relief on equalisation reserves would become obvious very quickly. We would see business not being written here, but written on the continent. It is important that we avoid that. Aside from the single market issue, it is a matter of basic prudence. The prudential supervision of insurance is the Department of Trade and Industry's priority in the industry. It is important that companies receive the encouragement and the incentives which they need to create those adequate reserves, and tax relief is crucial to that.

I pay tribute to work that has been undertaken by the working party, and to the principles that it has established that there should be a scheme for claims for equalisation reserves to be focused. We know which classes of business are affected. The scheme must be valuable for insurers and reinsurers alike, it must be simple to operate and certain as to its operation, and it must be extremely transparent in terms of the taxation arrangements.

My hon. Friend the Member for Hertfordshire, North gave the good news to the House this afternoon that the Treasury seems now committed to agreeing to tax relief, subject, of course--this is understandable--to a proper scheme being agreed between the industry and the Treasury. We should back our insurance industry--one of our great success stories of the past--in the way in which we are proposing today to ensure that the years ahead are as glorious as the years behind.

1.52 pm

The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Jonathan Evans): I begin by congratulating my hon. Friend the Member for Hertfordshire, North (Mr. Heald) on bringing the Bill to the House and on the competence and clarity with which


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he outlined what can be a complex matter. Although he may not have achieved all that he would have wished in terms of the understanding of the hon. Member for Bolsover (Mr. Skinner), I thought that--in dealing with matters as complex as this--my hon. Friend showed the competence that he has demonstrated since he first came to the House. He deserves those congratulations.

In deciding to introduce the Insurance Companies (Reserves) Bill, my hon. Friend has taken on a measure of considerable importance to the insurance industry. It is a very worthwhile and welcome Bill, and one which I believe --from the flavour of the debate--enjoys wide-ranging support on both sides of the House.

During his initial remarks, the hon. Member for Middlesbrough (Mr. Bell) suggested that victory has a thousand fathers. If we are discussing parentage, I suppose part of the parentage of the measure might be ascribed to my hon. Friend the Member for Ryedale (Mr. Greenway). I am also pleased to see my hon. Friend the Member for Gosport (Mr. Viggers), who also takes a particular interest in insurance matters.

As we have heard, the insurance industry has for some time sought the introduction of a scheme for establishing equalisation reserves. Industry leaders have made it clear to me that they regard this as a matter of great importance to their future competitiveness. I also welcome the measure as an addition to the regulatory options available to us.

I must make it clear to the hon. Member for Bolsover that the Government do not take the view that no law or regulation is necessary. The difference in approach between the Government and the hon. Gentleman is that we believe that when a law is passed it should be proportionate and should address and improve the market, rather than legislate in just about every area of the economy.

Mr. Skinner: The truth is that the Government brag that, when industries go to the wall, it is not the Government's job to intervene and pick them up. They pride themselves on that. There have been countless examples in the past 15 years, and 4 million people on the scrap heap without a job are the casualties. Thousands of firms every year go to the wall as a result of the Government's refusal to help. So I do not want any lectures from the Minister about the Government intervening just because this is an old pals' Bill with their friends in the insurance companies.

I am of the opinion that, instead of making those charges, the Minister should tell us how much exactly will be needed from the Government--from the taxpayer--to implement not only the proposals in the Bill but the tax set-offs that would apply if the Bill became law and the Treasury agreed to them. How much money are we talking about?

Mr. Evans: It was obviously an error to give way to the hon. Gentleman. He demonstrated in that intervention how much he fails to understand the approach of the Government in the same way as he fails to understand anything about the Bill, as it was outlined so competently by my hon. Friend the Member for Hertfordshire, North. The insurance reserves should assist insurance companies in settling exceptional levels of claims in bad years from funds put aside in good years. Therefore, we are not talking about giving tax relief. If a scheme is


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ultimately approved by the Treasury, it will involve tax deferred rather than tax relief. The Bill is an important first step towards establishing such a scheme.

I wish to clarify the Government's position on two specific matters. Then I shall draw on some of the matters that have been raised by hon. Members in the debate. While the purpose of the Bill is to enable the Secretary of State to require insurance companies to keep reserves against exceptional levels of claims, I must make it clear that the Bill does not and is not intended to cover the details of how the system of reserves ultimately would be established and operated. It is important to recognise that that is a matter for secondary legislation. I hope that the hon. Member for Bolsover is paying attention. It may be helpful to hon. Members if I say a little about the work that has already been done and about the Government's plans.

Although no final decisions have yet been taken on the details of the regulations which will be introduced if my hon. Friend's Bill is successful, officials in my Department and the Inland Revenue have been involved, as we have heard, with a working group led by the Association of British Insurers in carrying out a considerable amount of the preparatory work on a proposed scheme. The working group has already made certain recommendations about the details of the scheme and a report has been sent to Government and circulated to a wide cross-section of ABI members. I am pleased to take this opportunity to pay tribute to the ABI and its members and to thank them for the work that they have undertaken.

The insurance industry has generally declared its support for the working group's recommendations and it is now the Government's intention to issue a second consultation paper. In this, we will give details of a proposed scheme which will incorporate many of the industry's recommendations. We hope to issue the paper for consultation in the spring. We look forward to the representations that may be forthcoming from all parties in the House, including perhaps both sides of the Labour party. The industry and other interested parties will also have the opportunity to comment on the regulations. It is our intention to publish them in draft form before they are laid before Parliament.

Secondly, as we have heard so much during the debate, there is the matter of the tax treatment of such reserves. That is for Treasury Ministers to consider and any legislation would have to be included in a Finance Bill. My right hon. Friend the Financial Secretary has said that the Treasury will be prepared to consider tax relief for an acceptable scheme. Before any such scheme was introduced, however, we would want to ensure that it was acceptable to the industry, Treasury Ministers and the President of the Board of Trade. The taxation aspects would subsequently be subject to an affirmative vote in the House.

The hon. Member for Middlesbrough (Mr. Bell) had the courtesy to warn me that he intended to express his concern about the way in which the Department assesses companies' solvency and whether that would be affected in any way by the passage of this measure. I am happy to be able to tell him that we do not expect that system to be altered in any way. He will be aware that the solvency


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of companies is the subject of a Europe-wide review and the report is expected by 1997. I hope that the hon. Gentleman will be somewhat reassured by that.

Finally, I thank the hon. Member for Hertfordshire, North once again for his work on the Bill and I am grateful for the cross-party support that he has received. The Government welcome the Bill and intend to assist the hon. Gentleman in securing its safe passage. I am grateful to him for introducing the Bill and to the hon. Members who have spoken in support.

2.2 pm

Mr. Dennis Skinner (Bolsover): I wanted to speak in this debate and to ask some serious questions because I find it odd that this Government, who have prided themselves on saying that the market should do the business and that they should not intervene, have decided to support the Bill, which was introduced by a Tory Member, and will allow insurance companies to set up special reserve funds for hurricanes and other acts of God that create a massive drain on their resources.

According to the Minister, the Government will finance those reserves by allowing tax relief in subsequent legislation. The Minister is shaking his head, but that was what he said. He said that the Government and the Inland Revenue would agree to allow tax relief on the funds set aside for special purposes.

I do not quarrel with insurance companies setting aside large reserve funds for the times when they might have difficulties, such as the 1987 hurricane, which ripped up many of the trees in Kent, in Kew and elsewhere. If they want to set aside money, in this unrestrained market, I should have thought that a Tory Government would say, "Go ahead, but don't call on us to reduce taxation, for the Chancellor of the Exchequer's benefit, to use for other purposes."

Mr. Heald: I must apologise to the hon. Gentleman for not adequately explaining about the tax relief in my opening speech. Tax relief is granted when such losses occur, but the reserve funds will mean that such relief is granted year on year. There is no question of granting more tax relief overall. It will simply mean deferring the relief and planning it better. I hope that the hon. Gentleman will accept my reassurance on that matter.

In London, 60,000 jobs depend on the insurance industry. The people who speak for those employees are telling me that their jobs depend on the Bill being enacted. I hope that the hon. Gentleman will also accept that.

Mr. Skinner: I would like to accept that. However, the hon. Gentleman is looking at it from an angle that is different from that of the Under-Secretary of State for Corporate Affairs. I asked his hon. Friend, who is speaking on behalf of the Government--unlike the hon. Gentleman--a question. If the funds are rolled over, there may not be a call on them-- there is no call at present on the funds of the Exchequer. The reason I asked the Minister the question was to discover whether he could satisfy me that no extra funds would be needed.

He has refused to answer my question, so it seems that the Government know that the scheme will result in more money being set aside. Consequently, tax relief will be


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greater and the Chancellor of the Exchequer will have to call on funds from somebody else in order to make up the shortfall.

Mr. Peter Ainsworth (Surrey, East): My recollection is that my hon. Friend the Minister replied to the hon. Gentleman's inquiry, but at that time the hon. Gentleman was too busy talking to the hon. Member for Derbyshire, North-East (Mr. Barnes) to hear my hon. Friend's reply. The hon. Gentleman is trying to make a crisis out of a drama.

Mr. Skinner: I am concerned about those people who have to pay taxes in Britain. Tory Members are always saying that they are the taxpayer's champion. I want the Minister to get up and tell us specifically, without equivocation, whether--whatever new Treasury proposals are introduced, following the Bill's passage--there will be any call on public funds. I invite the Minister to say that there will be no expenditure. I know that no expenditure results from the Bill, but I am talking about subsequent negotiations that will result in tax relief over a number of years.

Mr. Jonathan Evans: I had already said to the hon. Gentleman--I despair of him ever listening--that the scheme involves the deferral of tax. If, ultimately, the catastrophes do not occur, the funds will become subject to tax. We are talking about introducing order into catastrophe insurance. The issue does not involve the political contention that the hon. Gentleman is desperately scratching around for.

Mr. Skinner: It is significant that the Minister has still not answered the question. My question was simply whether there would be a call on public funds. He answers questions that I am not asking. People will note his refusal to answer a simple question. In some years--perhaps not all--there will be a call on public funds that there would not otherwise be. The Government are intervening in the market so as to bail out insurance companies because they form part of the group that finances the Tory party. The Government probably want to cosset those companies in the run-up to the next general election because some of them have decided not to give the Tory party any money.

Mr. Tom Cox (Tooting): My hon. Friend is making a valid point. He asks a clear question of the Minister. Earlier today, when we were discussing the Activity Centres (Young Persons' Safety) Bill--a crucial measure that was supported by hon. Members on both sides of the House--we were told by the Minister of State that no Government help would be given towards setting up such centres and the salaries for supervisors. The Minister of State clearly told us that there would be no Government help and that the schemes would have to be self-financing. We were talking about the safety of young people. We all know of the tragedy of the four youngsters who lost their lives--we were told that the schemes, in that case, were to be self-financing. Now, my hon. Friend is simply asking the Minister to give the Government's position and state whether taxpayers' money will be involved.

Mr. Skinner: My hon. Friend has demonstrated once again that, when it comes to helping good causes and people like those covered under the Activity Centres


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(Young Persons' Safety) Bill--a measure designed to take account of the tragedies that can occur--the Government are not prepared to come up with the money.

By his refusal to tell us about the drain on public funds, the Minister has twice made the position clear. I am absolutely convinced that the Government know that, in future years, the amount held centrally by the Exchequer will be reduced as a result of negotiations which would take place after the Bill is passed. The net result of that would be that Joe Soap, the taxpayer, whom the Government are always talking about and asking for support, would finish up having to put his hand in his pocket to pay these insurance companies.

If insurance companies want to set up a reserve scheme, they should go ahead. I do not mind them saying, "Look here, there were hurricanes in 1987 and 1990 and we need to make sure that we can roll these over in an orderly fashion year on year instead of getting hit in one year." However, it is not right and proper that a Government who are constantly ramming it down our throats that companies have to stand on their own two feet without Government assistance are now doing this because of their friends in the insurance companies. We should bear in mind that many Tory Members are connected with the boards of insurance companies, making money on the side. They have now introduced a different ethic. In other words, it is double standards. It is all right for their friends but not for anyone else.

Mr. Harry Barnes (Derbyshire, North-East): Is not the clearest indication that there will be a call on public funds already provided in information supplied to us by the Government, although not by the Minister? With the Bill, there is a business compliance cost assessment. That is available in the Library, and it is published by the insurance department of the Department of Trade and Industry. The assessment states:

"The insurance industry is of the opinion, provided the Inland Revenue permit tax relief on equalisation reserves, there should be considerable benefit UK competitiveness."

Knock-on arrangements by the Treasury are built into the cost compliance provision.

Mr. Skinner: There it is in a nutshell. My hon. Friend has been to the Library, which serves us well, and has found out part of the answer that the Minister refused to give us--that is, that the Inland Revenue is worried about the consequences of the Bill. It knows that it would cost money. That money should come from the insurance companies. They make large profits, so why are they calling upon the Inland Revenue, the taxpayer, to foot the bill when they are truly responsible for this new arrangement?

Mr. Cox: I have a copy of the Bill. In an intervention, the hon. Member for Hertfordshire, North (Mr. Heald) spoke about the industry employing 60,000 people. As a London Member, I can tell the House that London certainly has some of the highest unemployment in the country. Therefore, irrespective of party, I will support anything that safeguards jobs. I have great sympathy for anyone who has lost possessions or property, but people in my constituency rarely write to me about that. However, they write to me about holiday insurance. Will the Bill cover the continuing problems of people who, for a range of reasons, did not have a good holiday and whose claims were totally rejected by the insurance


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