ECONOMIC IMPACTS.
Our industry is highly regulated. As such we are susceptible to the risks and challenges
posed by changes in policy, regulation or tax. We therefore seek to provide leadership
on broader societal and policy issues which are relevant to our business. These
range from changes in pension policy, to issues arising from increased longevity
and subsequent healthcare demands.
Regulatory and Industry Issues
In 2010 we responded to over 60 Government and FSA papers on relevant regulatory
issues such as corporate governance, codes of stewardship, pension legislation and
welfare reform.
Taxation
Legal & General is a significant contributor to the UK Exchequer, collecting
and paying tax of nearly £0.5bn in a typical year. This includes direct taxes
of us doing business as well as indirect tax taken through our products.
Read more in our Annual Report
As a significant investor in overseas investment, Legal & General bears overseas
withholding taxes of approximately £100m per annum. In addition our overseas
businesses contribute tax to the local economies in which they operate.
Risk Transfer between State and Private Sector
Currently the nation’s addressable risk market is shared between the public
(65%) and private (35%) sectors. A 5% transfer of this risk towards the private
sector would generate almost £17 billion a year in budget savings.
We are exploring how the insurance industry can assist the Government in tackling
the impacts of welfare reform, increased longevity and the financial burden that
comes with it. We are also working to deliver products that support the Government’s
modernisation of retirement planning.
Retail Distribution Review
We also respond to external economic developments, which affect our marketplace.
The Retail Distribution Review (RDR) has been enacted by the FSA in order to address
issues of consumer trust and confidence with products supplied by the market.
We have recently signed a deal with Nationwide Building Society to extend
the distribution of our savings products beyond the implementation of the RDR.
Wholesale Financial Flows
The insurance sector’s investments already account for around 15% of the UK
stock market, and we feel that there is an opportunity to invest further. Currently
annuity funds, which are worth approximately £150bn, are increasingly invested
in overseas debt markets.
A redistribution of funds towards the UK, could lead to future growth in areas such
as investment in UK infrastructure via an appropriately structured Green Investment
Bank. We see the potential for the industry to invest annuity inflows in ‘A’
rated debt issued to back projects sponsored by the Green Investment Bank once they
are operational, freeing up equity investment for further project investment.
We are currently working with Climatewise
through the
ABI and
industry peers on this opportunity.
Looking Forward
We believe that we can play an important role in promoting private sector infrastructure
investment. We believe that there is the potential to channel long-term investment
to small and medium enterprises. This is particularly important given the current
difficulties for many in accessing capital.
Case Study: NGO Engagement on Tax
In 2010, Christian
Aid ran their Trace the Tax Internet campaign, which encouraged concerned
people to ask FTSE 100 quoted companies to disclose taxes paid in developing nations.
We responded individually to the 450 people who had raised concerns through the
campaign using social media. Here are some of the responses we got:
- "Thank you for your response to my request re the above. I am delighted that Legal
& General are a responsible company with conscience and ethics."
- "I won′t prolong this conversation but I did want to thank you for taking
the time to reply to my email and indeed I was interested to hear about you work."
- "Thank you for responding to Christian Aid′s questions on tax and development.
Although you say that Legal & General deal only with developed countries such
as France and the USA, we hope that you will use your influence to encourage other
companies to adopt country-country reporting and urge the International Accounting
Standards to adopt this standard."
- "I was really pleased to hear that you take your tax commitments in developing countries
so seriously. Thanks for your reply."
- "It looks as if this campaign is only marginally relevant to you, but it also looks
as if you are well on the way to doing what they ask, if each country reports for
tax purposes to its own Government."