Britain's life insurance industry has warned that it faces a grave threat from tax changes introduced by Chancellor Alistair Darling in last week's pre-Budget report.
Angry bosses from the Association of British Insurers (ABI) will on Tuesday square up to officials at the Treasury at a hastily arranged meeting to discuss the introduction of an 18 per cent flat rate of capital gains tax.
The Chancellor said last Tuesday that the changes were designed to ensure "private equity pay a fairer share", amid union-backed concerns that buyout bosses were dodging tax. But details in the fine print of the pre-Budget report reveal that life insurers could lose millions of pounds, with savers likely to ditch traditional life assurance products, such as with profits bonds or other unit-linked products, in favour of more tax-efficient investments.
One insurer, who declined to be named, said: "If this is not sorted out, sections of the life insurance industry could be killed off."
Insurers including Aviva, Legal & General and Prudential are all thought to have lobbied the ABI over the implications of the tax changes.
A spokesman for Prudential said: "This is a hugely complex issue and it's important to quickly get clarity."
Embarrassingly for the ABI, its director of financial regulation and taxation, Peter Vipond, last week welcomed the introduction of a flat 18 per cent CGT rate, applauding the simplification of the rules.
A spokesman for the ABI said: "We will meet with Treasury officials on Tuesday to discuss whether the impact is an unintended consequence."
Opposition to the Chancellor's move to scrap taper relief is growing, with an increasing number of Labour MPs criticising the move.
The Treasury Select Committee chairman, Labour MP John McFall, told The Independent on Sunday he had "concerns" about the impact of the introduction of a flat rate of CGT and the abolition of taper relief.
"I would hope that it would not dent the entrepreneurial culture in this country but I do have concerns," said Mr McFall, who will get to grill the Chancellor over his Budget changes on 25 October.
The Treasury Select Committee is set to resume its hearings into private equity in the next few months, with a full report likely to be ready in the new year.
Philip Hammond, shadow Chief Secretary to the Treasury, is planning a summit with major financial organisations this week to discuss the impact of the tax changes. "There's been absolutely no consultation, no detail or any answers to questions from the Treasury on these issues," Mr Hammond told The Independent on Sunday. "These changes will help short-term speculators and... hurt those smaller entrepreneurs and start-ups. Can he reverse these changes? He'd look pretty stupid if he did."Reuse content