Insurers to offer Chancellor a face-saving route out of CGT mess

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The Independent Online

Officials from the Association of British Insurers will meet with the Economic Secretary to the Treasury, Kitty Ussher, on Tuesday in a last-ditch attempt to persuade the Government to drop changes to capital gains tax that could wipe billions of pounds off the value of life insurance companies.

In last month's pre-Budget report, Chancellor Alistair Darling controversially introduced a flat rate of CGT at 18 per cent – a change that would in effect render many insurance products redundant for customers.

This week ABI officials, led by director-general Stephen Hadrill, will present a route map to the minister that would enable the Government to save face while fixing the inadvertent impact of the introduction of CGT changes on the life industry.

"There are ways that the interests of the insurance industry can be accommodated," said an insurance source. "The industry is very hopeful that this whole issue can be sorted out quickly."

Analysts at the investment bank Lehman Brothers recently estimated that as much as 10 per cent of the value of Britain's life industry could be wiped away on the back of the CGT changes, with Resolution, Standard Life, Legal & General and St James's Place likely to be hit hardest.

The life insurance guru Ned Cazalet warned not to underestimate the changes: "The impact of this on the industry is massively greater than on share option schemes or private equity. Either the Government knew what it was doing and is being Machiavellian or it had no idea."

Andrew Moss, the newly arrived chief executive of Britain's largest insurer, Aviva, said as much as 2 per cent of the firm's life sales could be wiped out on the back of the proposed changes.

The prospect of a U-turn for the industry comes days after government plans to water down the effects of CGT changes on small businesses were leaked to the media. The Chancellor is thought to be readying plans to grant £100,000 in tax relief to businessmen who sell up and retire, although the proposals have already been criticised as being too little, too late.

Serial entrepreneurs who regularly buy and sell businesses would not be aided by such a move, with the Government ruling out any reversal of its abolition of so-called taper relief incentives.