Taxation of Equitable Life (Payments) Order 2011 Debate
Full Debate: Read Full DebateLord Tunnicliffe
Main Page: Lord Tunnicliffe (Labour - Life peer)Department Debates - View all Lord Tunnicliffe's debates with the HM Treasury
(13 years, 2 months ago)
Grand CommitteeMy Lords, I, too, thank the Minister for his concise overview of the position and for introducing the order. We support the action that the Government have taken on this whole issue, and we accept that, although we may have different views about the approaches taken, speed is of the essence and the order should go through. We know that during the passage of the primary legislation there was some debate on the quantum, but ultimately Governments are in the business of making decisions and we recognise the decision to set the payment scheme at £1.5 billion.
In the original debate there was some concern about the allocation to the group of with-profits annuitants. The general principle that they should be protected against the comparison at 100 per cent was consensual. However, as my noble friend Lord McKenzie said in the debate:
“If relative loss is calculated on a gross-of-tax basis and the post-1992 with-profit annuitants are kept whole on this basis, will not the tax exemption go further than full reimbursement?”.—[Official Report, 24/11/10; col. 1152.]
I accept the case that has been made for simplicity but, in terms of the balance between the two pots, are the Government comfortable that this has not created an anomaly between the with-profits group and the non-with-profits group?
I join the noble Lord in seeking further information on the progress of payments but, aside from that question and perhaps the matter of an enhanced progress report, we support the order.
My Lords, first, I thank my noble friend Lord Newby and the noble Lord, Lord Tunnicliffe, for their helpful contributions to this short debate and for supporting the order. The making of the order is a crucial step towards making the first payments at the end of the month.
I shall address the questions that have been raised by my noble friend Lord Newby, followed up by the noble Lord, Lord Tunnicliffe, about how the timetable will unfold. As I said, the first payments will commence by the end of this month. It is then expected that payments to all traceable accumulating with-profits groups and conventional with-profits policyholders will be made over the first three years of the scheme. Payments to with-profits annuity policyholders for past losses will be spread over the first five years of the scheme, while annual payments for future losses will commence in year one and continue for the lifetime of the policyholders. All individual policyholders can expect to hear from the scheme in the first year—that is, by June 2012. As I think I said, for certain classes of policyholder closure of the process will be within three years; for others, five years; and for one class, as I identified, over their lifetime. I hope that that makes the position clear in respect of the several different classes of policyholder.
In response to the question of the noble Lord, Lord Tunnicliffe, on why tax relief is being granted on payments to with-profit annuitants who will have received 100 per cent of their losses covered by the scheme, losses for with-profit annuitants have been calculated on a gross basis. As I have just said, unlike other policyholders, those annuitants will receive their payments over time and we will not be paying any interest on those payments between the date of the calculation—December 2009—and the date of receipt. Disregarding the payments for tax will offset the effect of that payment schedule and the absence of any interest. It is important to note that these payments are in respect of losses that go back over nearly two decades and it would be an incredibly complex and burdensome task to work out what the tax positions for individuals would have been at the relevant time. As has been recognised, the scheme needs to be simple and not unduly complex. In recognition of that, we have decided to make the payments tax free. In the round, we do not believe that this will result in overpayment for with-profits annuitants, given the offset that I have identified.
Briefly, as regards reporting on the progress of the scheme—an issue that was briefly touched on by the noble Lord, Lord Tunnicliffe—progress will be tracked and evaluated throughout the lifetime of the scheme, and I envisage that a number of reports will be produced, including in relation to the management of contracts, operations and risks. I am happy to give reassurance that the Government will give Parliament regular updates on the progress of the scheme.
We have come a long way in the past year to redressing the losses that Equitable Life policyholders have suffered over the past decade. Following the coming into effect of the order, a communications strategy is in place so that all recipients will be informed that their payments are to be tax free, and that they do not have to report them for tax purposes. In addition, HMRC helplines, and the staff at payment scheme call centres will be provided with lines to take so as to answer any questions on the tax treatment of these payments. I am grateful for the Committee’s support.