HOUSE OF COMMONS
Second Standing Committee on Statutory Instruments, &c.
DRAFT DEPARTMENT OF TRADE AND INDUSTRY (FEES) (AMENDMENT) ORDER 1995
Tuesday 9 May 1995
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The Committee consisted of the following Members:
Chairman: MR. ALAN HASELHURST
Banks, Mr. Matthew (Southport)
Bell, Mr. Stuart (Middlesbrough)
Berry, Mr. Roger (Kingswood)
Burden, Mr. Richard (Birmingham, Northfield)
Burns, Mr. Simon (Chelmsford)
Campbell, Mrs. Anne (Cambridge)
Campbell, Mr. Ronnie (Blyth Valley)
Carttiss, Mr. Michael (Great Yarmouth)
Church, Ms Judith (Dagenham)
Clapham, Mr. Michael (Barnsley, West and Penistone)
Day, Mr. Stephen (Cheadle)
Evans, Mr. Jonathan (Parliamentary Under-Secretary of State for Corporate Affairs)
Grant, Sir Anthony (Cambridgeshire, South-West)
Harvey, Mr. Nick (North Devon)
Pawsey, Mr. James (Rugby and Kenilworth)
Porter, Mr. Barry (Wirral, South)
Stephen, Mr. Michael (Shoreham)
Stern, Mr. Michael (Bristol, North-West)
Mr. P. A. Evans, Committee Clerk2 3 Second Standing Committee on Statutory Instruments, &c. Tuesday 9 May 1995
[MR. ALAN HASELHURST in the Chair]
The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Jonathan Evans): I beg to move, That the Committee has considered the draft Department of Trade and Industry (Fees) (Amendment) Order 1995. The order will strengthen the financial management of the insurance fees scheme by empowering the Department of Trade and Industry to recover deficits made in the operation of the scheme and to spread capital costs. That follows best commercial accounting practice by providing a means of carrying forward deficits and depreciating assets in a fair and equitable manner. In particular, the order will enable the Department to spread the recovery of the cost of a new computer system over a number of years. That equipment replaces systems that date back to the 1970s. I attach importance to providing the Department with the facilities that it needs to regulate an important and increasingly complex industry. Section 102(4) of the Finance (No. 2) Act 1987 expressly enables orders to be made to allow deficits and the depreciation of assets to be taken into account when determining the relevant costs for the purpose of setting fees. With this facility in place, the Department will also be able to take account of any future surpluses over income in its annual fees calculations. The amendment order effectively adds the insurance fees scheme to the Department of Trade and Industry (Fees) Order 1988, which already allows the Department to recover deficits and to spread capital costs in respect of most of the fees schemes that it operates. The Committee may find it helpful if I briefly outline the origins of the insurance fees scheme. It was brought into effect on 1 April 1986 by the Insurance Fees Act 1985 and is in line with the Government's policy of recovering the costs of services that are provided to identifiable users. Insurance companies and the Council of Lloyd's are obliged to pay a fee when filing documentation that is required by the Insurance Companies Act 1982. Insurance fees are set in respect of activities that are relevant to the Department's supervision and regulation of some 820 authorised insurance companies and its consideration of proposals for both United Kingdom and European Community legislation. The Secretary of State expects to recover some £8.5 million in fees by the end of this financial year. Insurance fees currently range from £310 for companies with a gross premium income of more than £250,000, to £20,250 for companies with a gross premium income that exceeds £50 million. Groups are subject to a maximum fee to £141,750 4 and members of the Committee may be interested to know that the Council of Lloyd's is subject to a fee of £101,250. In summary, the amendment order will strengthen the overall financial management of the insurance fees scheme with consequent benefits for both the insurance sector and the Department of Trade and Industry.
Mr. Stuart Bell (Middlesbrough): It is a pleasure to be here under your Chairmanship, Mr. Haselhurst. I remember by maiden speech on the Floor of the House, when you were kind enough to follow me. Although that is now 12 years ago, the kind sentiments of your speech that day are still with me and I am as grateful to you now as I was then. I thank the Minister for taking us through the fees and charges order and for reminding us that the Department of Trade and Industry is responsible for insurance regulation and supervision. As I understand it, we have 90 inspectors who deal with insurance regulation and supervision as well as, among other things, the solvency requirements of the insurance industry. We note that some £8.5 million has been paid by the insurance companies and that the Council of Lloyd's—if I understood the figures—paid £101,250. It is not for this short Committee meeting to examine the regulation of the insurance industry as it relates to the insolvency requirements of Lloyd's of London and other institutions. That is for another day and, probably, the Floor of the House. However, do the fees going to the Department cover the cost of the supervision and regulation of the insurance industry? The Minister may have answered that question earlier, but I did not pick his answer up.
Mr. Jonathan Evans: The scheme for the fees charged is graduated according to individual companies' premium income, as I outlined briefly in my earlier remarks. For the smaller insurance companies with a gross premium income of £250,000, a fee of £310 is chargeable, while companies with a gross premium income of more than £50 million face charges of up to £20,250. That means that a substantial proportion of the regulatory costs is recovered by the Department. However, the order enables us to deal with the accounting practices involved in the installation of new computer equipment to carry out that function. Substantial capital costs are attached to the installation of such equipment. Whether such costs would apply in one year only or could be spread over several years because of depreciation might be open to question, but the order enables us to spread the cost over a period of years, in line with the recommendations of the National Audit Office and with best accounting practice, and to recover at least part of it from the industry. May I add, Mr. Haselhurst, that I associate myself with the other, substantial remarks made by the hon. Member for Middlesbrough (Mr. Bell) with regard to your kind and courteous Chairmanship of the Committee.
Mr. Bell: I am grateful to the Minister. He did not answer my question about whether the fees received by 5 the DTI cover the cost of supervision and regulation, but I accept that that question is not covered by the order. However, he may give me an answer at a later date. He said that the order enables the DTI to raise capital to replace the computer system regulating the insurance industry. Given the industry's complexity, the greater demands for its supervision—by itself and by the City of London—and the number of complaints, questions and determinations that have to be made, we support the order to raise the capital for a new computer system. My only recommendation is that the new system does not fail after two years, as was the case with the system adopted by the stock exchange.
Mr. Jonathan Evans: Without wishing to delay the Committee, may I say that the order is designed to enable 6 us to cover the costs of insurance regulation more accurately. Sometimes it is difficult to associate all those costs with the fees charged to individual companies. The extra flexibility resulting from the order will enable the Department to carry over deficits and surpluses more accurately than previously.
Question put and agreed to.
Resolved, That the Committee has considered the draft Department of Trade and Industry (Fees) (Amendment) Order 1995.
Committee rose at twenty-one minutes to Five o' clock.
THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:
Haselhurst, Mr. Alan (Chairman)
Banks, Mr. Matthew
Evans, Mr. Jonathan
Grant, Sir Anthony