Clause 55 - Overview

Part of Finance Bill – in a Public Bill Committee am 10:45 am ar 19 Mehefin 2012.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education) 10:45, 19 Mehefin 2012

It is a pleasure to serve under your chairmanship this morning, Mr Bone.

I will speak to the provisions and Government amendments relating to clauses 55 to 149, and my hon. Friend the Member for Kilmarnock and Loudoun will deal with the remaining clauses in the group, which covers a large chunk of the Bill. As the Minister set out, the proposals are mainly non-contentious and are, for the most part, supported by the insurance industry. He explained well that the provisions represent the downstream consequence of the transposition into UK regulations of the European directive on insurance and life insurance capital adequacy, known as solvency II.

Although it is tempting to debate the wider merits and pitfalls of the solvency II regime—there are serious concerns about the impact of those changes on pensioners, on those paying premiums for their life insurance products, and on annuitants whom the changes may hit—it would not be appropriate to dwell excessively on those bigger questions at this juncture. We are debating today how Her Majesty’s Revenue and Customs calculates the taxes that our UK insurance companies ought to pay. As I understand it, and as the Minister has said, there are no substantive changes to the amount due from the sector. Insurance firms have not made any strenuous representations against the clauses and support parts of the changes.

In essence, our understanding is that the clauses preserve roughly the same quantum of tax revenue from the sector, but empower HMRC to use new means of calculating the sums due. The Financial Services Authority currently receives data about insurance and company transactions, and balance-sheet information, in a form that fits old regulatory requirements and the returns that were submitted, so that those can be properly monitored. Solvency II fundamentally restructures the nature of the regulation, and the restructuring of returns to the FSA as a consequence is provided for in the Bill.

Although the clauses are not contentious in nature, I have one or two queries that I hope the Minister will address. He has partly answered my first question, but will he clarify what total revenue changes are anticipated from the different divisions of the insurance sector as a result of the reforms? Although the overall impact may not affect the current projections, are there any particular sectors in the insurance industry that the changes may affect more or less than others?

The Minister referred to this point in his comments, but will he clarify what the anticipated costs are of implementing the administrative changes, both to HMRC and the insurance sector? The alterations are complex and bureaucratic, and presumably their implementation will carry a cost. Will the Minister clarify what the impact assessment says on that point?

What does the Minister predict will happen to insurance company profits over the medium term? Will they be adversely affected by the double-dip recession? Is there  any HMRC internal analysis of how that tax base may vary in the years ahead, either because of solvency II or because of other pressures on the sector in general?

Chapter 5 sets out the rate of tax applicable to with-profits policyholders’ share of profits. What information will be sent to those with-profits policyholders on how their share will be taxed? Will it be left to customers to search that out for themselves, or will insurance companies be providing new information for them? I presume that no changes will be made to taxation at source—PAYE and so on—but will the Minister confirm that?

Will the Minister elaborate on clause 112 in chapter 6, in which there is a change to the indexation return on gilt-edged securities? Is this connected to the Government’s changes in indexation from the retail prices index to the consumer prices index, or are there other explanations? In chapter 8 there are provisions affecting overseas insurance firms that do business in the UK and across the EU. Are these changes likely to affect the competitive ability of firms, whether British or from abroad, to trade and do business in the UK?

Finally, in chapter 12 there is a set of powers to be granted to the Minister to make changes to the legislation through secondary legislation. Can the Minister assure the Committee that any statutory instruments that substantially change the terms of life assurance business will require an affirmative resolution and will need to be approved by a vote on the Floor of the House, rather than being dealt with by negative resolution?