Insurance companies: transfers etc

Question proposed [this day], That this schedule, as amended, be the Ninth schedule to the Bill.

Question again proposed.

The Economic Secretary to the Treasury (Ed Balls): Thank you, Mr. Illsley. I am pleased to welcome you back after our morning’s activities. We were discussing schedule 9 and I had explained in extensive detail our approach to the schedule and our targeted anti-avoidance rule. I was talking about the schedule in the context of the extensive consultations that have been going on over the last year on insurance tax matters.

I was explaining at the end of our last sitting that there is a power in the schedule to amend legislation for the start date of the TAAR by regulation, which is a different approach because despite much hard work, neither the Government nor the industry are yet fully satisfied that the legislation will work exactly as we intend, as a number of details remain to be sorted out. The pre-Budget report envisaged that most of the legislation would operate from 1 November 2007, allowing several months between finalisation of the rules and the start date.

However, because more time is needed for this schedule, commencement is now to be determined by an appointed day order, which gives flexibility to allow for several months between finalisation and its coming into effect, whenever the form of the legislation is finalised. Changes to the legislation that are needed to finalise it can be made by regulations, using the power in schedule 9, which means that we do not have to wait until the next Finance Bill or rush to get the final details right on Report. The regulations will be introduced using the affirmative resolution procedure to ensure that there is an opportunity for proper scrutiny in due course.

The legislation, as amended by any regulations, will come into effect from a day to be appointed, which will depend on further consultations, but which we would not expect to be before spring next year. However, we are confident that with further consultation we will be able to get the final details of the schedule sorted out. I commend the proposal to the Committee.

I welcome you to the Chair, Mr. Illsley.

I want to ask the Minister about the targeted anti-avoidance regime to which he referred before the lunch break. As I understand it, the supplementary avoidance rule contains a motive test and a pre-clearance test. I was surprised and taken aback when I saw that there was a pre-clearance test, because I remember the Minister lecturing me quite firmly in connection with clause 27, saying that there was no need for such a test. He said:

“The amendments are unnecessary because the clause contains a main purpose test, which means that it will apply only when a person has entered into arrangements that have the main purpose of securing a tax advantage, which is to say tax avoidance. Such schemes do not happen by accident. They are the result of contrived circumstances in which transactions are undertaken or carried out primarily to achieve a desired tax effect, as opposed to a genuine economic purpose”.

He continued:

“That main purpose may be inferred from the actions of the parties to the arrangements, but it is best understood by the person making the arrangements. It is therefore not necessary to set up a clearance regime when the person best placed to judge whether the rule applies is the person who makes a clearance application.”—[Official Report, Public Bill Committee Finance Bill, 17 May 2007; c. 223.]

It appears that there is one rule for clause 27 and one rule for schedule 9. Having re-read the Minister’s explanation in our debate on Tuesday morning, I am not clear why a clearance rule is right in schedule 9 but was not appropriate for clause 27.

Bearing it in mind that the Committee is scrutinising the wording of the proposal, among other things, I want to raise a rather more prosaic matter, and my hon. Friend the Economic Secretary may wish to write to me about what appears to be the most curious piece of drafting in the Bill, on pages 156 and 157. Paragraph (10)(2) substitutes part of a sentence, the final words of which are

“or as a business transfer-out,”.

The Bill continues:

“(3) In that sentence (as amended by sub-paragraph (2))—omit “or as a business transfer out”.

If I am reading that correctly—I might not be—sub-paragraph (2) inserts some words and sub-paragraph (3)(a) immediately removes some of them. That seems very curious to me. Perhaps my hon. Friend could write to me about it later.

I am very grateful for my hon. Friend’s commentary. The claim, “This is the most curious piece of drafting I have ever seen in a Finance Bill” is, for him, one hell of a claim. Whether it would stand the test of true scrutiny I do not know. He has a fine track record of highlighting curious pieces of drafting. I can only encourage him to participate fully, not only in the next stage of our consultation but in the affirmative procedure that we will apply to ensure that that drafting is fully reflected in the final schedule. If I can shine any light on this particular curiosity I shall be happy to write to my hon. Friend. I shall ensure that all members of the Committee are copied and that the letter is worth framing.

I am grateful to the hon. Member for Fareham for having highlighted the fact that we on this side of the Committee do not take an over-dogmatic or idealistic approach to these matters but are happy to proceed case by case on the basis of the consultation and the evidence that arises in any particular circumstance. Before Conservative Members get over-excited, it would be foolish and wrong of me to lecture them, as Conservatives, on the importance of precedent. That is clearly an important part of conservatism, whatever—I will not go there. I fear that the issue of grammar schools might be ruled out of order, Mr. Illsley.

Clearance procedures for transfer of business are in place under existing legislation. We are replacing previous clearance procedures with a new and more streamlined one. Unlike the discussion on the previous clause, this is not a debate about whether to introduce a new clearance procedure. Perhaps because of the complexity of the tax regime legislation, clearance is judged to be desirable in this case from a Financial Services Authority and court point of view. It was desirable before and it will be in future. I hope that the hon. Gentleman finds that to be an accurate, non-ideological and conservative answer to his question.

Question put and agreed to.

Schedule 9, as amended, agreed to.

Clause 40 ordered to stand part of the Bill.