SPREADING OF RELIEF FOR ACQUISITION EXPENSES (Hansard, 12 July 1989)

§ Madam Deputy Speaker
With this it will be convenient to discuss Government amendments Nos. 101, 102 and 103.

§ Dr. Marek
Congratulations to the Government are in order because they have taken heed of what was said in Committee and of the views expressed on both sides of the House. The Government are now willing to accept the commission expenses of certain life assurances. From reading the amendments I gather that the Government will go a little further and that existing commissions will be safeguarded. Is the insurance industry happy with that, as I suspect that it will mean some extra book-keeping? The amendments mean that people who entered into contracts before the Finance Bill will not have their contract commissions or expectations changed. I welcome that. There are several amendments in this group and I should be grateful if the Financial Secretary would say something about them.

§ Mr. Norman Lamont
The amendments make two relaxations in the rules which provide for life assurance 1035 acquisition expenses to be spread for tax relief purposes over seven years. Both, as the hon. Member for Wrexham (Dr. Marek) said, relate to the treatment of commissions.
The first picks up a point made by the hon. Gentleman in Committee, which had also been put to us by the industry. The Bill provides that all commissions should be treated as acquisition expenses. That is right as a general rule, but the hon. Gentleman had a fair point when he suggested that it might bear somewhat hard on commissions paid to life assurance agents for the regular door-to-door collection of premium, which is a feature of industrial life assurance business. For that reason, we propose that commissions on that type of business should be taken out of the normal rule and treated as acquisition expenses only where they are incurred for the purpose of acquiring business rather than the commissions that are collected each year.
The Bill as it stands applies the spreading of relief to all commissions laid out after the end of this year, to whatever policy they relate. The industry has suggested that this would disrupt the expectations of offices and their existing policy holders because it would apply to future commissions paid in respect of policies already in force on Budget day. We see some force in this and propose that these commissions should not be subject to spreading, except when they relate to subsequent variations of pre-Budget policies.
7.30 pm
The hon. Member for Wrexham asked whether the insurance industry was happy with the amendments. I think that it will be content with the second purpose which I described. As to the first purpose—the treatment of the acquisition expenses of the industrial business—it is right and fair to say that it is satisfied with that. There might have been an argument about whether that treatment should have applied to other home service business, but there is a considerable problem of definition. It is my understanding—I hope that I am not misrepresenting the Association of British Insurers—that, in the end, it was content with that position.

§ Dr. Marek
I am grateful to the Financial Secretary for that explanation and I am glad that my understanding of the amendments is right. I am prepared to maintain my warm welcome for them.