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Independent view

It is being compared with the 1997 tax raid on pensions – the Government’s latest stealth tax on insurance company funds.

Hidden in the Pre-Budget report was the PN3 release designed to protect tax revenues from insurance com-panies. This latest raid has been launched without any consultation and will have a dramatic effect on insurance companies’ funds.

In effect, the Government is taxing the surplus funds built up in life companies at a new 30 per cent rate instead of the old 10 per cent.

Norwich Union has forecast it will be required to make a £150m charge against profits whereas Legal & General says the value of its life funds will be reduced by up to £300m and £20m a year.

The ongoing tax raid on pension funds of £5bn a year is bad enough but this latest attack is set to make matters even worse. It seems that the Government is so desperate to raise taxes to support its ever burgeoning “tax and waste” spending plans that it will stop at nothing.

As Ronald Reagan said in 1986: “The Government’s view of the economy could be summed up in a few short phrases – if it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it.”

What is maddening is that the Government is treating us all like a bunch of idiots. The sly way this new stealth tax has been slipped into the Pre Budget report hidden behind the Government’s announcement of an extension to the lifetime of Isas is deplorable. It is so typical of its policy of spin. The trouble is that we are not all idiots, Gordon Brown and Tony Blair.

Of course governments have been over-taxing us for years. Mark Twain said: “The only difference between a taxman and a taxidermist is that the taxidermist leaves the skin.” The difference today is that Labour has taken tax raising to a new unacceptable high. It would not be so bad if, a, the Government was open about taxation and did not resort to stealth taxes and, b, Government spending was not so wasteful.

Pension schemes have been suffering for years from a plethora of problems – pensions misselling claims, a five-year bear market for shares, the Government’s £5bn a year tax raid on pension funds, pensions legislation, red tape, etc. Insurance company funds have suffered from poor stockmarket performance and in particular with-profits funds’ underperformance. There is an ever-increasing savings deficit of £27bn yet the Government appears to have created the deficit purely from its taxation policy alone. It is strange that things do not change.

Peter Vipond of the ABI says: “The Revenue should not, as a matter of principle, try to sneak through a significant tax increase by order rather than through primary legislation.”

What makes you laugh is that the Government keeps attacking our savings and insurance industry which is the envy of Europe, if not the world. More money is paid out daily in benefits from the insurance industry than the Government pays out in social security benefits.

The Government should be encouraging savings and thrift and the private sector as it clearly reduces dependency on social security benefits. As usual, this Labour government has a blinkered short-term view which will cost us all dearly in the long term.

Independent research worldwide by Fidelity has shown that competition, a thriving independent sector and tax benefits are the factors which boost savings. Unfortunately, Labour is undermining all three of these.

Competition is being red-uced because more and more insurance companies have been forced to either cease trading in the UK or close funds. Independent advice is going to be reduced with depolarisation. Savings and pension funds are being taxed more and more. This all leads me to agree with the artist Edward Langley that what this country needs are more unemployed politicians.

Tony Byrne is financial planning director at Wealth And Tax Management

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