...but if it ain't broke why fix it, says Elliot Lane

It seems that brokers are off the hook over the recent VAT ruling in Brussels.
Although the ABI's discussions with the Treasury and Customs & Excise have left little room for industry optimism, the wholesale market can at least breathe a little easier.

Brokers with in-house back office functions who can prove that their primary role is as an intermediary should remain unscathed. But it's the outsourcing companies and suppliers that may be hit.

Estimates predict a £200m annual VAT bill from January 2006 because Customs & Excise will adopt a strict interpretation of the European Court of Justice ruling, meaning all outsourced back office functions will be subject to the standard 17.5% VAT charge.

The sting will be felt by large consultants, the loss-adjusting community and outsourcing specialists, who will surely force a price rise on insurers for these services.

The unknown factor is Lloyd's and the London market, where Xchanging, Kinnect and the ever-present service fee agreements between underwriters and certain brokers could be left in limbo.

This grey area could have a devastating effect on the market's potential for reform. Kinnect and Xchanging have enough political problems (political with a small p) just talking to each other, let alone convincing a belligerent market of the efficiency and cost benefits of a market-wide initiative.

But would the government consider an exemption? With the £17bn invisible earnings that the Treasury relies on from Lloyd's and the London market, the old saying 'if it ain't broke don't fix it' springs to mind. IT