Chancellor George Osborne’s budget proposals, featuring spending cuts and new taxes, has received mostly a thumbs up from the Association of British Insurers.
Commenting on the measures, Kerrie Kelly, the ABI’s Director General, stated: “We wholly support the commitment to make the UK the most competitive location in the G20 by the end of this Parliament. The insurance industry applauds today’s focus on restoring the UK’s competitiveness. We are however disappointed to see the long-awaited Controlled Foreign Companies proposals have been further delayed.”
She explained that the ABI sees the “rolling back on public spending” as underlining a “significant shift in the boundary between the public and private sector.” She added that the UK’s insurance industry “stands ready to provide private insurance-based solutions: a five percent shift towards the private sector could save the government and taxpayers £17 billion [$25.3 billion] annually – more than the budgets of the Home Office, Foreign Office and DEFRA combined.”
Kelly also noted that “bringing the headline rate of corporation tax down to 24 percent by 2014/15 sends the right signal.” However, she cautioned that “explaining how this will be paid for will be key – abolishing reliefs would have unintended consequences. In particular, restrictions on tax relief would mean companies paying tax on more than their economic profits, increasing their effective tax rates and making the UK less competitive, not more.”
One measure Kelly singled out thta needs further attention is the “commitment to recognize branch structures when taxing foreign profits from 2011 which will enable firms to use the UK as the hub for their European operations.” She noted that the ABI has “long called for a branch exemption, which will remove the mismatch between the current UK system and the forthcoming Solvency II regulations.
“We will review the interim measures announced to Controlled Foreign Companies (CFCs) rules, which deal with the taxation of foreign profits made by subsidiary companies. We urge the Government to fast track changes to CFCs as they will enable the UK to compete effectively.”
Kelly also said the ABI welcomes moves to “repeal the changes made by the last government, which were too complex and a disincentive to savers. We look forward to working with the Government urgently over the coming months on the way ahead to deliver a simpler allowance based system. Having an annual allowance would retain the important principle that people who defer income now should be encouraged and only pay tax once on money saved.”
However, she described the “lower limit suggested in the Budget paper of £30,000 [$44,686] as “unworkably low” and stated that it “would not encourage pension saving for those disillusioned with recent changes to pension relief. ABI research from the second quarter of 2010 showed 7.7 million working adults were still not saving for a pension, which is extremely worrying as the country faces the ticking time bomb of more people retiring and living longer.”
Kelly promised that the ABI would “work with the Government on its consultation into ending compulsory annuitization at age 75. This is a highly complex area and there is a need for detailed work before measures can be finalized.”
In a specific reference to recent flooding in the UK, Kelly said the organization is “encouraged by the Government’s welcome announcement that it will protect capital expenditure with economic value. Protecting investment in flood defenses is vital to protecting businesses and the economic well-being of communities. In last year’s Cumbria floods 60 percent of insurance claims were from businesses, demonstrating the economic value of continued investment in flood defenses.”
However, Kelly described raising the insurance premium tax (IPT) as a “direct tax increase for the vast majority of people who sensibly protect themselves and their families with insurance.” She called the proposal “regrettable” and warned that it “could have serious unintended consequences if it puts off consumers from protecting their homes, cars, holidays and everyday living. For the average household a one percent increase in IPT will mean an increase of £7.99 [$11.90] per year from £839 [$1249.68] to £846.99 [$1264.58}.”
Kelly noted that the proposed increase in the capital gains tax (CGT) would “hit savers who are higher rate taxpayers. Those investing in savings products with an expected CGT of 18 percent will face a very different proposition when faced with a CGT rate of 28 percent on exit.”
Commenting on one of the most contested areas of the budget, proposals to levy taxes on banks, Kelly indicated that a “levy on assets will discourage excessive leverage based on insufficient capital, which is more sensible than a tax on bank profits. However, there is the serious question of timing, with efforts currently being made to build up bank capital levels. The Government needs to undertake careful consultation with all parties including institutional investors.”
Source: Association of British Insurers
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