Insurance Premium Tax (Non-taxable Insurance Contracts) Order 2014
The Committee consisted of the following Members:
† Ainsworth, Mr Bob (Coventry North East) (Lab)
Bacon, Mr Richard (South Norfolk) (Con)
† Barwell, Gavin (Lord Commissioner of Her Majesty's Treasury)
† Campbell, Mr Ronnie (Blyth Valley) (Lab)
† Dakin, Nic (Scunthorpe) (Lab)
† Farrelly, Paul (Newcastle-under-Lyme) (Lab)
† Hames, Duncan (Chippenham) (LD)
† Hammond, Stephen (Wimbledon) (Con)
† Hemming, John (Birmingham, Yardley) (LD)
† Jamieson, Cathy (Kilmarnock and Loudoun) (Lab/Co-op)
† Leadsom, Andrea (Economic Secretary to the Treasury)
Lewell-Buck, Mrs Emma (South Shields) (Lab)
† Munn, Meg (Sheffield, Heeley) (Lab/Co-op)
† Murray, Sheryll (South East Cornwall) (Con)
Paice, Sir James (South East Cambridgeshire) (Con)
Shannon, Jim (Strangford) (DUP)
† Skidmore, Chris (Kingswood) (Con)
† Smith, Chloe (Norwich North) (Con)
Joanna Welham, Committee Clerk
† attended the Committee
Second Delegated Legislation Committee
Monday 17 November 2014
[Albert Owen in the Chair]
Insurance Premium Tax (Non-taxable Insurance Contracts) Order 2014
4.30 pm
The Economic Secretary to the Treasury (Andrea Leadsom): I beg to move,
That the Committee has considered the Insurance Premium Tax (Non-taxable Insurance Contracts) Order 2014 (S.I., 2014, No. 2856).
It is good to see you in the Chair this afternoon, Mr Owen.
The order contains an amendment to schedule 7A to the Finance Act 1994, to add a new exemption from insurance premium tax for certain insurance contracts related to the operation of spacecraft. It will come into effect on 1 December 2014. The measure was announced at Budget 2014 with the objective of attracting more businesses involved in the spacecraft industry to the UK as part of the space innovation and growth strategy 2014 to 2030. The exemption will bring insurance for the spacecraft industry into line with the existing insurance premium tax exemptions for commercial aircraft and shipping, which are similarly internationally competitive sectors. It is one more strand of our long-term economic plan for British prosperity, cultivating our specialised and successful industries and helping them to compete globally.
Earlier this year, we received a representation from the Department for Business, Innovation and Skills regarding an exemption from insurance premium tax for insurance contracts relating to spacecraft. The space industry had expressed concerns to BIS about the deterrent effect that insurance premium tax was having on businesses looking to set up operations in the UK.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): Will the Minister give us some indication of the potential financial costs, which people have expressed concern about? There does not seem to be anything in the impact note to suggest any effect on the Treasury. I am interested to know the potential impact on business.
Andrea Leadsom: I think that the hon. Lady will find that I will come to that in my remarks, but I am not sure whether by “business” she means the Department for Business, Innovation and Skills. Will she clarify?
Cathy Jamieson: I mean the businesses that the Minister is hoping to attract.
Andrea Leadsom: Okay. I will be dealing with that later in my remarks. I thank the hon. Lady for her clarification.
The space industry expressed concerns to the Department about the deterrent effect that insurance premium tax was having on businesses looking to set up operations in the UK. The industry reported that the UK was the only country in which insurance premium tax was charged on satellite launch and orbit insurance.
As a Government, we strongly believe that we cannot have a healthy economy if our tax system is internationally uncompetitive. That is why, since 2010, we have cut corporation tax from 28% to 21%, and why next year it will fall to only 20%, giving the UK the lowest rate of corporate tax in the G20. As part of our long-term economic plan, it is vital to nurture British industries that create jobs, growth and exciting opportunities. Where that means sector-specific measures are required, we stand ready to implement them, whether for life sciences, North sea oil and gas, high-end theatre, Scotch whisky or indeed the space industry. As a point of principle, if an industry sector tells us that it is being hindered by excessive taxation, we will listen, and we have a strong track record of acting.
Space is an extraordinary business. It enables us all to enjoy the benefits of communication, entertainment, and mapping and managing our lives virtually anywhere on the surface of the planet. The UK already punches above its weight in the global space business. Since the space innovation and growth strategy was published in February 2010, we have achieved an enormous amount. The Space Leadership Council, the UK Space Agency and the satellite applications catapult have all been created, and the European Space Agency’s European centre for space applications and telecommunications has been brought to the UK.
Government, industry, business and academia have continued to work together to create major successes for the industry and for the UK economy. As a result of such collective actions, the UK now features much more strongly on the global space map, attracting start-ups and inward investment. The Government have already provided more than £140 million in capital project support for the space sector since 2011, enabling projects such as the Surrey Satellite Technology low-cost space radar satellite, and laying a great foundation on which to deliver future growth. As part of that continued growth, we announced at Budget 2014 that we would introduce an exemption from insurance premium tax for insurance for spacecraft.
UK space revenues grew from £6.6 billion in 2006-07 to £9.1 billion in 2010-11, and under this Government, since 2011, space industry turnover has increased by 15% in real terms to £11.3 billion in 2012-13. The Government’s continuing investment in the sector will help it play its part in helping to grow the UK’s share of the world’s space economy from 6.5% to 10% by 2030, leading to, at today’s estimates, a UK sector with £340 billion of space-related turnover a year.
The exemption will benefit companies in the space satellite industry and associated industries that take out an insurance policy relating to the operation of spacecraft, including satellites. It includes a large number of small and medium-sized enterprises. The exemption also stands to increase business for UK insurers providing these policies.
Cathy Jamieson: I am trying to understand why, if people have to pay insurance premium tax on their car insurance, for example, spacecraft should be exempt. I am sure anyone out in the real world watching this would want to understand it. How much money are we talking about? What might such an insurance policy cost, and what would the rate of insurance premium tax be on such a policy?
Andrea Leadsom: The loss to Exchequer revenues from exempting spacecraft from insurance premium tax will be “negligible”, which is defined as less than £3 million per annum. That is the loss. It is not negligible to me or to the hon. Lady, but in the grand scheme of things, the potential from this growth industry and the fact that the UK is the only country in the EU that does not already exempt the industry from insurance premium tax mean that we stand to gain more business, and that is in the UK’s interests.
The exemption is strongly welcomed by industry. We consulted on the draft legislation with both insurance and space industry representatives and other relevant bodies over a four-week period during August 2014, to ensure that it was comprehensive and fit for purpose, and we have incorporated their suggestions for improvements in the drafting.
We want economic growth in all sectors. We should not let the space sector be unfairly held back from achieving the successes it is capable of in the UK. As we have seen in the last week, space is big news. It affects the day to day lives of every one of us, and as technology expands, new and exciting opportunities for the sector are created. I want the UK industry to be well placed to reap those rewards. I therefore commend the order to the Committee.
4.38 pm
Cathy Jamieson: I want to make a few comments and ask the Minister a couple of questions. I thank her for responding to my interventions.
As the Minister says, there has been a bit of excitement about the space industry in the last week or so. I think everyone found it fascinating to watch what was happening in relation to the probe that was landed on the comet, but I am not entirely sure whether that is at the top of the agenda for people who are finding it pretty difficult to deal with the cost of living crisis. That is why I thought it would be useful if the Minister provided some firm figures, since those did not appear in the impact note. At least she recognises that what she describes as a “negligible” sum is still fairly significant and would seem to many of the people we represent to be fairly significant.
In asking my questions I was trying to get a sense of how many companies might be involved in the UK in providing insurance against these risks. I wanted to get a sense of where that fits within the overall insurance sector, and what is happening in relation to the space industry more widely. I was intrigued by what I read on the subject: I understand why the Government want the UK to develop as a centre for space technology and why they want to encourage that so that there will be jobs and so on, but I want a fuller understanding of why the insurance sector needs action on now. I wonder whether that will be the ticking of another box, which will not make much difference in the next few years. On that note, is the regulation subject to one in, one out—or is it one in, two out—which we discussed not long ago in another Committee? How does it fit with the broader aim of simplification?
I am still struggling to understand how many companies may be involved, exactly how much money that would have come to the Government may now be retained in the industry, and whether that is the crunch issue affecting
whether some companies will locate in the UK, or whether other things need to be done. Were any other issues raised in the consultation responses, or were they solely about insurance premium tax?I should have said at the outset that I see no reason to oppose the order. We do not want to cause a problem for the sector, but it is always useful to know how such measures fit into the wider scheme of things, to avoid creating hostages to fortune. That is why proper scrutiny in Committee is important.
4.42 pm
Duncan Hames (Chippenham) (LD): I could not help but reflect on the fact that 100 years ago Europe was deploying nascent technology to fly planes in the theatre of the first world war, and last week Europe, working together through the European Space Agency, made use of the advances in that technology to land on a comet millions of miles away. What a reflection that is on the positive contribution of science in the past century.
I wholeheartedly support the Minister for, though the order, harmonising relevant taxation policy with that in the rest of Europe, and, more important, making it consistent with the policy for commercial aircraft. That seems a logical position.
The Minister’s excitement, which was evident in her speech, was matched among many of my constituents after last week’s events. I hope that as well as having competitive taxation as a strong incentive to the growth of the industry, we will make the most of the excitement, to encourage the next generation to build careers in such a valuable sector.
4.44 pm
Andrea Leadsom: I completely agree with my hon. Friend. It has been an exciting week for the space industry. One of the funniest things I have ever heard live on Radio 4 was Eddie Mair asking an extremely intelligent, highly qualified female doctor in mission control what on earth you do with a probe that you have stuck where the sun does not shine. Everyone in the country burst out laughing, but I do not think he realised quite what he had said. Anyway, I completely agree that the industry is vital and exciting, with enormous potential, and that we in the UK should do all we can to encourage more business to come here.
The hon. Member for Kilmarnock and Loudoun asked how many companies in the UK are providing such insurance. It is a niche activity; only a small number of insurers in the UK provide such insurance, and they tend to be very big players in the industry, so there are fewer than six. The average premium for a launch policy is understood to be some £3 million, which means that the insurance premium tax on the average premium will be some £170,000. I hope that gives her some idea of the scope.
How has the space industry benefited from the order? On 9 October, the UK Space Agency and my right hon. Friend the Minister for Universities, Science and Cities published a report titled, “The Size & Health of the UK Space Industry.” Announcing the report’s publication, my right hon. Friend said that it
“reveals that the sector continues to soar and is currently worth £11.3 billion to the UK economy, growing at over 7% per year, employing over 34,000 people and supporting a further 72,000 jobs in other sectors.”
That gives an idea of the industry’s importance and potential.
The hon. Member for Kilmarnock and Loudoun asked whether the order will apply to all spacecraft, and I can confirm that the intention is to cover all man-made objects launched into space, which will include exploratory
craft, such as the Mars Rover, and satellites, including small and micro-satellites, or CubeSats, which are often launched by educational establishments and other research institutions. The order will also cover space tourism craft, such as the Virgin Galactic. Finally, there is no impact or knock-on effect on regulation. Obviously, this is just a change in taxation, so there is no regulatory impact to be considered.