HC Deb 14 July 1995 vol 263 cc1219-30

(".—(1) Schedule 9A to the Companies Act 1985 and Schedule 9A to the Companies (Northern Ireland) Order 1986 (form and content of accounts of insurance companies and groups) shall be amended as follows.

(2) In Note (24) on the balance sheet format set out in Section B— (a) after "(Liabilities item C.5)" there shall be inserted— This item shall comprise the amount of any reserve maintained by the company under section 34A of the Insurance Companies Act 1982."; and after "This item shall" there shall be inserted "also".

(3) For paragraph 50 there shall be substituted— Equalisation reserves

50. The amount of any reserve maintained—

  1. (a) under section 34A of the Insurance Companies Act 1982 ("the 1982 Act"), or
  2. (b) under regulation 76 of, and Schedule 14 to, the Insurance Companies Regulations 1994 ("the 1994 Regulations"),
shall be determined in accordance with regulations under section 34A of the 1982 Act or, as the case may be, in accordance with regulation 76 of, and Schedule 14 to, the 1994 Regulations.".")

10.49 am
Mr. Nick Hawkins (Blackpool, South)

I beg to move, That this House doth agree with the Lords in the said amendment.

Madam Deputy Speaker (Dame Janet Fookes)

With this, it will be convenient to discuss also Lords amendment No. 2.

Mr. Hawkins

The amendment is necessary to ensure that the Companies Act 1985 and the Companies (Northern Ireland) Order 1986 comply with our obligations under European law. The amendment also ensures that those preparing insurance companies' accounts will know exactly how to report equalisation reserves that have been set up as a result of regulations made under the Bill, and also ensures that users of the accounts will have clear guidance on what to expect.

I should like to take the opportunity to thank the Earl of Northesk, who tabled the amendments in another place, for his prescience and his skilful handling of the Bill during its passage through another place. I also pay tribute to my hon. Friend the Member for Hertfordshire, North (Mr. Heald), the promoter of the Bill. I am delighted to see my hon. Friend in his place in the Chamber, as it gives me an opportunity to congratulate him on his extremely well deserved promotion to the Government. My hon. Friend has worked extremely hard on the Bill, and it is a privilege for me—as vice-chairman of the all-party insurance and financial services group and somebody who worked for many years as a corporate lawyer in the insurance and financial services industry before coming to the House—to come in very much at the end of the Bill's passage.

I would also like to pay tribute to the work done on the Bill by my hon. Friend the Member for Ryedale (Mr. Greenway), the chairman of the all-party group on insurance and financial services. Sadly, my hon. Friend cannot be with us today, but he spoke in earlier debates on the Bill and his work as chairman of that group is recognised on both sides of the House. I would also like to thank the hon. Member for Edinburgh, Central (Mr. Darling), who speaks on these matters for the Opposition, for his assistance in the earlier stages of the Bill.

The Bill deals with a matter with which I was concerned for many years before coming to the House. It may be of interest to say that the amendments are welcomed both by the Association of British Insurers and by the London Insurance and Reinsurance Market Association. The chief executive of the latter is Miss Marie-Louise Rossi, the daughter of the former and distinguished Member for Hornsey and Wood Green. Marie-Louise Rossi and I collaborated with others some years ago on a paper that called for precisely the kind of measures dealt with by the amendments.

Before I go on to explain the details of the two amendments, I should like to give the House the benefit of setting the matter in a slightly fuller context by way of an explanation of some of the developments in company law that led to the insurance accounts directive and the Companies Act (Insurance Companies Accounts) Regulations 1993.

Over the years, there have been a number of European directives to harmonise the accounts of companies. The first was the fourth company law directive 1978, implemented here by the Companies Act 1981, which harmonised the form and content of the individual accounts of companies. The seventh directive of 1983 harmonised the form and content of the consolidated accounts of groups and companies, and was implemented in this country by the Companies Act 1989. The fourth directive permitted member states to derogate from its provisions in the case of banks and insurance companies, pending the adoption of further directives.

The United Kingdom, like other member states, took advantage of the derogation and did not apply the provisions of the fourth directive to banks or to insurance companies. The existing legislation was largely left in place, leaving insurance companies with certain disclosure exemptions—for example, those enabling them to maintain hidden reserves. The bank accounts directive, which introduced a special accounting regime for banks, was passed in 1986, and implemented in regulations in 1991. The regulations introduced a new schedule 9 into the Companies Act, setting out requirements for the form and content of the accounts of banks and banking groups.

The European Community's insurance accounts directive follows the partner bank accounts directive in applying a number of provisions in the fourth and seventh directives to the accounts of insurance undertakings, while containing a number of provisions specific to insurance companies. The Companies Act (Insurance Companies Accounts) Regulations 1993, in implementing the insurance accounts directive into the United Kingdom, will bring the level of disclosure of insurance companies accounts into line with others in Europe, and with those of ordinary companies.

It is important to recognise that there are considerable differences in detail which arise because of the particular nature insurance business. The Companies Act (Insurance Companies Accounts) Regulations 1993 amended the Companies Act 1985 by inserting a new schedule 9(a) to implement the EC directive on the accounts of insurance undertakings which was adopted in December 1991. The equivalent schedule for Northern Ireland was inserted by the Companies (1986 Order) (Insurance Companies Accounts) Regulations (Northern Ireland) 1994.

The regulations are primarily concerned with the presentation and content of the annual reports and accounts of insurance companies to their shareholders or members. They also deal with the consolidation of the accounts of insurance groups and the distinct regulatory returns which such a company makes to the Department of Trade and Industry in compliance with its obligations under the Insurance Companies Act 1982. The 1993 regulations require considerable disclosure of information, and the standard formats for the balance sheet and profit and loss account are prescribed.

Detailed rules concerning accounting treatments, the valuation of certain types of asset and liability and the specification of the matters are to be disclosed in the notes to the accounts. The provisions of the 1993 regulations are mandatory for the accounts of insurance companies and groups for the financial years commencing on or after 23 December 1994. Insurance companies, in their accounts for this year until 31 December 1995, will thus be required to follow the regulations and to restate their 1994 results as comparatives.

The insurance accounts directive contains a number of member state options. In drafting the 1993 regulations, the Government's approach was to seek to permit as much reasonable flexibility as possible within a general framework provided by the directive. That was very much welcomed by the insurance industry, as, in trying to anticipate the future, the 1993 regulations might not give the required guidance in respect of all types of equalisation reserve.

During consideration of the Insurance Companies (Reserves) Bill, it became apparent that the regulations would have to be amended to accommodate reserves that might be created under the new section 34(a) of the Insurance Companies Act 1982, as the 1993 regulations only covered the treatment of the reporting of credit equalisation reserves. Since that was the only form of statutory equalisation reserve contemplated at that time, it was thought to be sufficient. However, the consequential amendments to be made by the Lords amendments needed to ensure that schedule 9(a) continues to implement the directive's requirement concerning the treatment of equalisation reserves in the accounts.

Under article 31 of the directive, an equalisation reserve, which a company is required to maintain whether by law or by administrative requirement, must be shown in the balance sheet as a technical provision under the liabilities of item C.S. At present, there is only one type of equalisation reserve which UK insurance companies are required to maintain—the credit insurance equalisation reserve—and the provisions governing this reserve are now contained in regulations 76 to 78 of and schedule 14 to the Insurance Companies Regulations 1994, which is SI 1516. Consequently, only such reserves are required to be shown under the liabilities in item C.5 in schedule 9(a) of a balance sheet.

Subsection (2) of Lords amendment No. 1 amends the notes to the balance sheet format to require that reserves required to be maintained by a company under section 34(a) of the Insurance Companies Act 1982 also need to be shown under this balance sheet caption. Although it is a technical matter, it is important.

Mr. Peter Ainsworth (Surrey, East)

I am grateful to my hon. Friend for interrupting his technical analysis of the legislation. Am I right in thinking that some, perhaps in the accountancy profession, have argued that as what is involved here is a reserve and not a liability, item C.5 might not be the appropriate place for equalisation reserves to be disclosed in the balance sheet?

11 am

Mr. Hawkins

My hon. Friend raises an important concern. I propose to deal with some of the concerns that the accountancy profession has expressed a little later in my remarks. I am sure that my hon. Friend will be pleased to know that it is now understood that the Accounting Standards Board, following discussions with the Department of Trade and Industry, has agreed a position. Perhaps we shall hear a little more about that from my hon. Friend the Minister. I shall deal with the matter later if my hon. Friend will allow me.

Subsection (3) of the new clause which amendment 1 seeks to insert amends paragraph 50 of schedule 9A in accordance with the requirements of article 62 of the directive to provide that the amount of equalisation reserves maintained under section 34A of the 1982 Act be determined in accordance with regulations made under that section. The word "determined" has been substituted for the word "value" on the basis that it more accurately reflects the requirement to maintain reserves. That is believed to be equally consistent with the terms of article 62 of the insurance accounts directive, which provides that member states which require equalisation reserves shall prescribe the valuation rules to be applied to those reserves.

No amendment is required in respect of the profit and loss account format, because the existing wording refers to change in the equalisation provision", which will cover all such provisions that are required to be maintained.

On the matter of matching the returns to the Department of Trade and Industry and shareholder accounts, the amendments will also have the benefit of keeping treatment of equalisation reserves in the returns to the regulator, the DTI and the accounts to shareholders on a similar basis. Although the two reports are prepared on a different basis in some respects, it is helpful to keep the formats broadly similar. The amendment achieves that.

Companies will in future in periods covered by the insurance accounts directive, namely, financial years commencing on or after 23 December 1994, in their annual returns to the DTI be expected to differentiate between statutory and non-statutory equalisation reserves in line with the provisions of article 30 of the insurance accounts directive.

The issue of whether accounts show a true and fair picture is extremely important to the accountancy profession. I am very much aware that a view has been expressed in the profession that this accounting treatment of equalisation reserves might not be desirable because it shows an item which, in the view of some members of the accountancy profession, is a reserve, as a liability since it relates to future claims. I respond to that in two ways. This point perhaps deals with the important point made by my hon. Friend the Member for Surrey, East (Mr. Ainsworth).

First, as I have explained, this treatment is embodied in European law. It is the way in which many European states have accounted for equalisation reserves. There was a clear majority for including that treatment in the insurance accounts directive. Therefore, the UK has no option but to follow that treatment. It accepted the principle when it adopted the treatment for credit equalisation reserves.

Secondly, however, I see a distinction between equalisation reserves and other reserves. Their levels are set such that, having regard to previous volatility in the areas of business covered, it is foreseeable that those continuing in these lines are encounter liabilities in the form of exceptional levels of claims for which they will need their equalisation reserves.

The House will recall from the very able presentation at an earlier stage in the Bill's proceedings by my hon. Friend the Member for Hertfordshire, North that the whole purpose of equalisation reserves is to deal with the particular extraordinary liabilities of massive environmental and other disasters. That is the crucial matter not only in the Bill but in the amendments.

I know that discussions are continuing within the insurance industry and the accounting profession. I am confident that there will be final agreement on the way in which equalisation reserves should be disclosed in the accounts of UK insurance companies, to comply with the law and with the accountancy profession's desire that what is disclosed is, as far as possible, in accordance with the generally accepted accounting practice of the UK accounting profession as regards a true and fair view. That is clearly extremely important.

As for the single market, as my hon. Friend the Member for Hertfordshire, North explained most ably on Second Reading, the industry is convinced that equalisation reserves have an important, indeed crucial, part to play in ensuring the success of insurance companies in competing with others based in a single insurance market within Europe and in the world markets, where UK companies compete head on with their European rivals. If one examines the amount of premium income from some of the European companies such as Allianz in Germany and UAP in France, one sees that it is crucial that UK insurance companies, which have a massive opportunity in the world insurance market, should be able to compete in an even way with their European rivals.

The insurance accounts directive is a key part of the EC single market programme which the Government have so strongly and rightly supported. It plays an important role in opening up the EC insurance market by improving the comparability and transparency of insurance companies' accounts throughout the EU. It is complementary to the third life and non-life insurance directives, which provide the legislative framework for the single market in insurance products. A significant part of the directive's purpose is to improve the comparability of the accounts of insurance companies and groups throughout the EU by providing a measure of harmonisation of their form and content. That is an important part of the development of—to use the notorious but important phrase—a level playing field in insurance.

The amendment plays a key part in the Bill's objective of assisting the competitiveness of the UK insurance industry with its European counterparts in both the European and world markets. Many policy holders and their advisers choose an insurance company at least in part on the strength of its position as shown in its accounts. The amendment ensures that those preparing and using insurance company accounts will know clearly how equalisation reserves set up as a result of regulations made under the Bill are reported.

Mr. Peter Ainsworth

I am grateful for the opportunity to say a few words on this excellent Bill. I should like to preface my remarks by complimenting my hon. Friend the Member for Hertfordshire, North (Mr. Heald), now Under-Secretary of State for Social Security, on having.the inspiration to introduce the Bill and on taking it so ably through the House as far as he was competent to do so. I also congratulate him on his elevation to ministerial rank. The House will appreciate the work that my hon. Friend the Member for Blackpool, South (Mr. Hawkins) has undertaken since taking up this worthwhile cause.

We were talking earlier about the Olympics and the world of sport. The world of insurance seems a far cry from the glamorous world of the Olympics. I mean no disrespect to my hon. Friend the Member for Blackpool, South when I say that, but these are technical matters which are likely to remain opaque to most members of the public. They are none the less important matters. Many of us have our ups and downs with the insurance industry. I certainly have. It is not one of my favourite things to have to deal with. One puts in a great deal of money and gets it back only when something unpleasant happens. The industry has a difficult public relations exercise to conduct.

None the less, insurance is one of our most important industries. In London alone, it employs about 60,000, people and the non-life side of the business, which is the side that is likely to benefit from this legislation, involves premium income of about £12 billion a year. It is a major and successful part of British industry, one of the keys to the success of the City of London, which is so important to the economy of the nation as a whole, and a substantial employer.

The industry has come under a lot of pressure, however, in recent years. Obviously that was partly due to recessionary factors, increased competition and the string of almost unprecedented natural disasters—earthquakes, storms, hurricanes, typhoons, the Piper Alpha disaster and so forth. It is in establishing a better way to provide for that sort of eventuality that the claims equalisation reserves will be so helpful.

United Kingdom insurance companies have been subject to a competitive disadvantage because they have not had tax relief on setting up equalisation reserves to smooth the peaks and the troughs of the insurance business when such disasters strike. On Second Reading, it was clearly established that, while there is no call on the Exchequer in establishing the reliefs envisaged in the Bill, there will be a significant economic and commercial benefit to the insurance world, and I sincerely hope also to the customer. Every year, the premiums that we are asked to pay seem to rise inexorably. The establishment of equalisation reserves could smooth things out and reduce the need for these apparently inevitable hikes in the premiums, which will be a very good thing.

The Bill is simply an enabling measure. My hon. Friend the Member for Hertfordshire, North published a consultation document, which I hope will receive wide attention. I also hope that, following today's debate, he will be able to move swiftly forward with detailed regulations to implement what is envisaged in the Bill.

The amendments that the other place has wisely put before this House are very welcome, as my hon. Friend the Member for Blackpool, South said. The enormous technicality of whether liabilities item C.5 is the appropriate place for the reserves to be, I leave to accountancy professionals, to whom these things mean something. I am told, however, that the amendments will require companies to show all the equalisation reserves that they are required to maintain under the item, which will create the clarity and consistency that are so important to those who use the accounts of insurance companies and study such matters.

There is also the European dimension. There is not much point in setting out procedures to establish a more level playing field with our European competitors, if the accountancy treatment of the claims equalisation reserves is not consistent. As my hon. Friend the Member for Blackpool, South said, the amendments help to place our insurance industry on a more equal footing with its European competitors, which have successfully increased their market share in London in recent years.

Although the Bill may appear dry, academic and technical, it has a great deal to do with promoting and securing the success of one of our most important industries and is, therefore, welcome, as are the amendments. I sincerely hope that the Bill will be successful and that my hon. Friend the Minister will be swift in implementing legislation to bring this important competitive advantage to one of our most distinguished and successful industries.

Mr. Alistair Darling (Edinburgh, Central)

We support the Bill and the amendments and I am grateful to the hon. Member for Blackpool, South (Mr. Hawkins) for having set out the background and drawn our attention to many interesting points to which the Minister will no doubt reply and on which I see no need to comment.

It would also be right to draw the attention of the House to the efforts of the hon. Member for Hertfordshire, North (Mr. Heald). As those of us who have engaged in the lottery of the private Member's Bill procedure to introduce legislation that has all-party support know, it takes a lot of time. It is remarkable how Bills that have all-party support tend to be held up much more than those that are contentious. The hon. Gentleman deserves credit and his efforts have clearly been noted by the Whips and his leader as he has been promoted to greater things.

11.15 am

We should also be grateful to the other place, which, as we have come to expect, has amended and improved the Bill. It is worth reflecting on the fact that many private Member's Bills are substantially improved and tightened up in the other place, which deserves credit for that.

I raised the need for such a provision during the passage of the 1993 Finance Bill. Although I am sorry that the Government were not able to find Government time for the legislation, we now have a measure which will hopefully receive Royal Assent shortly and which, as the hon. Member for Surrey, East (Mr. Ainsworth) said, will greatly benefit the insurance industry, particularly as it finds itself in increasing competition with insurance companies based in other parts of the European Union. Most other member states have such provisions, which gives them a competitive advantage.

There is no doubt, either in the industry or in the House, that this measure is a great advantage to the industry. All of us want the United Kingdom insurance industry to compete well within the EU and other parts of the world, which it is doing. Other measures will, of course, be necessary to help, but the Bill is very welcome.

I have two questions of which I gave the Minister some prior notice at least an hour or so ago and I will put them on record so that I can get a Government response. I appreciate that the Minister represents the Department of Trade and Industry rather than the Treasury, but I think that I may properly ask him when the Government will say whether tax relief is to be given or what measure of it is to be given to the reserve funds. One of his colleagues in the other place said that the Government would at some stage indicate its tax policy and reference was made to a statement by the former Financial Secretary to the Treasury, who said that the Government were considering tax relief for an acceptable scheme. It might be helpful if the Minister told us what stage those considerations have reached. I appreciate the fact that that may properly be a matter for the Chancellor's budget statement, but it would help the industry and the House if the Minister said how far the Inland Revenue has got.

To some extent, the question of tax relief begs the question as to what the regulations will be. Without that detail it is difficult to see on what basis there would be tax relief. One point that is worth drawing out is that, when the matter was first raised and a former Financial Secretary to the Treasury—now Secretary of State for Health—made a statement of the Government's intent, it was said that the matter was to be tax-neutral. Perhaps the Minister can confirm that that is the case, if he is in a position to do so.

Another obvious question is, where have we got with the regulations to be made under the Bill? The DTI has produced a consultation paper, to which the industry and others have no doubt been responding.

For the Bill to work there must be regulations and it is in the interests of all concerned that those regulations are brought before the House at the earliest opportunity. I saw in the DTI consultation paper that it was thought that those regulations would come into effect in December 1995. Given that the House is about to rise for the long summer recess and will not return until the middle of October, time is getting tight. So I assume that the regulations are at an advanced stage or that those in the DTI and possibly the Treasury will work throughout the summer to lay the regulations before the House when we return. Although that is conceivable, will the Minister let us know the position?

It would be helpful if the Minister gave a specific response on those two matters. He may also wish to respond to the other matters that have been raised but I do not intend to refer to them because that would be unnecessarily repetitive, among other things. I conclude by reaffirming our support for this measure. I hope that it will receive Royal Assent at the earliest opportunity, which will be of great benefit not just to the insurance industry and all those who work in it but to the country as a whole.

The Parliamentary Under-Secretary of State for Corporate and Consumer Affairs (Mr. Jonathan Evans)

First, I thank the hon. Member for Edinburgh, Central (Mr. Darling) for his remarks. He is absolutely right to say that in 1993 he first identified the demand on the part of the British insurance industry for equalisation reserves to be granted tax relief, not least to help our insurance companies in the non-life sector to compete with companies on the continent, which are currently given tax relief.

I was grateful for the remarks made by the hon. Member for Middlesbrough (Mr. Bell), who led for the Opposition when the Bill was considered on Second Reading. I should also express a measure of sympathy with the hon. Members for Edinburgh, Central and for Middlesbrough, in that, although they both understood the Bill's importance for the British insurance industry and the fact that it had wide all-party support in the House, they and my hon. Friend the Member for Hertfordshire, North (Mr. Heald), now Under-Secretary of State for Social Security, went through the difficulty of trying to persuade some hon. Members in the new Labour party of the importance of this measure.

Mr. Peter Ainsworth

I was present during the Second Reading debate armed with what I regarded as a finely honed speech, which was never delivered because sadly some Opposition Members were determined to be so voluble as to impede the Bill's progress. I remind my hon. Friend that the hon. Member for Bolsover (Mr. Skinner) said that the Bill is all about arranging things in favour of the bosses of the insurance companies so that they can get increased directors' pay and all the rest of it."—[Official Report, 27 January 1995; Vol. 253, c. 651.] My hon. Friend might like to comment on that assertion.

Mr. Evans

I do not intend to detain the House with too much comment in that direction because in a way it would be unfair to the hon. Member for Edinburgh, Central, who has always supported this measure. Although the Bill has had widespread all-party support, I recognise that there have been difficulties and I am grateful to the hon. Gentleman for the efforts that he, at least, has made to persuade those in his party of the merits of the argument. He knew that the Bill was of great importance to the insurance industry.

Mr. Darling

I am grateful to the Minister for his kind comments and for letting me intervene. As people outside the House follow our proceedings, I should draw attention to the fact that part of the difficulty in relation to this Bill and others was that it was caught up in the controversy about the Civil Rights (Disabled Persons) Bill, which I note has been set down for today's business. That fact, and everything that the public and the House know about how the Government dealt with that Bill, led to unfortunate delays on this measure and others. With due respect to the Minister, it might be an idea to get on with discussing this Bill rather than engaging in a political dogfight, which I am happy to have but which would not be particularly productive on a day such as this.

Mr. Evans

I had intended to move on with the Bill in hand. The only thing that prevented me from doing so was my generosity in giving way to the hon. Gentleman.

I am grateful to those hon. Members who expressed their thanks to my hon. Friend the Member for Hertfordshire, North for introducing this measure in the first place. At this stage, he cannot take the proceedings further because of his well deserved appointment to ministerial office, but we all recognise the efforts that he made in carrying the measure through. I thank my hon. Friend the Member for Blackpool, South (Mr. Hawkins) for taking on the Bill at this relatively late stage in the proceedings. I also thank the noble Earl Northesk, who demonstrated great competence and clarity when he presented the Bill in another place.

My hon. Friend the Member for Blackpool, South has mastered the details of the Bill quickly and presented the Lords amendments before the House skilfully and persuasively. They are technical matters but they are also very important. This debate has been valuable and thoughtful. I join those hon. Members who have welcomed my hon. Friend's efforts and endeavours for the manner in which they spoke to the amendments today and the efficient organisation that has enabled the Bill to reach its final stages in the House.

May I express my delight that other hon. Members have referred to the role played by my hon. Friend the Member for Ryedale (Mr. Greenway) in his position as chairman of the all-party group on insurance, who has promoted this idea with vigour equal to that of the hon. Member for Edinburgh, Central. Finally, I thank my hon. Friend the Member for Surrey, East (Mr. Ainsworth) who was present throughout Second Reading and is a sponsor of the Bill.

In dealing briefly with the Lords amendments, I take the opportunity to clarify the Government's position on the points that have been raised by the Accounting Standards Board. My hon. Friend the Member for Surrey, East referred specifically to the concerns outlined by the board and others on the accounting treatment of equalisation reserves. This matter has been discussed with the Accounting Standards Board and the Association of British Insurers. Under the insurance accounts directive, equalisation reserves are required to be shown as liabilities in published accounts. The amendments introduced by the noble Earl Northesk in another place give effect to that part of the directive for any equalisation reserves that might be created using new section 34A of the Insurance Companies Act 1982, which is inserted by the Bill.

The Government recognise that that treatment would not normally apply under generally accepted accounting principles in the United Kingdom. Equalisation reserves represent amounts set aside to meet potential future obligations. Such amounts would normally be treated as reserves rather than liabilities in a company's accounts. We have received representations from the Accounting Standards Board and others that there should be adequate disclosure in the accounts to enable someone reading the accounts to understand the nature of the equalisation reserve, and that the treatment of equalisation reserves required by the insurance accounts directive should not be permitted to weaken the "true and fair" concept that applies to company accounts generally.

On the first point, I understand that the Accounting Standards Board and the Association of British Insurers are discussing how adequate disclosure can be achieved, and that there are good prospects for agreeing guidance to companies on that issue. We fully support that. On the second point, the Government have strongly supported the extension of "true and fair" reporting to the insurance sector via the insurance accounts directive.

Save in exceptional circumstances, such as those that apply to equalisation reserves, insurance companies are legally obliged to follow the true and fair requirement as it applies generally. Like other companies, they are expected to comply with applicable accounting standards. We do not believe that the treatment of equalisation reserves has any wider implications for the interpretation or meaning of the "true and fair" view which all company accounts are required to give, either in relation to other aspects of the insurance business or for companies more generally.

Having dealt with those matters which are directly related to the amendments before the House, I will now respond briefly to the points raised by the hon. Member for Edinburgh, Central. He will be aware that this measure is necessary because it is a preliminary step that must be in place to ensure that tax relief can subsequently be made available for equalisation reserves.

11.30 am

That is a twofold process. The first part of the process is for us to have legislation in place. The second part much involves Treasury Ministers. It is for my right hon. and learned Friend the Chancellor of the Exchequer, when he comes to make his Budget statement, to make any statement that may be necessary about the tax treatment of the reserves that we are discussing. The Government have made it clear throughout the passage of the Bill that they are not in a position at this stage to give any commitment on what the position may be at the time of the Budget statement. The Bill is important because it is vital to ensure that a statutory vehicle is available as and when tax relief may be agreed by my right hon. and learned Friend the Chancellor.

The hon. Member for Edinburgh, Central talked about the period of consultation on draft regulations. The hon. Gentleman will know—he has seen the consultation paper—that there has been widespread consultation. I understand that over the past few days the Department has received responses from the London Insurance and Reinsurance Market Association and the Association of British Insurers. We would hope to be in a position to publish draft regulations by about mid-September. Thereafter the regulations will be laid as and when any concession may be made on the tax treatment of the reserves. It would be inappropriate to lay any such regulations unless subsequently there is a statement by my right hon. and learned Friend the Chancellor to the effect that such tax treatment will be made available.

Once again, I thank my hon. Friend the Member for Blackpool, South for all his work on the Bill and congratulate him on his skill in explaining the amendments. I also offer my thanks to my hon. Friend the Member for Hertfordshire, North for his efforts in introducing the Bill when he was on the Back Benches. I am well aware that in the non-life sector the Bill is warmly welcomed by the insurance industry. The Government welcome it as well.

Mr. Hawkins

I shall respond briefly to one or two of the points made in this short but important debate. I thank my hon. Friend the Minister for what he has said about the agreement between the Accounting Standards Board and the Association of British Insurers. I thank also my hon. Friend's officials, who have clearly been working extremely hard to ensure that the agreement between the board and the ABI can be referred to this morning.

I pay tribute to my hon. Friend the Member for Surrey, East (Mr. Ainsworth) both for his perceptive interventions and remarks this morning and for being present throughout the earlier stages of the Bill's consideration. He was a sponsor of this important measure. It is a great shame that he did not have the opportunity to give the House the benefit of his fuller remarks on Second Reading. We have had an indication this morning of the interest that he takes in these matters. Perhaps there will be other occasions when insurance matters come before the House, when we will be able to hear my hon. Friend at greater length.

I look forward to the future discussions between the Accounting Standards Board and the ABI. I am as confident as my hon. Friend the Minister that an agreed view will be reached. I look forward also to seeing the results of the consultation process. Important issues are dealt with in an extremely detailed consultation paper that has been produced by the Department. I do not intend to detain the House by referring to those issues. I welcome the fact that some of the most important bodies such as the London Insurance and Reinsurance Market Association and the ABI have already made submissions in response to the consultation paper. I hope that many other bodies and companies will do so. It is crucial that United Kingdom insurance companies should benefit from this legislation to enable them to compete adequately in the rest of the world with European insurance companies.

I welcome the contributions that have been made in this short debate.

Lords amendment agreed to.

Madam Deputy Speaker

We now come to Lords amendment No. 2, which will be moved formally.

Mr. Hawkins

Rather than moving it formally, Madam Deputy Speaker, I should like to say a few words.

Madam Deputy Speaker

That is not possible. As Lords amendments Nos. 1 and 2 were grouped together, any remarks about amendment No. 2 should have been made when amendment No. 1 was being discussed. It is now too late.

Lords amendment No. 2 agreed to.