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Session 2006 - 07 Publications on the internet General Committee Debates Finance Bill |
Finance Bill |
The Committee consisted of the following Members:David
Doig, Hannah Weston, Committee
Clerks
†
attended the Committee
Public Bill CommitteeThursday 24 May 2007[Mr. Eric Illsley in the Chair]Finance Bill(Except clauses 1, 3, 7, 8, 12, 20, 21, 25, 67 and 81 to 84, schedules 1, 18, 22 and 23, and new clauses relating to microgeneration)Clause 58Securitisation
companies
9
am
Question
proposed, That the clause stand part of the
Bill.
The
Economic Secretary to the Treasury (Ed Balls):
On a point
of order, Mr. Illsley. Following exchanges in the Committee
on Tuesday about the circulation of courtesy letters concerning
amendments, the Treasury has looked into the matter and the shadow
Chief Secretary has received a letter from the Chief Secretary on this
matter. Our investigations show that in recent years it has not been
our practice to circulate courtesy letters giving advance notice of the
tabling of amendments to all members of the Committee. However,
following your guidance, Mr. Illsley, we will do so in
future and we have circulated all such letters for this Bill to hon.
Members, both electronically and in hard copy. I regret any
inconvenience that the confusion has caused you or any member of the
Committee.
Mr.
Mark Francois (Rayleigh) (Con): Further to that point of
order, and very briefly, Mr. Illsley. I am grateful to the
Economic Secretary for having looked into the matter. He has dealt with
it correctly, we are grateful for what he has said and we need not
detain the Committee any longer on that point. Perhaps we can now crack
on and concentrate on the Bill.
Mrs.
Theresa Villiers (Chipping Barnet) (Con): It is a pleasure
to welcome you to the Chair, Mr. Illsley, on this sunny
morning for our last sitting before the Whitsun recess.
I welcome clause 58 and the
extension of the provisions of the Finance Act 2005, which enables
securitisation companies to continue to use UK
generally accepted accounting practice to draw up their accounts on an
interim and temporary basis. Were they to shift to international
financial reporting standards, as required by European Union
regulation, their trading securities would have to be accounted for on
a market-to-market basis. That would lead to significant volatility,
which could undermine their credit ratings, which are so critical for
such companies.
I do not propose to repeat the
remarks that I made last year on the
extension—very similar to this one—provided by the
Finance Act 2006, save to reiterate that we are talking about a
business that is worth trillions of pounds. The health of the
securitisation sector is vital in maintaining a competitive edge for
the City of London. It is also critical for securing financial market
liquidity and keeping down the cost of business borrowing and finance.
Therefore it is vital that the Committee takes care of this clause and
gets the issue right. The measure extends a temporary regime, pending
the adoption of a permanent framework for the taxation and accounting
systems to be used by securitisation companies.
Last year, I asked the
Paymaster General when she expected that long-term regime to be in
place. Her response was that that was expected by January of this year.
I was, therefore, pleased to note that the Taxation of Securitisation
Companies Regulations 2006 were adopted by the House in December.
However, the extension of the temporary regime features in the Bill
because not all securitisation companies are covered by the 2006
regulations. Given the critical importance of securitisation and, in
particular, of its international mobility—it could easily head
offshore—I urge the Economic Secy, as I did last year, to
complete the job of establishing a full regime for the accounting and
taxation of securitisation companies. It would be useful if he could
update the Committee on progress. How extensive is the coverage of the
regulations that put in place a permanent regime for certain
securitisation companies? What proportion of the securitisation market
is still outside the scope of the permanent regime and thus covered by
the clause?
The
regulations seem only to cover companies with exclusively financial
assets. When will the Government deal with other types of
securitisation companies that include rental streams in their
portfolios and other non-financial assets? Are the Government looking
at plans to meet the needs of the insurance industry whose
securitisation vehicles certainly fall outside the December
regulations? I am not even sure that they are inside the temporary
regulations. Will the Economic Secretary confirm the current status of
insurance-related securitisation
vehicles?
Proposed
new subsection (7B) permits the Government to take a different approach
to various types of securitisation companies. Given the importance of
the issue, it would be useful if the Economic Secretary could explain
how the Government propose to deal with the different types of company
and how they will be divided up for the purposes of both the temporary
rules and hopefully the new permanent ones? Will he set out the
rationale for the differential treatment of the various types of
securitisation company and explain the operation of the payments
condition that determines whether a company can qualify to use the
regime provided for in the December 2006
regulations?
Ed
Balls:
The hon. Lady is right. We are discussing an
important sector of our financial services industry. It is also part of
the industry that is exposed to international competition and
developments, so it is important that we get the provision right and do
so in a way that is flexible and meets the needs of particular parts of
the industry, given their different needs and concerns.
As the hon. Lady said, the
regulations that we introduced for companies in December 2006 apply to
the securitisation of financial assets. Those regulations were warmly
welcomed by the capital markets industry. A further set of regulations
will be needed for particular types of securitisation, such as
insurance and property. Her Majesty’s Revenue and Customs is in
discussion with interested parties in the insurance and other sectors
and, subject to satisfactorily identifying the issues that need to be
addressed in each case, we expect to lay regulations for those sectors
by the end of the
year.
The fact is that
different types of securitisation present particular issues. With the
securitisation of financial assets, the volatility is caused by
accounting standards. With insurance securitisation, there is the
interaction between the tax rules and life insurance companies, and
with the special regulatory regime for insurance companies. They are
relatively complicated matters and it is appropriate that, in some
cases, rules are dedicated to particular types of securitisation.
Indeed, that is what the industry asked us to do in the
consultations.
As the
hon. Lady knows, the Finance Act 2005 was necessarily widely drawn to
ensure that companies that had entered into securitisations were not
affected adversely by changes to accounting standards. It remains our
intention to devise appropriate permanent rules for companies engaged
in securitisations. However, some companies need special rules and have
particular group structures or other characteristics, which made it
difficult for them to fit into the first set of regulations that were
introduced in December and widely
welcomed.
When
the first set of regulations was laid in December, the Government gave
an undertaking that the interim regime would continue as long as
necessary. That is the case and that is what the industry is asking us
to do. The interim regime expires on 1 January 2008 and regulations
made under the clause will allow the regime to be extended for those
companies for which it is necessary. As with all the work on such types
of companies, the regulations will be developed in consultation with
the capital markets sector. The consultation is ongoing, so while we
have moved where we can on the timetable set by the Paymaster General
last year, we are responding to the concerns of the industry in the
particular areas where we need to do more work. We hope to lay
regulations for those areas by the end of the year. In the meantime, we
shall be extending the temporary regime in response to
requests.
To allow the
work to continue, the powers under which the regulations are made need
to be amended to cater for a wider range of incidental and
consequential amendments. We might need to reconsider the interaction
of capital gains tax laws in the case of securitisation involving real
estate, for example. In addition, the interim regime under which
securitisation companies are taxed in accordance with former accounting
standards will need to be continued for companies for which permanent
regulations have not been made, in a manner that is tailored to the
needs of those companies. The clause allows for the extension of that
interim regime. They are small, technical changes, but as the hon. Lady
said, they are of particular importance to the industry.
The hon. Lady asked how the
payments condition will work. All cash must be paid out within 18
months, which is similar to the rules for accounts under UK GAAP, to
ensure that companies are not cash money boxes. Extensive HMRC guidance
will be placed in the public domain to help people through that
technical area. I hope that she and the Committee are satisfied that
our consultation will be sensitive to the needs of particular sectors
and with the differential way in which we will try to move to a
permanent regime, and that we are working in full consultation with the
industry.
Question
put and agreed
to.
Clause 58
ordered to stand part of the
Bill.
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