PARLIAMENTARY DEBATES

HOUSE OF COMMONS

OFFICIAL REPORT

Fourth Standing Committee on Delegated Legislation

INSURANCE PREMIUM TAX (TAXABLE INSURANCE CONTRACTS) ORDER 1996

Wednesday 11 December 1996

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The Committee consisted of the following Members:

Chairman: SIR DAVID KNOX

Aitken, Mr. Jonathan (South Thanet)

Bates, Mr. Michael (Lord Commissioner to the Treasury)

Brazier, Mr. Julian (Canterbury)

Bruce, Mr. Malcolm (Gordon)

Fabricant, Mr. Michael (Mid-Staffordshire)

Field, Mr. Barry (Isle of Wight)

Hordern, Sir Peter (Horsham)

Lewis, Mr. Terry (Worsley)

MacShane, Mr. Denis (Rotherham)

O'Brien, Mr. Mike (North Warwickshire)

Oppenheim, Mr. Phillip (Exchequer Secretary to the Treasury)

Prentice, Mr. Gordon (Pendle)

Renton, Mr. Tim (Mid-Sussex)

Roberts, Sir Wyn (Convey)

Simpson, Mr. Alan (Nottingham, South)

Timms, Mr. Stephen (Newham, North-East)

Touhig, Mr. Don (Islwyn)

Twinn, Dr. Ian (Edmonton)

Wise, Mrs. Audrey (Preston)

Mr. T. W. P. Healey, Committee Clerk.

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3 Fourth Standing Committee on Delegated Legislation Wednesday 11 December 1996

[SIR DAVID KNOX in the Chair]

Insurance Premium Tax (Taxable Insurance Contracts) Order 1996

Motion made, and Question proposed, That the Committee has considered the Insurance Premium Tax (Taxable Insurance Contracts) Order 1996.—[Mr. Bates.]

4.30 pm

The Economic Secretary to the Treasury (Mrs. Angela Knight): The order deals with a very narrow technical point. Insurance premium tax is not charged on insurance covering financial services provided to overseas customers buying from the United Kingdom. For example, if a bank makes a loan to a customer in France and the French customer uses that loan to buy goods from a United Kingdom business, any insurance taken out by the bank to cover the risk that they may not be repaid is exempt from insurance premium tax. After the introduction of insurance premium tax, the British Bankers' Association made representations to the effect that insurance should also be exempt when it relates to loans supplied to an overseas customer who intends to buy goods from a non-United Kingdom supplier, as this is a financial service. It was therefore accepted that insurance relating to loans in these circumstances should have been included within the original exemption. With the agreement of Ministers, Customs and Excise introduced a concession under which this insurance has been treated as exempt since the date that insurance premium tax was introduced. The order legislates for that concession.

4.31 pm

Ms Dawn Primarolo (Bristol, South): Perhaps I may summarise. The position before was that a United Kingdom bank that lent money to a non-United Kingdom company which then purchased goods and services from a United Kingdom company, in effect had tax relief on the insurance for the loan, presumably as a way of assisting British companies that were supplying the goods and services. The order takes away the requirement for the company supplying the goods and services to be British. The tax relief still exists for the United Kingdom bank, but the subsidy in effect helps non-UK companies—both the company with the loan and the company from which it purchases goods and services. 4 It is reasonable to assume that when the relief was originally put in place, British taxpayers' money—because this is in effect a relief—was to be used to encourage British companies. The Minister should explain why that relief, using UK taxpayers' money, is being extended to non-UK companies, with no apparent benefit. The Government also need to explain how much it will cost to formalise an extra-statutory concession. That is interesting, because this relief is not listed as an extra-statutory concession, even though we are told that it is to formalise a previous arrangement. What is the status of extra-statutory concessions? Are they required to be listed so that we know what is in operation? How long do they exist as extra-statutory concessions before it is necessary to introduce legislation? Will the Minister also be more specific about why this extension of relief is being introduced now? What specific benefits will the United Kingdom taxpayer receive from providing tax relief in this way? The Treasury press release and the previous legislation is unhelpful and unclear on this matter, and some justification is required.

4.34 pm

Mrs. Knight: The answer to the hon. Lady's first point is that this is insurance premium tax exempt, and should have been in the first instance, because financial services are IPT exempt, and the sort of loans that banks make are financial services. The original intention was that this type of loan should not be chargeable to IPT. Therefore, we gave a concession when we realised, as a consequence of the approaches made to us by the British Bankers' Association, that we had not got this aspect of the legislation quite right. No cost is associated with what is proposed in the order: it simply formalises the extra-statutory concession. No insurance premium tax has been charged, as it was soon realised that the concession needed to be made. It is normal practice to legislate for an extra-statutory concession as soon as possible. It is possible to do that by means of this Committee today and because of the appropriate scope of the Finance Act 1994. As for any benefit for the United Kingdom, the Committee will know that financial services are one of Britain's important exports. We may not reign supreme in them, but our status in international markets is excellent. We want to ensure that that remains so and that we continue to create jobs in this country. For those reasons, there is a need to legislate for this concession.

Question put and agreed to.

Resolved, That the Committee has considered the draft Insurance Premium Tax (Taxable Insurance Contracts) Order 1996.

Committee rose at twenty-four minutes to Five o 'clock.

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THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:

Knox, Sir David (Chairman)

Aitken, Mr.

Bates, Mr.

Brazier, Mr.

Fabricant, Mr.

Field, Mr. Barry

Hordern, Sir Peter

Twinn, Dr.

THE FOLLOWING ALSO ATTENDED, PURSUANT TO STANDING ORDER No. 87(2):

Knight, Mrs. Angela(The Economic Secretary to the Treasury)

PURSUANT TO STANDING ORDER No. 101(2):

Primarolo, Mrs. Dawn (Bristol, South)

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