Supplementary letter to the Committee
from Mr John Whiting, PricewaterhouseCoopers
TREASURY COMMITTEE HEARING ON THE 2004 PRE-BUDGET
REPORT
At the end of the Hearing today, I was discussing
with the Committee the changes to the taxation of life assurance
companies. In the time available I hope I answered the Committee's
questions appropriately; as I said to you I would be happy to
amplify the points further if appropriate.
However, the reason for writing now is that
on my return to the office I saw a letter from the Inland Revenue,
dated today, that withdrew the particular provision that had aroused
so much concern. I thought I should therefore write to draw this
development to the Committee's attention. Just to clarify the
sequence and this latest development:
1. A package of measures was announced on
2 December affecting the Life industry; mostly these were of an
anti-avoidance nature and many of the changes were planned to
be made by statutory instrument.
2. The timing of this was that the announcement
on 2 December was to be followed by a consultation period of 3
full working days.
3. Within these proposals was found to be
a measure that affected the taxation of "free assets"
held by life assurers. That was a substantive change to the method
of taxing such companies and affected a situation that had been
in existence about for many years. Thus it was not an anti-avoidance
device that required immediate blocking.
4. The basis for bringing in changes like
this was the power under Section 431A ICTA 1988 which gives the
Treasury power to make regulations affecting insurance company
taxation. It was the wide-ranging nature of this power that Paul
Boateng expressed concern about on its introduction in 1990. Mr
Boateng was the Opposition spokesman, seeking reassurance from
the then Minister, Peter Lilley, about how the power would be
used. The exchange took place in 1990 in Standing Committee E,
recorded in Hansard at Col 105/106, at the conclusion of the discussions
on Clause 34 and Schedule 4.
5. It seemed totally inappropriate to make
such a substantive change to tax law for such a major industry
by way of statutory instrument and with such negligible consultation.
6. The Revenue's announcement in the letter
I have seen states that this change will now proceed by way of
proper consultation with provisions being introduced in the Finance
Bill. (The other, technical, changes will still be made in the
statutory instrument and can be accepted.)
7. It is of course very welcome that the
Government has listened to concerns expressed by the Industry
and advisers and it is to be hoped that the promised consultations
will be full and proper in nature. However, the changes to be
made will still operate for period of account beginning on or
after 1 January 2005 it seems.
The Committee will therefore no doubt wish to
take note of this development in framing any questions it may
have of Inland Revenue officials or Ministers. Had I been aware
of this development, which took place literally when I was addressing
the Committee, I might have posed some questions:
— Why was such a substantive change
attempted to be put through in the way it was?
— If the changes are now to be subject
to proper consultation and Parliamentary process through the Finance
Bill, can we have assurance that the Inland Revenue is approaching
those consultations with a properly open mind?
— Why are the changes still to be introduced
from 1 January 2005 when the Revenue have implicitly conceded
that they may not have fully understood the impact on the industry
of the proposals—surely tax changes should only be introduced
on the basis of a proper understanding of their impact?
I would be grateful if you would draw the contents
of this letter to the attention of the Chairman and his colleagues.
10 December 2004
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