Finance Bill

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The Financial Secretary to the Treasury (Ruth Kelly): I thank the hon. Gentleman for that lucid and helpful exposition. I do not intend to detain the Committee with an exposition of the clause itself. The case for it has been well made by the hon. Gentleman. It corrects defects in the legislation dealing with quota share contracts taken out by Lloyd's members. The hon. Gentleman also made the case for conditional contracts and raised issues that I found persuasive. I do not know whether he wants to hear the good news first or the bad news. The good news is that we accept the case that he makes: the bad news is that we do not accept the precise wording of his amendments, as he may have deduced.

The amendments seek to fix the time by which a deduction may be made for premiums paid by Lloyd's members in respect of quota share contracts. Time here, of course, means the relevant years of assessment for individuals or accounting periods for corporate bodies. Amendments Nos. 105 and 107 cover the case of a conditional contract where the condition is never met and as a consequence, the contract, in the wording of the proposed legislation, never ''took effect''. In that type of case, the legislation as drafted allows a deduction equal to the amount of the premium. Where the condition is not satisfied, existing law would

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already allow a deduction for the premium in the year of assessment or accounting period in which it is paid. The provisions of schedule 32 do not alter that.

It is, of course, not possible to know for certain until the period covered by the contract has actually ended whether the contract will take effect. For that reason, the actual amount deductible cannot be determined until that time. However, existing law and practice allow an estimate to be made and a deduction claimed at the time that the premium is paid. When the actual amount allowable is finally determined an adjustment may be made if necessary.

Amendments Nos. 106 and 108 deal with different circumstances: payments of cash by a member to a syndicate to meet expected losses before those losses have been formally declared. The aim of the provisions of schedule 32 is to ensure that relief is available where appropriate for those cash calls. As these amendments rightly identify, while the Bill ensures that relief is available where the necessary conditions are met, it is silent about when the relief is due. We agree that the omission needs to be rectified and we are grateful to hon. Members for drawing it to our attention. However, the wording of the amendment could give rise to ambiguity and so we have tabled our own amendments. I therefore urge the Committee to reject the amendment, which I know the hon. Member for Arundel and South Down tabled in good faith. Perhaps he will withdraw it and accept instead the Government amendments.

11.15 am

Mr. Flight: I spoke at some length on amendments Nos. 105 and 107, but not on amendments Nos. 106 and 108 because Government amendments Nos. 205 and 206 address the same issues. The issue is providing a timing rule to specify when further relief may be given if a cash call is later deemed to be an amount payable under a share quota contract that was previously lacking. It was not clear from the Financial Secretary's response whether Government amendments Nos. 205 and 206, which I have not seen, will cover the issues raised by amendments Nos. 105 and 107.

Ruth Kelly: The advice that I received is that Government amendments Nos. 205 and 206 will not cover the issues raised by amendments Nos. 105 and 107, but the existing law covers the points that the hon. Gentleman has made. The substance of our amendments will clarify the wording that he proposes and express it in a more structured way. The precise issues about which he is concerned are not matters of substance, and we now have a framework that does the job that he has requested.

Mr. Flight: I am sorry to be a slight bore, but I am jolly happy about what the Financial Secretary has said in relation to amendments Nos. 106 and 108. However, she said that the legislation is intended to provide what amendments Nos. 105 and 107 seek to achieve. There is an issue, and it would be useful to make it clear on the record that that is what it is all about.

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Ruth Kelly: To reassure the Committee and repeat what I said earlier, amendments Nos. 105 and 107 cover conditional contracts in which the condition is not met and as a consequence the contract, in the wording of the proposed legislation, ''does not take effect''. In such a case, the legislation allows a deduction equal to the amount of the premium. Where the condition is not satisfied, the existing law would already allow a deduction for the premium in the year of assessment or accounting period in which it is paid, and the provisions in schedule 32 would not alter that.

Existing law and practice allow an estimate to be made and a deduction to be claimed at the time the premium is paid, which is the particular point to which the hon. Gentleman referred. If he were to refer to section 172 of the Finance Act 1993, he would see the legislation set out there. I hope that I have reassured the Committee that the legislation will do precisely what we have clarified as its intention.

Mr. Flight: I thank the Financial Secretary kindly for her explicit comments. Her comments and Government amendments Nos. 205 and 206 have addressed the issues that we raised with amendments Nos. 106 and 108, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 205, in page 453, leave out lines 15 and 16 and insert—

    '(a) for the purposes of subsection (1)(c)(i) and (3A) above, as an amount payable under the contract, and

    (b) for the purposes of section 172, as a payment made at the time the contract takes effect.'

No. 206, in page 454, line 22, leave out from 'treated' to end of line 23 and insert—

    ', for the purposes of subsections (1)(b)(i) and (3A) above, as an amount payable under the contract at that time.''.'.—[Ruth Kelly.]

Schedule 32, as amended, agreed to.

Clause 86

Life policies etc: chargeable events

Mr. Flight: I beg to move amendment No. 187, in page 60, line 35, at end insert—

    '(1A) Section 539 (introductory) is amended as follows.

    (1B) In subsection (1) (scope of Chapter II of Part XIII of the Taxes Act 1988) after ''policies of life insurance, contracts for life annuities and capital redemption policies'', insert ''but any gain falling to be treated as taxable income by virtue of this Chapter shall be disregarded from total income in applying section 257(5) (reduction in personal allowance for elderly taxpayers by reference to total income).''.'.

The amendment is designed to address a problem that I raised on the Floor of the House in relation to the allowances of individuals, particularly retired people, and the operation of the law on insurance policies.

When a United Kingdom insurance policy is issued, the saver gets a credit equal to the basic rate of tax. Only higher-rate taxpayers have to pay tax, and then at a rate equal to the excess of the higher over the basic rate of tax. As the Minister is aware and has confirmed,

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the gain arising on the policy is included in individuals' total income for the tax year for the purposes of allowances, even though they may have no tax to pay when the policy matures. That can have the effect in the year in question of removing completely age-related personal allowances, which are becoming of greater relevance to those who are in retirement in the latter part of their lives. That seems very unfair, as it simply penalises the older saver.

The amendment is designed to separate the two: it would keep the provisions that impose a tax charge on life assurance gains, but ignores the deemed income in determining whether there should be a clawback of the elderly person's higher allowances. There will still be the tax liability as it stands, if any, on the insurance policy, but people will not be punished further for having virtuously saved for their old age.

Mr. Edward Davey (Kingston and Surbiton): I support the amendment, because I have had reason to write to the Paymaster General on two separate occasions, urging the Government to go down the very route that the hon. Member for Arundel and South Downs has so ably put forward.

It is important that all Committee members realise what is at stake here. Many pensioners on very modest incomes have chosen to save for their retirement using the devices mentioned in the clause, through insurance policies and so on. It just so happens that when their bonds or policies come to be cashed in, although they

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have fairly modest incomes the rest of the time, the gain added to their income in that year takes them well above the age allowances and can result in them paying significant amounts of income tax for that year. Those pensioners are often on modest incomes and have scrimped and saved to buy those policies.

Mr. Jack: Is the hon. Gentleman talking about a qualifying or a non-qualifying policy?

Mr. Flight: Qualifying.

Mr. Davey: I am grateful for the intervention by the hon. Member for Arundel and South Downs clarifying the position. I thought that I was talking about qualifying policies. The right hon. Member for Fylde has great technical knowledge, and he may wish to intervene further if he thinks that they are non-qualifying. I had understood that they were qualifying because that would be in the general framework of the law in this area.

The political point that I want to make, which the Government should take on board, concerns the group of people we are talking about. They are not extremely wealthy pensioners who would suddenly receive an extra relief if the amendment were passed; they are people who are often on very modest incomes. Although hundreds of thousands of people may not be affected by that unfairness, a number of people are.

        It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

        Adjourned till this day at half-past Two o'clock.

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        Gale, Mr. Roger (


        Brennan, Kevin

        Burnett, Mr.

        Casale, Roger

        Cruddas, Jon

        Cunningham, Mr. Jim

        Davey, Mr. Edward

        Field, Mr. Mark

        Flight, Mr.

        Grayling, Chris

        Harris, Mr. Tom

        Healey, John

        Hendrick, Mr.

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        Hoban, Mr.

        Jack, Mr.

        Kelly, Ruth

        Luff, Mr.

        Luke, Mr.

        McKechin, Ann

        Marris, Rob

        Primarolo, Dawn

        Pugh, Dr.

        Ryan, Joan

        Smith, Angela

        Sutcliffe, Mr.

        Wright, David

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