Companies carrying on life assurance business (Hansard, 10 June 1992)

§ Mr. Beith
I suppose I am not surprised that the Government did not see fit to move Ways and Means Resolution No. 5 because it is another of their regular adventures into retrospection, of which the Finance Bill has a considerable quotient this year. The hon. Member for Eltham (Mr. Bottomley) raised a point of order at the end of Question Time and obliquely referred to another such matter. Ways and Means Resolution No. 5 states specifically That provision (including provision having retrospective effect) may be made". The Government arc seeking to make retrospective provision for the taxation of life assurance companies. The Government's justification for that—it is one of their customary ones—is that, in doing so, they will cause the law to conform to what people thought it was. They will be able to pre-empt the outcome of the judicial proceedings in which some life assurance companies arc engaged. The Revenue fears that it will lose the appeal and must therefore make some provision to fend off that possibility.
The House should not ever engage in retrospective legislation without the most careful assessment of whether it is desirable. These clauses were not in the Bill when it 316 was first published but were added as a sudden afterthought. That is why there is a Ways and Means resolution about them.
If the taxpayers charter is to mean anything as part of the citizens charter apparatus, the right to challenge the Revenue's interpretation of the law must be a real right. Every time that a taxpayer, whether corporate or individual, succeeds in such a challenge, thereby casting doubt on whether the Revenue's interpretation can be sustained up to the highest courts in the land, why should Parliament leap in before the judicial process is complete to return the law to the position that the Revenue thought it was or wanted it to be? What does the Minister with responsibility for the public services think about the Inland Revenue's apparently insatiable appetite for retrospective legislation?
There is a great deal of uncertainty about the facts leading to the Ways and Means resolution. The Inland Revenue claims that the cost of not bringing it in might be £450 million in 1992–93 and a further £100 million in subsequent years. That figure is strongly disputed by the Association of British Insurers which is not aware of claims that would add up to that amount.

§ Mr. Paul Boateng (Brent, South)
How very surprising.

§ Mr. Beith
I note the hon. Gentleman's eager intervention. Traditionally no party has been more enthusiastic about retrospective legislation than Labour. That is why the hon. Gentleman is so keen to support the Government on this issue. The Opposition are ready to let the Government get away with it. They do not ask questions about it and I feel that they would prefer the questions not to be answered.

§ Mr. Dennis Skinner (Bolsover)
I support retrospective legislation when it is about working class people. Perhaps the hon. Gentleman was not here in 1974 when retrospective legislation was used in connection with Lord Winstanley, at that time the Member for Hazel Grove, who had taken an office of profit under the Crown. He was due to be expelled from Parliament for breaking the law. Retrospective legislation was used to save the neck of a Liberal Member of Parliament. Every Liberal Member supported that legislation.

§ Mr. Beith
What is more, it was debated at the time so that the House could consider whether there was a reasonable case for saying that Lord Winstanley held an office of profit under the Crown. The hon. Gentleman should know because he took part in the debate. We should not make retrospective provision without first considering whether the case is justified.
The hon. Gentleman speaks about life insurance as if the working classes have no interest in it, but they have an abiding interest. Many people hold insurance policies and depend upon pension funds for retirement, not least, of course, the funds that were administered by a former Labour Member of Parliament whom no Labour Member appears prepared to admit ever having met. Pensions and life insurances are bound up in financial institutions on which working people depend for their security in retirement. When considering whether a series of life insurance companies should pay millions in tax, we are considering whether those who pay the premiums to those companies should pay that tax through the premium. Let us allow no further currency for the notion that the 317 institutions that hold the savings of ordinary British people are somehow remote and of no interest. Their fate is bound up with that of those who put their money in pensions or life insurance.

§ Mr. Nicholas Winterton (Macclesfield)
The hon. Gentleman spoke about policy holders. Does he suggest that they will suffer and be disadvantaged by the resolution?

§ Mr. Beith
Yes, that is precisely my argument. The costs of the companies concerned will rise and almost certainly policy holders' premiums will rise as a result. The argument is about the relative effect on policy holders and taxpayers in general.
The issue of principle is whether retrospection is justified. If the argument for retrospection is so strong, I wonder that it did not occur to the Government earlier. If in later stages in the consideration of the Finance Bill Ministers tell Opposition Members that their amendments would not have the desired effect or that they are incorrectly drafted, we shall receive that advice with wry amusement. There must have been a series of incorrect Inland Revenue draftings and repeals that led the law to be in a very different state from that which the Government imagined.

§ Mr. Bob Cryer (Bradford, South)
Will the hon. Gentleman give way?

§ Mr. Beith
I shall give way for the last time before I invite the Minister to tell us a little more about the matter.

§ Mr. Cryer
Does the hon. Gentleman accept that when Conservative Members were in opposition and the Clay Cross issue arose they were opposed to retrospection? It seems, however, that they have shifted their ground. For example, during the general election, the Government tabled a statutory instrument—it came into force on 28 March—that gave tax concessions. It was a retrospective measure for Lloyd's underwriters that went back to 1988–89.

§ Mr. Beith
I am grateful to the hon. Gentleman for drawing my attention to another example of retrospection. Every piece of retrospective legislation should be examined carefully, and that is why I took the view that the resolution should not go through on the nod.

§ Mr. John Greenway (Ryedale)
As chairman of the all-party insurance and financial services group, of which the hon. Member for Berwick-upon-Tweed (Mr. Beith) is one of the much valued vice-chairmen, I wish to take up a position that I suspect will be somewhere between the one that he has outlined and the stance that I suspect will be taken by my hon. Friend the Financial Secretary when he replies to this brief debate.
It would be wrong to give the impression that life assurance policyholders throughout Britain will suffer irrevocably if the resolution is approved by the House. I understand that only two—albeit very large—composite insurance companies are affected by the measure. The Government are attempting to put the law on all fours with their expectation of what it would be when the arrangements for the reform of the taxation of life assurance were approved by the House two or three years ago.
318 It seems that two principles are at stake, both of which concern some of us. I imagine that we shall want to listen carefully to my hon. Friend the Financial Secretary's reply, but however we choose to vote on the issue the two principles will rest heavily in our minds.
The first principle relates to a dispute between the two life assurance offices and the Treasury about the correct interpretation of the law. It might take several years for the matter to be fully resolved through the normal processes of legal challenge on taxation matters, for these processes can be drawn out. It must be right, therefore, to amend the law to incorporate what we intended three or four years ago when the new arrangements were introduced. The revenue that would be collected as a result of the arrangements that we thought we were making will not therefore be forgone.
My difficulty—I think that other hon. Members are in the same position—is in determining whether it is right for the change to apply retrospectively to matters that predated the Government's decision to change the law—in other words, retrospective legislation. One argument is that if we are to change the law, the change should have effect only from the date on which the Government signalled their intention to make it.
That brings me to my second difficulty and to the fulcrum of the argument. In responding to my first difficulty, I think that my hon. Friend the Minister will say that the Government signalled their intention to change the law in 1989 when we altered the arrangements for the taxation of life assurance companies. Nevertheless, we are again entering the difficult and highly emotive territory of retrospective legislation. Life assurance companies and the world of commerce generally would like to hear my hon. Friend define where the Government think that the line should be drawn: where retrospective taxation legislation is permitted, and where it is not?
We all understand that advice is given to taxpayers, whether they are ordinary members of the public, employees of firms or some of our largest corporations. That advice is always given in good faith on an interpretation of the tax laws which can be finalised only through the courts. That brings me back to my first point, which is to ask my hon. Friend to tell the House this afternoon why he thinks it is better for the House to decide that it knows best, whatever the courts may think of the claims of two companies against the Treasury, and to confirm that we should ensure that there is no prospect of the Exchequer losing any revenue as a result of the two challenges.

§ Mr. Cryer
On a point of order, Madam Speaker. This is an insurance issue and a number of hon. Members, including the hon. Member for Ryedale (Mr. Greenway), are paid employees of insurance brokers or insurance organisations. Whatever their point of view, they should make that clear. The rules state categorically that if an hon. Member thinks that he has a financial interest, he should make it clear.

§ Madam Speaker
The hon. Gentleman is correct. If there is any financial interest at all, I am sure that hon. Members will make it clear.

§ Mr. Greenway
Further to that point of order, Madam Speaker. I prefaced my remarks by pointing out that I am chairman of the all-party insurance and financial services group, to which representations on this issue were made some three weeks ago at a meeting attended by some 319 Opposition Members. I have no interest to declare in the matters that I have discussed this afternoon other than the interest that we all have, given our rights and responsibilities as Members of Parliament, to protect consumers and our constituents.

§ Mr. Cryer
Further to that point of order, Madam Speaker. The hon. Member for Ryedale is parliamentary adviser to the Institute of Insurance Brokers, which would seem to bring him within the terms of the resolution passed by the House which states that a financial interest should be declared. There is a clear connection, and it is the advice of the Clerk of the House that where there is any doubt it is safest to declare an interest.

§ Madam Speaker
The Register of Members' Interests is one thing, but the declaration of an interest in the subject matter before us is another. I think that the hon. Member for Ryedale (Mr. Greenway) is correct.

§ Mr. Peter Bottomley (Eltham)
The hon. Member for Berwick-upon-Tweed (Mr. Beith) has raised a serious point. Even if Parliament approves retrospective or retroactive legislation, it should not let it go through on the nod without explanation. There is clearly no problem if the House assents to retrospective legislation that gives people something, but there should be more care when such legislation takes something away.
We depend on the rule of law and the rule of Parliament and, as you said in your ruling on my point of order, Madam Speaker, it is within the power of the House to legislate to overrule private interests, whether of individuals or organisations, in matters that are before the courts. However, the Boulton edition of "Erskine May" says that that power should be used sparingly in criminal cases. In civil cases, the law is plain, and I am grateful to you, Madam Speaker, for spelling it out to the House. However, I hesitate to go as far as Sir Robin Maxwell-Hyslop would have done on the hybridity question.
The difficulty is that in an insurance-linked case, similar to that of the building societies' transitional arrangements for composite tax, those who work within the Revenue and the Treasury have to be far-sighted in assessing the law and proposing clauses in Finance Bills which, once enacted, with or without amendment, are watertight. The problem is that there are clever people outside the Revenue in commercial and insurance companies and building societies who look for gaps or overlaps in the law.
It is reasonable for Treasury Ministers to come back to the House of Commons and openly say that they believe that the law is in doubt or wrong and that they want Parliament to consider the matter and to make a change. Like my hon. Friend the Member for Ryedale (Mr. Greenway), I look forward to hearing my hon. Friend the Minister explain what is behind resolution No. 5.
The Minister's explanation will be based on information from the Inland Revenue, which itself is sometimes based on anticipation of what a court may decide—or on an attempt to interpret what a court has already decided, which is not always entirely clear. Problems arise when the consequences are not spelt out to the House. I hope that, in the case of life assurance companies and taxation, we 320 will not be faced with a difference of view and perspective between the Inland Revenue and the Treasury on one side and affected corporate bodies such as insurance companies and building societies on the other.
The saga of clause 52 is not about to end. The problem there was that the Treasury was looking at the cash flow to Government and saying that there was a net cost to Government, while a number of building societies were saying that, because the end of the financial year coincided with the transitional arrangements, they were paying tax for a period in relation to which they had already satisfied the Revenue's demands.
I shall not go into detail, but I feel that my hon. Friend the Minister must try to explain whether it is fair and reasonable to establish certainty in regard to insurance company taxation. Perhaps he will also consider whether we are faced with the "sledgehammer and nut" problem that applies to clause 52. It may be necessary to protect £15,000 million that is at risk, but that need not mean eliminating the taxpayer's chance to establish a £57 million case, or a £100 million case. That represents less than 1 per cent. of the sum that the Opposition seem to think is perfectly reasonable. I might agree in relation to the £15,000 million level, but not in relation to the £57 million.

§ The Financial Secretary to the Treasury (Mr. Stephen Dorrell)
A point that is not in dispute is that, if any proposal for retrospective legislation comes to the House, every individual Member of Parliament should examine it carefully. The burden of proof on anyone who proposes such legislation is very heavy. I do not disagree with any of the hon. Members who have spoken about that. I also want the House to be clear about the precise nature of the debate, and the consequences of approving the resolution—if, indeed, the House approves it.

§ Mr. Cryer
The Minister is right to emphasise the importance of the issue of retrospective legislation. Can he assure me that, if a prayer is tabled against a statutory instrument that gives retrospective facilities to members of Lloyd's for 1988–89, he will treat the matter sympathetically and encourage the Government to provide time for a debate on the Floor of the House?

§ Mr. Dorrell
I shall certainly consider the hon. Gentleman's request. I would consider any case that he put to me in writing equally carefully.

§ Mr. Ian Taylor (Esher)
I think it important to make a point about retrospective legislation in respect of Lloyd's. I stress that I have no interest to disclose.
Lloyd's legislation specifically recognises the existence of a different accounting basis. That is recognised in the Lloyd's Act—

§ Madam Speaker
Order. That is not at all relevant to our present debate.

§ Mr. Dorrell
Let me remind the House of the precise nature of the decision that it is now being asked to make. It is being asked not to approve a clause tabled for consideration in Committee but simply to provide a Ways and Means resolution so that the Committee can— within the rules of order—consider whether a retrospective clause should be written into the Finance Bill. I suggest that the proper time at which to consider the detail of the issue is on clause stand part, during the Committee stage. 321 Let me briefly sketch in the background to the clause, and explain why the Government are "leaping in"—to use the phrase employed by the hon. Member for Berwick-upon-Tweed (Mr. Beith). There are three salient points. First, there is the need for clarity. As my hon. Friend the Member for Ryedale (Mr. Greenway) reminded the House, if the judicial process is to be carried to its conclusion—that could take several years, and substantial sums are at stake for the life assurance industry—clarity is a relevant consideration.
Secondly, there is the need to avoid capricious distribution of benefit— not, as the hon. Member for Berwick-upon-Tweed said, between policyholders in particular and taxpayers in general but between one group of policyholders of one life house and another group of policyholders of another life house. The House should be aware that the dispute underlying the resolution arises because, although ever since the legislation was put on the statute book in he first world war we have collected tax on investment returns of life houses that are making trading loss, it is now being argued that the statutory basis on which that tax has been collected is wanting. This is not an example of new legislation not having the meaning that was originally intended. We have several decades of experience of having collected tax from life houses that have been in precisely the position of those who are now arguing that tax is not payable.
If that case were allowed to continue and no retrospective legislation were introduced, policyholders of houses that made a trading loss would receive an enormous tax windfall, which would not be available to policyholders of life houses that did not make a trading loss. Substantial sums would be distributed on an entirely capricious basis, which the House would not wish.
The third consideration is that, as the hon. Member for Berwick-upon-Tweed properly said, £450 million of revenue is at stake. Although that is not a decisive argument, it is relevant to whether, in this tax year, the House wants to see that amount of money made available on the capricious basis that I have described.