§ Mr. Peter BottomleyTo ask the Chancellor of the Exchequer what public explanation was given by Ministers at the time that savings through insurance companies accumulated after a 25 per cent. tax charge when PEPs and TESSAs accumulated without tax.
§ Sir George YoungThe fundamentals of the current tax regime for life insurance predate PEPs and TESSAs by a long way. Life insurance companies are taxed year by year on the income and gains accruing for the benefit of their life insurance policyholders. The nominal tax rate is 25 per cent., the same as the basic rate. But a deduction is allowed for the expenses of managing the business, including the costs of commissions to intermediaries and other costs of acquiring business, so the true rate is somewhat less than 25 per cent. The aim is to tax saving through life insurance in the same way as other types of taxed savings.
PEPs and TESSAs are much more recent innovations. Each was introduced to serve a particular need; PEPs to channel more investment into industry and TESSAs to encourage more people to take up the savings habit and to make the deposits of ordinary savers less liquid. A persuasive case has not been made out for altering the tax rules applying to save via life insurance following the introduction of PEPs and TESSAs.