My Lords, one of the great challenges that the UK faces is the way in which it engages with globalisation and makes it work for the benefit of the British people. A significant proportion of global trade is won by service industries such as financial services and the industry in which I work, insurance. I am the chairman and chief executive of an insurance broking and independent financial advisers organisation. We are provisionally accredited Lloyd’s brokers and have offices in the City of London. I have a long-standing connection with the City. In fact, when I was elevated, I chose the title of Baron Sheikh of Cornhill in the City of London. I have held senior voluntary positions with the British Insurance Brokers’ Association and the Chartered Insurance Institute. I am indeed very proud of the achievements of my industry and the City.
The UK insurance industry is the largest in Europe and the third largest in the world. The industry had total net investments of £1,010 billion in 2004. It accounted for almost 20 per cent of the total net worth of the UK economy. The industry is a major foreign currency earner. It owns £236 billion of overseas portfolio investments and was the largest single contributor to net exports of the UK financial sector with a contribution of £6.4 billion. The industry is also a major generator of taxes.
One of the reasons for our global success is the skill and competence of our staff. It has enabled us to be a major financial centre in the world. I used to be a visiting lecturer at the City of London College and realise the importance of this. It is imperative that we maintain and promote our education and training facilities to keep up our supreme position. Although we are pleased with our achievements, we cannot be complacent. We need to be proactive and innovative. The world is changing and we must face and be alert to new challenges, opportunities and possible threats.
The insurance industry and the City generally would welcome assistance in regard to global trading. To that end, we need better intelligence and lobbying on regulations in overseas countries. Regarding India, we would urge the Government to ask the Indian Government to raise the limit on foreign investments in insurance companies from 26 per cent to 49 per cent. That will allow British insurers to raise their stake in joint ventures and increase their underwriting capacity in the Indian market.
With regard to China, the chief issue is the lack of transparency of the insurance regulator, and we ask the Government to consider approaching China in order that it can open its insurance market. It gave such a commitment in the past when it joined the World Trade Organisation.
In respect of the United States, we ask Her Majesty’s Government to assist us in replacing the requirements for reinsurance collateral with a non-discriminatory system. We are regarded as alien reinsurers and are obliged by many states to post collateral in the United States. I am, however, pleased that the reinsurance monopoly in Brazil is about to open up at last.
It is important for the industry and for Britain that the City remains a highly competitive financial services market. We are fearful that some international insurance business is drifting from London to Bermuda and Ireland. To enable the industry to continue its activities successfully, it is vital that excessive regulatory and fiscal burdens are avoided. Will the Minister kindly tell the House whether the Government would consider a review of the tax regulatory regime affecting the City? Current concerns of the Association of British Insurers include worries over the complexity and unpredictability of the tax regime, particularly corporation tax, VAT and IPT.
Although we feel that the Financial Services Authority’s prudential regime is helpful, the authority could be encouraged to make faster progress towards principles-based regulation of the conduct of business. I would appreciate the Minister’s comments on that point. An open market at home and opening further markets abroad are the key to our continued prosperity.