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Session 1999-2000
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Standing Committee Debates
Finance Bill

Finance Bill

Standing Committee H

Thursday 22 June 2000

[Part II]

[Mr. Frank Cook in the Chair]

Finance Bill

(except clauses 1, 12, 30, 31, 59, 102 and 113)

[Continuation from column 892]

4.30 pm

On resuming-

The Chairman: I remind the Committee that remarks should be succinct and to the point.

Mr. Flight: I beg to move amendment No. 418, in page 77, line 3, leave out ``profits of his trade'' and insert ``opening technical provisions''.

The Chairman: With this it will be convenient to discuss amendment No. 423, in page 78, line 33, after ``Board'', insert

    `and for the purposes of subsection (3) above ``opening technical provisions'' in relation to an underwriting member means so much of the premiums received, or treated (in accordance with the rules or practice of Lloyd's) as received, by him under reinsurance to close contracts;'.

Mr. Flight: The purpose of the amendments is to clarify the meaning of subsection (3).

Miss Melanie Johnson: The amendments concern the effect of an election that a company might make under subsection (3) to reduce its deduction from paid liabilities. Amendment No. 418 simply restates the principle, namely that the effect of a reduction in the tax deductions is to increase taxable profits. Subsection (3) ensures that there is a matching reduction in the taxable profit in the following period. The amendment restates the principle in a different form, referring to an adjustment to the ``opening technical provisions'' rather than to the profit of the following period. However, the effect would be exactly the same. The hon. Gentleman may be seeking an assurance that the amendments are a duplication of the provision; my understanding is that that is the case.

Amendment No. 423 requires a consequential amendment to the Lloyd's definition of ``technical provisions''. I am not sure why it has been tabled; it appears to add complexity, perhaps in order to seek clarity. I hope that I have given the hon. Gentleman clarity.

Mr. Flight: I thank the Economic Secretary for her answer. In essence, the amendments have been tabled for clarification. If I have any further questions, I will write to her. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Flight: I beg to move amendment No. 421, in page 77, line 16, after ``rate,'', insert

    `adjusted for an appropriate risk margin'.

The amendment is designed to provide for a risk margin to be incorporated into the prescribed discount rate and, perhaps, to elicit from the Economic Secretary what that might be.

Miss Johnson: I hate to chide the hon. Gentleman, but I have said before that we accept that there is merit in the approach and that some allowance should be made in the discount rate. I hope that, on the basis of what I have said, the hon. Gentleman may feel able to withdraw his amendment.

Mr. Flight: I thank the Economic Secretary for her reply. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Flight: I beg to move amendment No. 422, in page 78, leave out line 22.

The amendment would remove unearned income reserve from the definition of technical provisions.

Miss Johnson: Again, I think that I can help the hon. Gentleman. Discussion on the matter is continuing with industry representatives, and the responses to the consultation paper have highlighted some practical issues concerning both unearned premium reserve and unexpired risks reserve. I should like to explore the matter further, and I hope that we may return to it on Report.

Mr. Flight: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Flight: I beg to move amendment No. 425, in page 78, line 44, at end insert-

    `(7A) The Board shall not make any regulations under this section unless a draft of them has been laid before and approved by a resolution of the House of Commons'.

The Chairman: With this it will be convenient to discuss amendment No. 429, in page 79, line 22, at end insert-

    `(12) The Chancellor of the Exchequer shall undertake to carry out a review of the impact of this section on the United Kingdom insurance industry.

    (13) Draft regulations under this section shall not be laid before the House of Commons unless and until the Chancellor of the Exchequer has certified, on the basis of the review carried out under subsection (12) above, that in his view such regulations if enacted would not have a significant adverse affect on the competitive position of the United Kingdom as a location for insurance operations.'.

Mr. Flight: In contrast to the previous technical amendments, this amendment deals with a more important point of principle. It goes to the heart of the issue because the proposals would be damaging to the UK insurance industry, which is-unlike that of the US-essentially global in its business. The amendment would require a full and proper study of the competitive effects of the proposals before they are enacted. The Minister said that the increase in taxation was insufficient to produce serious uncompetitiveness, but 5 per cent. of profits makes us more heavily taxed than Holland. Germany and others are now reducing their taxation. The Government's proposals will result in serious uncompetitiveness, which should be properly investigated and tested. We shall press the amendment to a Division.

Miss Melanie Johnson: I went through the arguments before and I shall not rehearse them all again. I dispute the hon. Gentleman's summary that it makes us less competive than the Netherlands. That is not true. The changes cannot be viewed in isolation from other changes in the Bill or from the Government's proposals for a business-friendly economy and tax system. My hon. Friend the Paymaster General explained that in relation to schedule 30 on Tuesday.

Insurance companies and multinationals will benefit from the globalisation of group relief for trading losses and capital gains. They also stand to gain from tax relief for goodwill and intellectual property rights and from rollover relief on substantial shareholdings. They will have a new ability to carry a double tax relief forwards or backwards, which is potentially valuable for insurers. These points are additional to what I said earlier about competitiveness.

Amendment No. 425 relates to a different point. It would require regulations under the clause to be made according to the affirmative resolution procedure. It is similar to amendments tabled by the Opposition previously on clauses that provide for regulations to be made. Opposition Members made the same points about the Finance Bill 1998. The change proposed by the amendment is odd and contrary to the normal practice-tax regulations are normally made under the negative resolution procedure. It is also contrary to the approach of the previous Government before the election. Conservatives do not like the negative resolution procedure for tax regulations, yet they had 18 years in which to change it. I could give the hon. Gentleman chapter and verse, but he will understand if we are unsympathetic to changing a practice that was accepted by his party for 18 years.

Mr. Letwin: Amendment No. 429 is important. If the Economic Secretary is right and we are wrong about competitiveness, she has nothing to fear from the amendment. A study properly carried out would validate her propositions quickly and the measure would come into force. If, on the contrary, we were right, it would prove that she was wrong, and the Government and the economy would have benefited from being endowed with a self-correction mechanism. Her argument suggests that there would be nothing to worry about. The Government should happily accept amendment No. 429. If they will not, we will divide on that amendment, as my hon. Friend the Member for Arundel and South Downs said.

Miss Johnson: We carefully consider the competition aspects of any changes. We did so with the measure. It has been debated extensively this afternoon and was discussed much more widely in our original consideration. However, I have some difficulty in thinking that the hon. Gentleman will be present for the conclusion of a review. He asked about competition, disappeared, did not hear my response, then returned to re-embark on the issue. If we undertook a review, which we do not propose to do, I hope that the hon. Gentleman would be back for its results.

Mr. Letwin: Like Ministers, who have dotted in and out of the Committee, I was not present for the responses. I apologise for that. I took the trouble to find out what was said, and from what I can gather-I shall obviously read the record-the Economic Secretary gave an account of a review. We are asking not for one account or for an account from Ministers who admitted that the measure would raise taxes, but for an account given by proper study.

If the Economic Secretary will not accept the amendment, the solution is to publish the detailed review that she asserts that the Treasury carried out. If she produced a full and detailed review and circulated it to the Committee, we would happily withdraw the amendment. I profoundly doubt that any detailed review has been carried out, because I feel virtually certain from what the industry has told us that if such a review had been carried out, the decision would not have been made. However, the Economic Secretary has it in her power to allay those fears. Does she have the review, and will she publish it?

The Chairman: I am in some difficulty. There seemed to be a distinction between amendments Nos. 425 and 429, but I became a victim of the mumbling again, I am afraid. Can I have some clarification?

Mr. Flight: In purely practical terms, amendment No. 429 is the key amendment that requires the competitive study. We wish to vote on its principle. I would be grateful for your advice in achieving that, Mr. Cook. Would the vote need to be on amendment No. 425 also, as the amendments are grouped together?


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