Legal & General conceded yesterday it may be one of the companies worst affected by a new tax on life insurers, which the Government unexpectedly sprung on the industry without consultation last week.
In a Stock Exchange announcement yesterday morning, L&G said it could take a one-off hit of as much as £500m as a result of the tax, more than 40 per cent of its pre-tax profits last year.
Sir David Prosser, the chief executive, expressed his anger at the way the Government had published the proposals without consultation, lending his support to the industry's lobbying efforts to have the tax scrapped or amended.
"The Government is proposing retrospective taxation on reserves which provide security for this industry's customers," he said. "Our accumulated reserves have been built up over many years and include funds which have already been taxed. It is our understanding that the industry will be lobbying strongly to have this draft legislation withdrawn or amended. Legal & General will fully support such measures."
The Treasury said L&G's estimates were grossly overstated and it would provide clarification of the effects of the measures at next month's pre-Budget report.
The Association of British Insurers, the trade body, was also quick to criticise the Government yesterday. Peter Vipond, its director of financial regulation and taxation, said: "We are disappointed and concerned at the way these proposals have been introduced and believe they are flawed. Those flaws will have a very negative impact on the profitability and solvency of some life funds."
The controversy centres on two taxes which target the reserves of life insurers. The first applies to surpluses generated by life insurers which have demutualised at some stage in their history, while the second relates to assets of life insurers which do not have substantial with-profits businesses. Commenting on the method in which the rules were implemented, a Treasury spokesman said: "We do not consult before anti-avoidance measures are introduced but we do listen to representations on the draft legislation. People with genuine concerns are welcome to discuss them with us." He said the first of the taxes would not impose additional burden on companies affected.
The Government published the proposals on Thursday, prompting Resolution, the closed life book consolidator, to issue a statement on Monday, warning it was unsure what the effects would be on the company. Aviva, the UK's largest life insurer, and Friends Provident joined the attack on the Treasury yesterday, saying they disagreed with the manner in which it had been imposed on the industry.Reuse content