§ (1) The relief given under Section fifty-four of the Income Tax Act, 1853, as amended by any subsequent enactment, shall not, as respects insurances or contracts for deferred annuities made after the twenty-second day of June, nineteen hundred and sixteen, be given except in respect of premiums or payments for—
§ (1) an insurance limited to the payment of a capital sum on death; or
§ (2) an insurance limited to the payment of a capital sum on death and the payment of a sum on reaching a certain-age, so long as—
- (a) that age is not less than sixty-years; and
- (b) there is an interval of at least twenty years between the date of the contract of insurance and the date on which the sum becomes payable; and
- (c) the sum payable on attaining the required age is not greater than the sum payable on death;
§ (3) contracts for deferred annuities, where—
- (a) the contract is limited to the payment of an anunity commencing at an age not less than sixty years; and
- (b) there is an interval of at least twenty years between the date of the contract and the date on which the annuity commences;
§ (2) Where relief has been given under Section fifty-four of the Income Tax Act, 1853, as amended by any subsequent enactment, in respect of premiums or other sums payable on insurances or contracts for deferred annuities made after the 891 22nd day of June, nineteen hundred and sixteen, and the policy or contract is surrendered, or the benefit thereof is transferred for valuable consideration (other than marriage), there shall be paid as a debt due to His Majesty a sum equal to that which would be payable if Income Tax (including Super-tax) were charged on the amount received in respect of the surrender or transfer at the rates at which the relief was last given in respect of the premiums or other sums payable.
§ It shall be the duty of every insurance company who take a surrender of any such policy or contract or record a transfer of any such policy or contract to give notice to the Commissioners of Inland Revenue of the particulars of any such surrender or transfer.—[[Mr, McKenna.]
§ Clause brought up, and read the first time.
§ Motion made, and Question proposed, "That the Clause be read a second time."
§ Mr. McKENNA
In moving this Clause, I wish to take the opportunity of informing the Committee what has happened with regard to our proposal. After the introduction of the Resolution proposing the new charge, I had the advantage of seeing the representatives of the great insurances companies and societies in this country, and I found that while they were in complete sympathy with the object which the Government, and indeed the House, has in view in the Resolution itself, they were anxious as to the terms of the Clause, and anxious as to the powers which we propose to use. We had some discussion, and I came to the following arrangement with them, and I undertook to make this statement to the Committee of the House. I will say now that if our advisers at the Treasury can between now and the Report stage come to an arrangement with the insurance company, whereby we may have a Clause which will effect our common purpose in a way which they regard as satisfactory, I would undertake either to introduce Amendments of our Clause, or, if necessary, on Report to withdraw the Government Clause and substitute a new agreed Clause, and would invite the Committee and the House to accept that arrangement. If, on the other hand, our expert advisers and the insurance companies were unable to come to any arrangement between now and the Report stage, I should then have no alternative but to ask the House to effect the object which we have all in view by the only means 892 known to us, namely, by the Clause presented to the House. I think it would be highly desirable, indeed we all wish it, to effect the object we have in view with as little inconvenience to the companies as possible—in fact, if we can, with no inconvenience. We shall all agree that it would be most desirable that a Clause should be arrived at which would be acceptable to them as the result of our Debate. Therefore, if I may, I ask the Committee to allow us to have this Clause now on the Committee stage of the Bill, on the understanding I have announced, that we will amend it, or substitute another Clause, if another Clause can be secured by arrangement with the companies.
§ Mr. JONATHAN SAMUEL
I think we ought to be obliged to the Chancellor of the Exchequer for the promise he has made, but I have consulted some of the insurance companies, and I am afraid that some of the very large companies knew nothing about the deputation which waited upon the right hon. Gentleman. I would suggest to him that the following would be a very good arrangement to get out of the difficulty: The reason why this Clause has been brought in is because of the fact, as he stated, that some insurance companies had taken advantage of the very high Income Tax to issue deferred annuity policies on short loans. The right hon. Gentleman proposes in this Clause that in future no short-term policies shall be issued for at least under a period of twenty years, and that no man can benefit from these annuities or insurance or life endowment policies until he has reached the age of sixty years. This is going to be a very serious matter to insurance companies who do a very legitimate business in life and endowment policies.
§ Mr. SAMUEL
No, you have hot agreed to it, and my suggestion is this, that the remedy which the right hon. Gentleman proposes in this Clause should apply to Part III. only—that is to say, it should apply only to deferred annuities for sixty years and twenty years, and should not apply in the cases where they are doing a legitimate business in life and endowment 893 policies. I have taken returns out of the accounts of three very large insurance companies, one of which is doing the largest business in the country. I find that out of 922,000 policies, representing sums assured in the ordinary branch of a total of £103,000,000, there are only 4,650 policies issued under what is called deferred annuities, and representing only a sum of £151,000. One insurance company, with an income last year of no less than £3,500,000 only issued £300 of what are called deferred annuities and paid only £1,516 in 1916. To affect what is called legitimate life and endowment policies is rather a serious matter, not only for the companies who are doing that business, but for the insured persons concerned. Take the young man who takes out a policy of endowment at the age of twenty years for fifteen years or twenty years. He is in a better position then to pay the premium than at any other part of his life. He takes out a rather big policy and pays a big premium. He does not do it for investment only. He draws that money out at thirty-five, or, if he starts at twenty-five, he draws it when he reaches forty. Under the provisions of this Clause he is prevented from getting any rebates on his Income Tax in respect of the premiums because he has not reached the age of sixty. I think that is punishing the insured person when the young man or his parents are anxious to secure benefits in a legitimate way.
I quite agree with what the Chancellor is trying to effect. I am sorry to say we have insurance companies, and he gave cases the other day, which are now taking advantage of the high Income Tax and are issuing deferred annuities and thereby avoiding, or, in other words, robbing, or trying to rob, the State of its legitimate due in the form of Income Tax. That, I believe, would be met by applying the sixty years and the twenty years to Sub-section (3) of this Clause. I am not going to move any Amendment now. I think the right hon. Gentleman has made a very fair offer, but I would ask him to amend Sub-section (2) of the Clause, and make the ages fifty, and fifteen for the period of the endowment. I have consulted some very important insurance men on this point. This would meet them. They knew nothing about the conference to which he has referred. I hope that between now and the Report stage he will consider the suggestion which I have made. If you hit the insurance companies by affecting their 894 business, then you lose the Income Tax upon the profits that might accrue. On the other hand, you hit the insured person very hard who has taken out an endowment policy for a period, say, of fifteen years, and upon the grounds I have mentioned I ask that the point should be considered.
§ Sir H. ELVERSTON
I had intended to move some Amendments to this proposed new Clause, but in view of the appeal of the Chancellor I am not going to do so now. I would still venture to draw his attention to one or two points and to make some suggestions which I think would afford a very good solution of the difficulty which has arisen. I take it that the Treasury does not in any way want to interfere with or stop rebates of Income Tax on insurance life contracts, but that all it wishes to do is to stop the exploitaion of the Income Tax, which has been going on undoubtedly during the last two years since the Income Tax reached its present high level. I think that the plan I have suggested is far simpler and better than the one which the right hon. Gentleman proposes, and that it will achieve the object which he has in view. The Treasury, of course, has always been trying to stop this allowance or rebate on the investment side of these policies. In 1913 there was a very important case in which this point arose. The Treasury then objected to the rebates and contended that the policy in that case was primarily a contract which involved investments and compulsory investments with life insurance as a condition added as an inducement to people to enter into the contract.
There are three ways in which the Treasury, it seems to me, could achieve this object. One would be to say that in future that no rebate beyond the 1s. or 2s. in the £, the pre-war rate of Income Tax, shall be allowed on any policy. Another way would be to adopt the system which I suggest, and that is, that the rebate shall be given in respect of any premium up to 4 per cent, of the capital sum insured, but that the part of the premium in excess of 4 per cent, would be always subject to Income Tax. The third way is the somewhat cumbersome way which the Treasury are suggesting at the present time. My hon. Friend (Mr. J. Samuel) has pointed to the hard case of the young man of twenty-five, or thereabouts, who insures so as to draw the money at the age of fifty-five. I would point out to the Treasury that the 895 premium rate for such a contract, at the present time, for thirty years is about £2 12s. If a man of forty takes out a contract, expiring at the age of sixty, the premium would be £4 15s., or something like that, and in that case the man of forty, on a twenty years' contract, gets the whole of the rebate, while the man of twenty-five, drawing at the age of fifty-five, on a contract which runs for thirty years, will get no rebate at all under the Treasury arrangement. The point I want to make is this, that in the case of the younger man the investment element is far smaller than it is in the case of the older man of forty, and yet, in the one case, the Treasury deny the rebate and in the other they allow it. Another very hard case which is hit under the Treasury scheme, as it stands, is that of what is known in insurance circles as "bad lives." A man, say, has a bad family history but wants to insure his life. He goes to an office, and it is quite a common practice for the office to say, "We are very sorry, you are not a good enough risk to take (in what they describe as a whole-life system), but we think that you have an average chance of seeing the age of fifty years, and we will take you on an endowment policy payable at the age of fifty years." I hope that the Treasury will take a note of these points, and I think the case I have mentioned is one which ought to be dealt with.
Prior to the War the time when Income Tax was not so high, it was not the habit of very wealthy people to take short-term endowments, or to take out endowment policies at all to any extent. In those days the Income Tax offered no particular inducement. It was only the middle-class man who took up that form of investment, and for the ordinary middle-class man this form of investment to-day is a far more important matter than the Treasury realise. It is not an easy thing for a man who has, say, £200 per year, and who manages to save, say, £15 or £20 per year, to invest that money satisfactorily. An investment policy, an endowment policy, is practically the only channel for a ready and safe investment open to him. Therefore I do hope that the Treasury will deal very carefully with this phase of the question. If the Government would adopt the scheme I suggest, of allowing a rebate of Income Tax upon the premiums up to 4 per cent, of the capital sum which is insured, it would get rid of the necessity for the second part of the Clause and with the 896 necessity for dealing with the question of surrender values and of surrender values repaying Income Tax. Under the Clause a life insurance company is not to allow the surrender value without deducting therefrom the Income Tax or sending notice to the Income Tax officials that the policy has been surrendered. Is it proposed to stop life insurance companies giving loans on those policies, because a company will to-day grant a loan up to 90 per cent, of the surrender value of the policy? Therefore, under the Clause as it stands it would be quite possible for any man who really intended to discontinue the contract to go to the life office and say, "I want a loan on my policy." He would get 90 per cent, of the surrender value, and he then could tear up his policy and there would be an end of the contract so far as he was concerned, and he would actually have drawn more money than the company would have given if it had paid the surrender value. These policies form a very usual security for a man to deposit with his banker. It is particularly so with middle-class people like myself. If I want money from a banker I take a life policy to him and say, "Here is a perfectly good document; let me have a certain amount"—an overdraft or something of that sort. Bankers accept that without any consideration and without any hesitation. But here the Chancellor is going to introduce complicated arrangements like those suggested in the second part of the Clause, and he is going to make it extremely difficult for the ordinary middle-class man to deal with the only security which in nine cases out of ten he possesses. Therefore I hope that the Chancellor will not think of passing this Clause without very careful consideration and consultation with the insurance people.
§ Sir H. ELVERSTON
I mentioned these points lest it might be said that we had allowed them to go by default.
§ 5.0 P.M.
§ Mr. WATSON
I would like, without repeating what the last speaker said, to express my entire agreement with the two points he made; firstly, with regard to the young person insuring at an early age on an investment policy long before it matures, but where the point of maturing will be reached under sixty years, and, 897 secondly, and more particularly, with regard to the class of life which the ordinary company of good standing will not accept as a whole life policy, but which it will accept on the endowment system for a fairly long period. I would like to ask the right hon. Gentleman whether, among the representatives of the insurance companies, the Scottish insurance companies are also represented?
§ Mr. GLYN-JONES
I am sure the House will be glad that the right hon. Gentleman is to see the insurance, companies before this proposed provision becomes an actual Act of Parliament, but when I raised this question when the Resolution was before the House I did it without consultation with any insurance company, and I am not now' thinking of any insurance company. I want the right hon. Gentleman, however, to realise that it might well be that he could get a Clause which might be satisfactory to the insurance companies, but which would yet do a great injustice to certain insured persons. It may not be an answer at all that because the insurance companies are satisfied this proposed Clause would work fairly as between insured persons.
§ Mr. GLYN-JONES
Quite so, but the Fact that it will interfere with people who, in the future, have to make provision of this sort in no way, I think, mitigates the injustice, if injustice is done at all. The right hon. Gentleman wants to do justice to those people who, after this provision becomes law, will have to insure, and I do say that I, for one, feel a little misgiving that on the right hon. Gentleman's advice I have to agree to a Clause to-day which the right hon. Gentleman himself is not prepared with confidence to advise the House is the best provision to make for this purpose That is really what we are doing. The right hon. Gentleman says: "Pass this Clause to-day. I am not sure it is the best that could be passed, but I will talk to the insurance company before it leaves this House on the Report stage." I can only say that, although, no doubt, it is owing to lack of opportunity, it is a pity that people are not consulted before we reach the Committee stage in the House of Commons, and that we have to-day to deal with it in this more or less unsatisfactory way. What I want to ask the right hon. Gentleman is 898 with regard to his saying that if he could not agree with the insurance companies this Clause would have to stand.
§ Mr. GLYN-JONES
With great respect, I understood the right hon. Gentleman to say that it would have to stand.
§ Mr. McKENNA
I have never said that any Clause in any Rill would have to stand. I said I would introduce it in this form, and that then I should be glad to listen to any criticisms hon. Members might have to make. I did not pin myself to this Clause, nor do I do so to any Clause as I introduce it.
§ Mr. GLYN-JONES
I am sorry if I misunderstood what the right hon. Gentleman said. I thought he said that if the insurance companies could suggest no better Clause he would ask the House to adopt this one. What I want to emphasise is that the very class of life that the right hon. Gentleman wants to encourage to insure, namely, the young man of poor life, cannot, if this provision stands, get the benefit which he intends them to have. I can speak from my own personal knowledge of a case where the only form of life insurance open to a young man of thirty, just married, who is anxious to make provision and is being encouraged by the Government to make provision, is a policy payable at death, or at fifty-five. I do not object to the twenty years, but to say that no policy shall have the benefit of exemption from Income Tax if it is payable before sixty years is to cut out altogether the poor life. That may be a provision to which the insurance companies themselves may not take exception. For instance, the suggestion has been made that one method would be to say that the Treasury would allow exemption only on premiums which did not exceed 4 per cent, of the capital for which the insurance is taken out. I would point out that that would at any rate be no very serious detriment to the wealthy man who can go on insuring as much as he likes at any rate at 4 per cent., but that it would interfere with the very type of person whom I think the right hon. Gentleman wants to help. I only ask him, therefore, to remember that it is not only the insurance companies whose interests have to be considered, and I know he will consider others. He has to consider all classes of insured persons, and particularly that class of life of which. I am now speaking.
§ Mr. BRYCE
I will not tire the Committee by dilating on the importance of the points raised in connection with the age of the insurer of an endowment policy, and with the necessity of reducing the term. If the right hon. Gentleman keeps to the sixty years in the Bill it will make that impossible for large numbers of cases to be insured. I say that because I have had considerable experience as a director of one of the larger insurance companies, and I know that the very great bulk of these endowment policies mature at an earlier date than that, and it would be—not from the point of view of the insurance companies, because, after all, they are rich enough—a very serious detriment to a large body of most deserving insurers in this country. There was another point I wanted to raise, which I have put into a manuscript Amendment. I will read it to the House:Provided always that a premium paid in connection with the life assurance policy to secure a licence to engage in the Naval or Air Services of the Crown, or to engage in the military service of the Crown outside of the United Kingdom shall not be subject to the restrictions imposed by this Section of this Act and by Section 17 of the Finance Act, 1915.With the enormous numbers of young men in the field now exposing themselves to many dangers, the question of insurance has become an exceedingly important one. They cannot, however, cover it at the reasonable and ordinary rates for endowment or whole-life policies. They have to pay on a life policy ten or twelve guineas, and in some even more, per cent, and the result is that if you make these restrictions and keep up as regards these policies the restrictions of Section 17 of the Finance Act, which limited to 7 per cent, of the sum assured the exemption given by the Treasury, you make it quite impossible for these people to insure their lives at all. That would mean an enormous number of people thrown on the charity of the State unprovided for. The matter is of very great importance, and I hope the Chancellor of the Exchequer will consider it in his new Clause. If plenty of notice is given of the new Clause we may have an opportunity to get in Amendments, but I would much rather the right hon. Gentleman considered that point and embodied it in his Clause.
§ Mr. J. MASON
I should like also to call attention to the matter to which I am sure the right hon. Gentleman will pay attention in considering his new Clause. It is quite a common practice for people who own a life insurance policy to deposit 900 that, without any surrender or any permanent consignment, as collateral security for a mortgage, and the way that is done is by means of a transfer. As the Clause stands, in Sub-section (2), it seems to me that if the policy were transferred in that way as collateral security for a mortgage it would be liable to this tax, which is not of course, what the right hon. Gentleman intends. I venture to suggest that the Amendment put down in the name of the hon. Member for Brentford (Mr. Joynson-Hicks) is one which ought to be inserted in order to meet that difficulty, or that something very much like it should be put in. I venture to ask the right hon. Gentleman to bear that matter in mind.
§ Sir G. RADFORD
I will not go into the grave questions that have been discussed, or the importance of the suggestions that have arisen on this Clause. With regard to the wording of the Clause, which is an amendment of the provision of the Income Tax Act of 1853, we are told at the beginning of this Section that
"the relief given under Section 54 of the Income Tax Act, 1853, as amended by any subsequent enactment, shall not," etc.
The words to which I want to draw attention are "any subsequent enactment." I do this in the interest not only of the public but of that small but deserving class of persons who read Acts of Parliament. I think I know what the Chancellor of the Exchequer means when he says "any subsequent enactment," and I am quite sure that he knows what he means, and it would be perfectly easy for him to insert there the names of the Acts of Parliament to which he refers, instead of putting in the words "any subsequent enactment," which are an invitation to us all to spend a happy day reading all the Statutes from the year 1853 up to the present time. I do say that it seems to be only indolence on the part of the draftsman not to have put in these words, and I appeal to the right hon. Gentleman to consider whether he cannot insert what he means in plain language on the Report stage.
§ Mr. CURRIE
In a single word, I beg to suggest that there is a way of arriving at what we all seem to desire, and that is to introduce a sort of sliding scale. It seems to be obvious that some transfers should be open to a stiffer form of challenge than others, and perhaps the right hon. Gentleman will tell us whether 901 it is along that line that the negotiations are proceeding. I do not think, so far as I have heard anything that has been said, a case has been made out for treating with any special degree of leniency policies which are transferred for purposes of mortgage.
§ Mr. McKENNA
I only rise to say that the Scottish insurance offices are included, and I thank the Committee for the reception that it has given to the proposal.
§ The CHAIRMAN
There are a number of Amendments which have been handed in, and others which are on the Paper. Mr. Bryce.
§ Mr. McKENNA
Perhaps the hon. Gentleman will not move this, as it may not be the final form of the Clause.
§ Question put, and agreed to.
§ Clause added to the Bill.