80% of UK insurance executives surveyed by the ABI feel that if the Government fails to improve competitiveness, there will be a drop in the number of insurance firms based in the UK. Almost two-thirds of senior management are tempted to move abroad because of the current UK personal tax system. The findings come as the ABI publishes UK Competitiveness: the way forward for insurance, its blueprint to maintain competitiveness, outlining the challenges and opportunities for the UK.
The paper comes at a time of change in global attitudes to tax havens, especially in North America. This has led to a challenge to the traditional homes of reinsurers, in locations such as Bermuda. There is, therefore, a specific opportunity for the UK to attract a much larger share of the wholesale and reinsurance market, which currently hosts only 10% of total global reinsurance capital, with no major reinsurance company based in the UK.
The ABI’s proposals include:
- Introducing a corporate tax exemption for those with branches abroad encourage companies to keep or set up their headquarters in the UK.
- Reforming controlled foreign companies rules, to recognise the importance of capital to insurance and reinsurance businesses, by moving the bias away from returns from labour, and towards returns from capital.
- Reducing corporation tax when the fiscal conditions allow it. 71% of chief executives and finance directors of leading insurers questioned felt that the UK current rate of corporation tax was uncompetitive. In 2007, insurers contributed nearly £10bn in tax revenues to the UK, paying the third highest corporation tax of any sector. So maintaining low corporation tax rate will help ensure companies remain in the UK, contributing significant levels of tax.
- Ensuring that any tax changes in response to Solvency II, result in a stable and sustainable system and to not endanger UK competitiveness against other EU locations.
- The need for the tax loss system to address the volatility of insurance results.
- A call for a stable, predictable tax system – with only essential changes to be made, following early consultation.
- The link between competitiveness and personal taxes needs to be recognised. The higher rate of income tax, and restriction of tax relief on the pension contributions of high earners, reduces the attractiveness of the UK as a place to work for company executives.
Stephen Haddrill, the ABI’s Director General, said:
“The recession cannot be allowed to mask the challenge, but also the opportunity, the UK faces over competitiveness. Getting it right today could reap rich rewards tomorrow.
“The UK cannot afford to wait for a return to economic health to act Our proposals will make sure that we can build upon an already strong UK insurance industry – one that has come through this crisis in robust shape, and is a major international player.”
The ABI’s paper builds on the Insurance Industry Working Group report in July 2009, commissioned by the Chancellor, which outlined the need to encourage capital flows into the UK by ensuring its competitive position in the global marketplace. The UK is currently the third largest insurance market in the world.
The survey questioned 75 CEOs and FDs from ABI member companies and Lloyd’s of London