Harriett Baldwin tables an amendment to the Finance Bill that would protect the small secondary market in traded endowment policies after being contacted by a specialist business in Malvern. Harriett Baldwin: I rise to speak to amendments 52 and 53, standing in my name and the names of my hon. Friends the Members for City of Chester (Stephen Mosley) and for Finchley and Golders Green (Mike Freer). I tabled these amendments to schedule 9 after being alerted recently to the consequences of the proposed changes to the life insurance qualifying policy regime for a small business in Malvern in my constituency, which is a market maker in traded endowment policies. The business provides a price at which it will both buy and sell an endowment policy, which creates welcome liquidity in these financial instruments. The firm has been recognised for its work with a Queen’s export award for industry. The Association of Policy Market Makers estimates that the traded endowment policy market involves about 7,000 policies a year, out of the 20 million policies outstanding, and has a value estimated at approximately £150 million. The reasons why someone might want to sell an endowment policy vary. The most significant reason —accounting for 20%—is poor investment performance, although someone might be selling their house or trying to get some equity release. People sell endowment policies when they want to reduce their mortgage or improve their home—perhaps at retirement or when they lose their jobs, are bereaved or are getting divorced. Someone might want to buy a second-hand endowment policy to get a better rate of return than cash without a stock market risk. Endowment policies are also popular products with people with lump sums—such as victims of accidents who receive large payouts—because they have capital protection at maturity and tend to be priced to beat inflation. The market is in natural decline, as endowment policies are no longer very popular and the existing 20 million policies have a finite end date. Nevertheless, there are thought to be seven such small businesses in the UK, employing about 200 people, including in the constituencies of my hon. Friends the Members for City of Chester and for Finchley and Golders Green. These firms worry that they will be put out of business by the change of tax treatment for these policies contained in schedule 9. 3.15 pm I completely understand, support and appreciate the Chancellor’s desire to restrict tax relief for higher-rate taxpayers to £3,600 a year for all new policies that are issued. What I am raising is the impact on existing qualifying policies, which have hitherto been subject to capital gains tax after they change hands. However, the tax treatment might now become so unattractive that the secondary market will dry up. I fear that the Chancellor and the Exchequer will lose out on the potential capital gains tax created by future transfers of such policies. The potential capital gains from the industry as a whole are estimated at £750 million, depending on how much changes hands and the rate of capital gains tax at the time. That is a not inconsiderable sum of money. In setting the £3,600 annual limit for new policies, the Treasury needs at the same time to limit the number of qualifying second-hand endowment policies that any one individual can buy. My amendments simply seek to set the same annual premium limit for existing policies as that for new policies under this legislation. That would create a fair and level playing field between new policies, which are being restricted, and any outstanding existing policies that might change hands. I know that the Minister would not want to close down small financial services businesses because of this change in the tax treatment of policies issued many years ago. I think that we can all agree that that would be excessive and retrospective. I hope that by considering my amendments the Government will find a way to restrict the tax relief on new policies in the future—while still allowing the secondary market in existing qualifying policies to continue—and continue to allow those capital gains tax revenues for the Exchequer. I appreciate that we are talking about a small, specialised secondary market—I was not aware that it existed until 10 days ago. I also appreciate that the industry was not able to feed into the consultation at the end of the year—it was not alerted to the potential change—but it has now fed into the process, via the business in my constituency. I hope that by giving serious consideration to my amendments—and, I hope, accepting them—the Government will allow the industry and the endowment policy market to die of natural causes in due course, as the policies mature, rather than killing it off suddenly with the Bill. | Hansard