The
Committee consisted of the following
Members:
Chairman:
Sir
John
Butterfill
Balls,
Ed
(Economic Secretary to the
Treasury)
Breed,
Mr. Colin
(South-East Cornwall)
(LD)
Brennan,
Kevin
(Lord Commissioner of Her Majesty's
Treasury)
Bryant,
Chris
(Rhondda)
(Lab)
Clarke,
Mr. Kenneth
(Rushcliffe)
(Con)
Curry,
Mr. David
(Skipton and Ripon)
(Con)
Davies,
Mr. Quentin
(Grantham and Stamford)
(Con)
Evennett,
Mr. David
(Bexleyheath and Crayford)
(Con)
Hepburn,
Mr. Stephen
(Jarrow)
(Lab)
Hoban,
Mr. Mark
(Fareham)
(Con)
Iddon,
Dr. Brian
(Bolton, South-East)
(Lab)
Lucas,
Ian
(Wrexham)
(Lab)
Naysmith,
Dr. Doug
(Bristol, North-West)
(Lab/Co-op)
Prosser,
Gwyn
(Dover)
(Lab)
Reed,
Mr. Andy
(Loughborough)
(Lab/Co-op)
Thurso,
John
(Caithness, Sutherland and Easter Ross)
(LD)
Wright,
Mr. Anthony
(Great Yarmouth)
(Lab)
Emily
Commander, Committee
Clerk
attended the Committee
Fourth
Delegated Legislation
Committee
Tuesday 5
December
2006
[Sir
John Butterfill in the
Chair]
Draft Taxation of Securitisation Companies Regulations 2006
10.30
am
The
Economic Secretary to the Treasury (Ed Balls): I
beg to move,
That the
Committee has considered the Draft Taxation of Securitisation Companies
Regulations 2006.
It
is a pleasure once again to serve under your chairmanship, Sir
John.
The
regulations make good our commitment to provide a stable and certain
tax regime for securitisation companies. Questions about the long-term
future of our regime arose with the adoption in 2005 of international
accounting standards. Although they amounted to a significant advance
in many areas, IAS caused problems for securitisation as they required
an asset to be accounted for at its fair value as opposed to its
amortised cost. That requirement would have been likely to cause
fluctuations in the value of assets, making tax laws less predictable
and potentially impacting on the credit ratings given to securitised
bonds.
After
discussions with industry, we introduced a transitional regime in the
Finance Act 2005, which allowed securitisation companies to continue to
account for tax under generally accepted accounting practice. When we
created the regime, we committed to introduce a new, stable regime
based on IAS. Since then, we have worked with industry to find a
workable scheme that reflects commercial reality. In the debates on the
Finance Act 2006, we agreed to extend our transitional scheme by a
further year to ensure that we got the regime right.
The
regulations reflect our discussions and we are confident that the
securitisation market will welcome them. That matters because
securitisation is an important new feature that adds substantially to
the liquidity of modern financial markets. The regulations set out new
tax rules for companies involved in securitisation, which are needed to
ensure that the tax rules work effectively with the new accounting
standards. In essence, the regulations provide for securitisation to be
taxed on a basis similar to that which applied before the change in
accounting standards.
We have
consulted carefully with the industry over a number of months to ensure
that we get the regulations right. Under the new rules, the corporate
tax regime of a securitisation company will be based on the cash
retention required under the securitisation arrangement, which largely
reflects the existing situation and therefore provides continuity for
the companies involved. The regulations provide certainty of tax
treatment to enable those constructing deals to give tax opinions that
will satisfy rating agencies. At the same time, they allow sufficient
flexibility to accommodate a range of different
structures; they also contain safeguards against abuse. As a result, we
are confident that they will enable the securitisation industry to
continue to play an important role in our economy.
This is a complex area, because
securitisation often leads to complex arrangements, and the regulations
cannot deal with all affected companies. We will therefore continue to
work on further regulation to deal with additional types of
securitisation such as those involving real estate and insurance. In
the next finance Bill, we propose to extend the transitional regime
that was introduced by the 2005 Act, so that those companies can remain
under former UK accounting standards for tax purposes while we work on
further regulation.
In the debates on the Finance
Act 2006 that we had in the heat of the summer, we were urged to
prioritise the expeditious introduction of the regulations, to give
certainty to this important sector. We were also urged to undertake the
fullest consultation to ensure that we got the detail right. I believe
that we have done so: the regulations will be widely welcomed by the
industry; they provide certainty and stability and will enable the
securitisation industry to adapt to changes in accounting standards
without unnecessary and destabilising changes to their tax
arrangements. On that basis I commend them to the
House.
10.34
am
Mr.
Mark Hoban (Fareham) (Con): What a pleasure it is to serve
under your chairmanship once again, Sir John. This is the
third time in seven days that the Minister and I have debated and the
third time, sadly, that we have agreed with each other, so he is doing
something right.
This
is not a contentious statutory instrument. It was announced at the time
of the 2004 pre-Budget report and the interim measure was included in
the Finance Acts 2005 and 2006. It is long awaited and much
overdue.
I was
intrigued to see in todays Financial Times that the
Minister has championed the adoption of permanent measureshe
looks startled when things appear in the FT, which is very touching. He
took the credit for championing the proposals, but my hon. Friend the
Member for Chipping Barnet (Mrs. Villiers) and the Paymaster
General also championed the introduction of permanent measures in the
debate on the Finance Act 2006. Success has many fathers and mothers in
this House.
I have
three questions for the Minister. First, as we would both acknowledge
that it has taken some time for this proposal to reach fruition, can he
explain why it has taken quite so long, given that the PBR in 2004 was
in late November or early December? It is only just being put on the
statute book two years later.
Secondly, can the Minister tell
the Committee when consultation on the proposal took place? Although I
understand, as he said, that business is broadly happy with its
content, is it happy with the time that it has taken to get to this
point?
Thirdly, is
the Minister confident that the measures set out in the Finance Act
2006 are sufficient for this financial year? Are they sufficient, too,
for the real estate and insurance companies, which are not covered?
The unfinished business of the proposal goes back to those companies.
Can the Minister give us a commitment and say when the regulations will
be introduced? Will we have to wait until the third anniversary of the
2004 PBR for those measures to appear on the statute
book?
10.37
am
Mr.
Colin Breed (South-East Cornwall) (LD): I shall be brief,
as these measures are uncontentious and there was a prior announcement
about them. We are discussing an important industry, which seems to be
getting ever more complex. I am pleased that there was a very full
consultation, but the Exchequer did not come out of it very well, as it
has had no effect whatsoever. I am not certain what the industry is
agreeing to.
At the
heart of it all is the effect of new accounting standards, which I want
to highlight. We need always to take a rigorous look at accounting
standards as these are very complex instruments in a very complex
industry. If there is to be more rigour in accounting standards there
will be unintended consequences in respect of how taxation is
treated.
I welcome the
proposal, which is a move in the right direction. As we consider other
types of instruments and parts of the finance industry and see that
accounting standards will have to be refined and to become more
rigorous, we will have to consider the matter more regularly. However,
I have my doubts that it will end up as a permanent tax regime for
everything. At the moment, I am pleased to support the
measure.
10.38
am
Ed
Balls: I should explain to the Committee that I was not
surprised to find that I was a champion of the City financial services
and the securitisation industry. I was, however, surprised to find that
the proceedings of this important Committee were prefigured in the
Financial Times. It was not brought to my attention by any
Treasury press officer and I am pleased that the hon. Member for
Fareham stepped into that role. He has a range of other
responsibilities but I am grateful to him and I will look at the
article in due course.
I am happy to put it on the
record that the Paymaster General herself and the hon. Member for
Chipping Barnet debated the issue at length in the Finance Bill. I say
to the hon. Member for Fareham that by this stage in the Finance Bill
everything seemed to be taking a long time. The comments made were to
the point and consensual. It is good that Opposition Members are
joining us in championing these reforms in what is a complex
area.
The shift to
international accounting standards, although it has important benefits,
also brought out some complexities in the areas in which tax
arrangements are made more complex by accounting changes. The
Government responded very sensibly by putting in place transitional
arrangements to retain the previous regime while consulting in detail
with the industry to ensure that a forward regime would remove the
unnecessary bureaucracy of having to run two sets of accountsa
set of tax accounts and a set of IAS accounts.
To be fair to
the Government, the industry was keen that we should not move
peremptorily, but that we should ensure that the tax changes would
deliver the desired benefit of reduced bureaucracy without having
consequences for credit ratings that would undermine Britains
securitisation industry. That is why we took our time. We started to
consult in 2005, and continued until November 2006. I have received no
representations from the City that suggest that it thinks we took too
long. Once one has the right answer, everybody agrees that it would
have been better to reach it earlier. However, on such matters, if one
can take the time to consult to get things right, ensuring in the
meantime that one is not destabilising the industry by sticking to the
previous arrangements, that is all to the good.
We are applying the same
principle to insurance and real estate, in which cases the same sorts
of problem arise. The relationships between their accounts and their
tax accounts are even more complex than those in securitisation. We are
consulting with the industries and hope to have a view on insurance by
early 2007 and on real estate securitisation by next summer. It is
appropriate to give the industry an assurance today that the
transitional arrangements will stay in place for as long as necessary.
That is why I am saying today that in next years Finance Bill
we will continue transitional arrangements for real estate and for
insurance. Then, if the consultation takes a little longer, we will
have the time. It is best to get things right.
When we debated the issue in
the summer in relation to real estate investment trusts, the Opposition
complained that we had taken too long. However, we made the point that
it is best to take the time to get things right, and that is what we
intend to do in this case. I hope that, on that basis, the Committee
will be able to pass these
regulations.
Question
put and agreed to.
Resolved,
That
the Committee has considered the draft Taxation of Securitisation
Companies Regulations
2006.
Committee
rose at seventeen minutes to Eleven
oclock.