§ Mr. Terence L. Higgins (Worthing)
I beg to move Amendment No. 224, in page 53, line 25, to leave out "two" and insert "three".
§ The Chairman
With this Amendment we can consider Amendment No. 225, in page 53, line 27, leave out "two" and insert "three" and Amendment No. 228, in line 36, leave out "two" and insert "three".
§ Mr. Higgins
Yes, Sir Eric. I am sure that the Committee will be glad to consider the other related Amendments at the same time. I find myself rather in the position of Oliver Twist asking for more. This is an improvement on last night, when we never got anything in the way of concessions, and therefore could not ask for more.
The background to the Amendment is a debate which took place on 24th June last year, when a new Clause was proposed by my hon. Friend the Member for Richmond, Surrey (Mr. A. Royle). As a result of his persuasive argument on that occasion the Government had consultations with the insurance industry 2215 and tabled the Clause which we are now considering. We, in turn, tabled the Amendment.
In essence this business is concerned with life insurance—not whole life insurance but insurance for a comparatively limited period. The point that my hon. Friend made last year was that the stamp duty charged on such life insurance policies of limited duration tended to put this country at a disadvantage in the export business. He suggested that a rate of 6d. should be imposed on such policies, rather than that we should continue the previous ad valorem system, which tended to impose a very heavy burden compared with the taxes levied by other countries.
This tax had to be passed on by those underwriting such business in this country, and our competitive position was correspondingly worsened. We are, therefore, very glad that the Clause has been tabled, as it will help companies of this sort to increase their business and earn more foreign exchange.
I understand that there is a tendency for group life assurances of this kind to be written on a three-year rather than a two-year basis at guaranteed rates, and that recently, this Clause not having previously been tabled and considered, a significant amount of this kind of business has been lost to this country. Apparently, the premiums involved are substantial.
The Government have made an exception in the case of policies running for two years, and the point of the Amendment is that while we appreciate that there would be grave difficulties in going as far as five years, because that would bring a policy of this sort more into the whole-life class, where different rules apply, there is a case for moving one year further forward. Whether the policy is written for a short or a long period, if one spreads the nominal duty over a longer period that proportionately reduces overhead costs and makes the position of the underwriting company of British origin proportionately stronger.
The spread of this business internationally is very considerable. One syndicate of Lloyd's does business with about 30 countries, and thus makes a contribution in furthering international 2216 trade. A certain amount of trade is normally associated with this kind of insurance business, and much of the insurance of this kind is in connection with firms sending personnel abroad.
The main point is that such personnel are frequently sent abroad on a two-year contract, but that it is not unusual—indeed, it is quite frequent—for people going abroad on this basis to have their contracts extended to three years. It raises rather difficult problems if, in these circumstances, either the policy has to be rewritten altogether or, unless the Amendment is accepted, it will have to bear tax on an ad valorem basis. Unless one has flexibility, so that the policy can be reasonably extended from two to three years, some disadvantage may arise.
This is not an enormously important Amendment, but, as the Treasury is prepared to concede the case concerning two-year policies, this extension would be worth while. The cost to the Exchequer would not be significant, certainly in terms of the additional export earnings which would be likely to be obtained. I invite the Financial Secretary to give us his views on the Amendment, and I hope that he will look on it with favour for the reasons which I have given. Perhaps he would give us some indication of what the additional cost would be.
§ Mr. MacDermot
No question of high principle divides us here, nor do I rely on any question of costs. Any difference in costs as between two and three years would be negligible. Both sides of the Committee have the same object here, which is to try to strike the right period for a concession of this kind. As the hon. Member for Worthing (Mr. Higgins) said, the Committee is indebted to the hon. Member for Richmond, Surrey (Mr. A. Royle), who raised this matter last year, and who, supported by the hon. Member for Worcester (Mr. Peter Walker), made a forceful argument. My right hon. Friend the Chief Secretary undertook to look into the matter, as a result of which this proposal was brought forward.
It is a matter of providing a sufficiently long period to cover the general run of these short-term life policies, but not to extend it to such a period that it would open up the possibility of their being used on a renewal basis in such a way as to 2217 trespass upon the sphere of ordinary life business. The short-term policies cannot be used as securities for a loan, which is what a person who takes a longer-term policy achieves, and this is something of a limitation on them. In spite of that, there is a danger here.
The way in which we have approached the matter is to try to ascertain the period that would cover the general run of these policies. The hon. Member for Worthing said that he understood that there was a tendency for group life cover to be given on a three-year basis. I am not aware of such a practice, but if the hon. Member lets me have evidence of it I shall be glad to reconsider the matter.
The hon. Member invited me to say what was the basis on which we chose the two-year period. It followed discussions between the Inland Revenue and those who write these policies. The Revenue was urged to go beyond the two-year period, on the argument that some of the jobs for which this kind of cover was needed, such as construction work abroad, sometimes run on for more than two years, even though they were not expected to do so when they were first undertaken.
Normally, these contracts would be expected to be completed within two years, and usually the policy would be for two years. Our view has been that in the unusual circumstances of the contract being extended there is no great difficulty about the underwriter issuing a fresh policy attracting only the 6d. duty. The objection which was put to us is that this results in unnecessary administrative expenses to underwriters and brokers. It is a matter of striking the right balance, and we feel, on the evidence adduced so far, that the number of policies to which that is likely to apply would be a very small proportion of the total business done by the underwriters and brokers concerned. Bearing in mind the need to contain this within a reasonable period, we feel that a two-year period meets the situation. That is still my view.
If the hon. Member cares to withdraw the Amendment and let us have any further evidence and information of the kind which he indicated, if there is some additional information which has not already been supplied to us, I should be glad to reconsider the matter.
§ Mr. Higgins
We are most grateful to the Financial Secretary for that sympathetic reply. I shall do what I can to provide the evidence, because I understand that the group life business is normally done on a three-year basis. There is a genuine difficulty if the policy needs to be extended. It is true that one could issue a completely new set of documents, but in export markets of this sort there is a grave danger that people are inclined to regard the convenience of the thing as well as the cost.
When one is going to employ staff overseas on a two-year contract, but one knows that the job may well take an extra year, the difference in premium may not be a very great consideration. But if one thinks that if the contract goes on for another year one will have to go through the whole business of bringing out new documents, stamping them and so on, I should have thought that this was a genuine problem. But in view of what the right hon. Gentleman has said, we shall look into the matter again and approach him. Perhaps if that is so we might table a suitable Amendment on Report.
I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Clause ordered to stand part oj the Bill.