Finance Bill

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Mr. Flight: I begin by congratulating my right hon. Friend the Member for Fylde because part of the changes embodies that for which he has been arguing for many years in relation to the capital tax gains regime for insurance companies.

Before we get into the detail of schedule 33, regarding which I have received extensive representations, it has struck me that there is more complexity in the provisions. There are some little bits of stealth tax here and there. The insurance industry is hardly in a state ripe for picking in terms of extra taxation, and what has emerged in the Bill is not what the industry had entirely expected from the preceding consultations. The deduction for policyholder tax is obviously welcome. There is a lot of strong feeling that amounts that would not be taxed under normal savings principles will now be taxed as for a life assurer, which is unreasonable. The treatment of normal transfers to shareholders has also attracted a great deal of criticism.

May I flag in advance that most of the amendments are probing amendments, but that amendments Nos. 133 and 134, which I would describe as the Scottish Widows and Friends Provident point, are the most important? I hope that the Government will have some good news for us on that front.

Question put and agreed to.

Clause 169 ordered to stand part of the Bill.

Schedule 33

Insurance companies

Mr. Flight: I beg to move amendment No. 142, in

    schedule 33, page 376, line 8, after '(d)', insert 'subject to subsection (2E),'.

The Chairman: With this it will be convenient to discuss the following:

Amendment No. 145, in

    schedule 33, page 376, line 8, at end insert

    'to the extent that it would be taxable under Schedule D Case I if received by any trading company in respect of a trade other than life assurance business.'.

Amendment No. 137, in

    schedule 33, page 376, line 11, after 'assets', insert 'or other expenditure'.

Amendment No. 133, in

    schedule 33, page 376, line 20, after '444AC(2)', insert 'or section 444AF(2)'.

Amendment No. 143, in

    schedule 33, page 376, line 29, at beginning insert 'Subject to subsection (2F),'.

Government amendments Nos. 159 to 161.

Amendment No. 147, in

    schedule 33, page 376, line 44, leave out 'the' and insert 'a'.

Government amendment No. 162.

Amendment No. 148, in

Column Number: 188

    schedule 33, page 376, line 45, leave out 'the' and insert 'that'.

Amendment No. 144, in

    schedule 33, page 377, line 2, at end insertó

    '(2E) Subsection (2)(d) shall not apply to any amount to the extent that is satisfies the conditionsó

    (a) that it would not have been taken into account under subsection (2) but for the amendment by the Finance Act 2003; and

    (b) that it arises by reason of compliance with an obligation imposed by one or more of the followingó

    (i) a transaction carried out before 23rd December 2002 (including a transfer of business sanctioned by the Court prior to that date)

    (ii) a transaction carried out at any time for the purposes or in connection with such a transaction.

    (2F) Subsection (2B) shall not apply to a transfer of an asset made pursuant to an obligation imposed by one or more of the followingó

    (a) a transaction carried out before 23rd December 2002 (including a transfer of business sanctioned by the Court prior to that date)

    (b) a transaction carried out at any time for the purposes or in connection with such a transaction.

    (2G) Where the terms of a transaction carried out before 23rd December 2002 are varied after that date so as to impose, in relation to any matter relevant to paragraph (d) of subsection (2) or to subsection (2D), obligations which are significantly different from those which existed prior to the variation, thenó

    (a) in a case where the matter is relevant to paragraph (d) of subsection (2), the transaction shall be deemed for the purposes of subsection (2E) not to have been carried out before 23rd December 2002; and

    (b) in a case where the matter is relevant to subsection (2D), the transaction shall be deemed for the purposes of subsection (2F) not to have been carried out before 23rd December 2002.'.

Government amendment No. 163.

Amendment No. 138, in

    schedule 33, page 377, leave out lines 15 and 16.

Amendment No. 139, in

    schedule 33, page 377, leave out lines 22 to 24.

Amendment No. 149, in

    schedule 33, page 377, line 32, leave out from beginning to end of line 5 on page 380.

Amendment No. 150, in

    schedule 33, page 382, line 39, leave out from beginning to end of line 12 on page 383.

Government amendment No. 165.

Amendment No. 134, in

    schedule 33, page 392, line 36, at end insertó

    '444AF: Transfers of business: modifications of s.83(2)

    (1) This section applies where there is a relevant transfer, under a scheme, of the whole or any part of the business carried on by a mutual insurance company (''the mutual'') to a company which has share capital (''the acquiring company'').

    (2) In any accounting period of the acquiring company section 83(2) shall apply to so much of the amount brought into account as other income by that company as represents the accrued mutual value, but only as it would have applied before the amendments made by the Finance Act 2003, and if the requirements of subsections (4) and (5) below are satisfied in relation to the shares of a company (''the issuing company'') which is eitheró

    (a) the acquiring company; or

    (b) a company of which the acquiring company is a wholly owned subsidiary.

Column Number: 189

    (3) For the purposes of this section the accrued mutual value is the fair value of the assets of the mutual immediately before the relevant transfer less the value of the liabilities of the mutual ascertained as at that date in accordance with section 5 of the Prudential Sourcebook (Insurers).

    (4) Shares in the issuing company must have been offered, under the scheme, to at least 90 per cent. of the persons who immediately before the transfer are members of the mutual.

    (5) Under the scheme, the majority of the shares in the issuing company which were in issue immediately after the transfer was made, other than shares which were issued pursuant to an offer to the public, must have been offered to the persons who (at the time of the offer) wereó

    (a) members of the mutual;

    (b) persons who were entitled to become members of the mutual; or

    (c) employees, former employees or pensioners of the mutual or of a company which was a wholly owned subsidiary of the mutual.

    (6) For the purposes of this section, a company is a wholly owned subsidiary of another person (''the parent'') if it has no members except the parent and the parent's wholly owned subsidiaries or persons acting on behalf of the parent or its wholly owned subsidiaries.

    (7) In this sectionó

    ''contract of insurance'' has the meaning given by Article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

    ''employee'', in relation to a mutual insurance company or its wholly owned subsidiary, includes any officer or director of the company or subsidiary and any other person taking part in the management of the affairs of the company or subsidiary;

    ''insurance business transfer scheme'' has the same meaning as in Part 7 of the Financial Services and Markets Act 2000;

    ''mutual insurance company'' means an insurance company carrying on business without having any share capital;

    ''pensioner'', in relation to a mutual insurance company or its wholly owned subsidiary, means a person entitled (whether presently or prospectively) to a pension, lump sum, gratuity or other like benefit referable to the service of any person as an employee of the company or subsidiary.

    ''relevant transfer'' means a transfer from a company to another person of business consisting of the effecting or carrying out of contracts of insurance which is effected under an insurance business transfer scheme.

    (8) The Treasury may by regulations amend subsection (4) above by substituting a lower percentage for the percentage there mentioned.

    (9) The Treasury may by regulations provide that any or all of the references in subsections (4) and (5) above to members shall be construed as references to members of a class specified in the regulations; and different provision may be made for different cases.

    (10) The power to make regulations under this section shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.'.

Mr. Flight: I have only had the chance to look in insufficient detail at the Government's amendments, some of which will address some of our points. I should be grateful if the Economic Secretary would indicate that when he speaks to the Government amendments.

Several areas of the Bill treat life insurance offices in what I think is viewed as an inequitable manner compared with other trading companies, which will place further financial pressure on an industry with problems. Those areas include the taxation of loan funding, the denial of relief for trading losses and the removal of the trading link to the taxation of receipts in trading computations.

Column Number: 190

A number of changes have been made to the draft legislation published in January, some of which were welcome, but there remain concerns where it appears that no account has been taken of the consultations and representations that were made. The changes are considerable, and I ask the Economic Secretary why no regulatory impact assessment was carried out to assess the implications of the Bill. An assessment of the impact is clearly necessary, especially given the wide-ranging nature and application of the many provisions. As well as the tax impact, the cost of the IT changes required by the bed-and-breakfasting provision could be significant.

 
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