Insurers Say They'll Leave U.K. Base If Tax System Isn't Changed

A large majority of insurance executives in the United Kingdom believe that if the government does not overhaul the tax system, there will be a drop in the number of U.K.-based carriers, one trade group's survey found.

The Association of British Insurers said a survey of 75 member executives revealed that 80 percent feel the number of U.K.-domiciled insurance companies will fall if the tax system remains unchanged over the next five years. Fifty-two percent said they believe the number would fall slightly, while 29 percent warned the fall would be dramatic.

In addition, the survey said that almost two-thirds of senior management is tempted to move abroad because of the nation's current personal tax system.

Seventy-one percent of those surveyed said the corporate tax system is in the United Kingdom is uncompetitive.

The release of the survey results came with the publication of the ABI's report on: “U.K. Competitiveness: The Way Forward For Insurance.”

ABI said that among some of the report's suggestions are:

o Introduction of a corporate tax exemption for those with branches abroad to encourage companies to keep or set up their headquarters in the United Kingdom.

o Reform of rules for controlled foreign companies to recognize the importance of capital to the local insurance and reinsurance industries by moving the bias away from returns from labor and toward returns from capital.

o Reduction of corporate tax when fiscal conditions allow.

o Require any tax changes in response to regulatory reform to result in a stable and sustainable system. The changes should also not endanger the United Kingdom's competitiveness with the European Union, ABI said.

o The tax system should become stable and predictable.

o The link between competitiveness and personal taxes needs to be recognized, according to ABI, which said the higher income tax rate and restriction of tax relief on the pension contributions of high earners reduces the attractiveness of the United Kingdom as a place to work for company executives.

“The recession cannot be allowed to mask the challenge, but also the opportunity, the [United Kingdom] faces over competitiveness. Getting it right today could reap rich rewards tomorrow,” said Stephen Haddrill, ABI's director general, in a statement.

“The [United Kingdom] cannot afford to wait for a return to economic health to act,” he continued. “Our proposals will make sure that we can build upon an already strong U.K. insurance industry–one that has come through this crisis in robust shape and is a major international player.”