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The flooding in the south and other parts of England and in Perthshire last year illustrate an important point about the Government's philosophy. If individuals do not insure against loss through flood and so on, there is all the more obligation on the Government to dip into the public purse to bail out people. Clearly, the Government have a general strategic responsibility when there is a wholesale disaster, but it cannot be in the interests of the public or the Treasury to make it less likely that people will insure against such risks.

The people we saw on the television and read about in the newspapers who suffered from the floods at the beginning of the year will face increased premiums next year. Anyone who has ever taken out an insurance policy will notice that, apart from the fact that the small print is loaded on the side of the companies rather than on the side of those who take out insurance, if a claim of any substance is made, the premium will go up.

One of the growing problems in Britain is vandalism, theft and damage to cars. Car insurance premiums are rising dramatically. If the Government take a percentage on top of that, there will be a disincentive to insure properly, and that cannot be in the public interest.

When we hear the Government preaching self-reliance, as the man from the private health insurers would have us believe, it would be interesting to hear what justification or philosophy drove the Government to the decision to tax what is entirely necessary and laudable thinking.

The Government are sending people a confused message. What are they saying to responsible and prudent people? It seems to me that they are saying, "We will tax you for your responsible attitude and again for your prudent increase in insurance cover". Tax and tax again--that is the story of the Government and people will get nothing for it. It is not as if the tax will go towards better policing or crime prevention. The Government's record on crime prevention is as dismal as their record on running the economy. People are facing a rising crime rate and the Government appear helpless and are doing nothing except lashing out in all directions when the crime rate continues to rise in most parts of England and Wales.

Insurance premiums are increasing anyway. Lloyd's is facing substantial risks and premiums will have to increase to meet them. There is also the problem of fraudulent claims which are costing insurance companies dear. Those who do not make claims have to pay increased premiums each year.

There are also technical matters, but I shall not go into them in great depth because other hon. Members want to speak in this short debate. However, one or two points ought to be mentioned. There is the matter of creditor insurance. At a time of recession and difficult economic circumstances, people have wisely taken out insurance to cover that risk, yet that is to be caught. Will the Minister say something about that?

There is the technical issue of commission. Commission is excluded, but, as the Paymaster General will know, there are many different ways of selling insurance policies that do not involve commission and there is understandably a feeling within the industry that those companies with a direct sales force may be adversely affected. We may wish to return to that issue in Committee in the four or five minutes allocated to the clause. At the same time, we shall consider whether the tax should be paid when the premium is received or at some other point.

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Perhaps tonight the Minister will let us know the position with regard to the Royal Automobile Club and the Automobile Association. Both consider that on one reading of the Bill their entire fee will be caught by the tax because of the nature of the services they offer. Perhaps the Government will let us know whether that is their understanding and, if it is, whether it was their intention as it does not seem desirable to tax the AA, RAC or any other motoring organisation.

I draw attention to the anti-forestalling measures. I understand that certain steps have to be taken to stop people avoiding any tax. However, there is some strength in the argument that the Government should strike at an abnormal payment rather than circumstances in which it is normal to pay for insurance cover in advance. Perhaps the Minister will tell us how the consultative process is progressing on the fiscal regime for those companies that make reserves against future losses.

The Paymaster General may recall that during the debate on last year's Finance Bill--which was discussed expeditiously so that every clause was done more than justice, yet did not seem to have the problems visited upon us by the Government after the first few hours of debate--when we were discussing insurance, the point was raised that European insurance companies have a more favourable tax regime which allows them to make provision against future losses. Because we do not have that, it is sometimes difficult for our United Kingdom companies to compete effectively against other insurance companies in the European Union.

This might be an opportune time for the Paymaster General to tell us how the discussion process is progressing as many in the industry would like to know what has happened to it. It was announced last year but did not get far.

Insurance tax is yet another tax. It is another way in which the Chancellor seeks to raise money to avoid blatantly increasing what used to be referred to as the standard rate of income tax. It will not fool anybody. It will hit many prudent and responsible people very hard indeed.

It is ironic that the Government, with all the rhetoric of the 1980s, should be a Government who tax prudence and responsibility. That comes as no surprise to us. What the Government do is quite different from what they say.

People do not trust the Government, not just because of what they have done to the economy or in raising tax despite the fact that at the last election they promised not to increase tax. What they are doing is damaging to people in the country. It goes against the grain and causes offence because it chooses to tax responsibility and prudence. It is for those reasons that we will oppose the clause tonight.

The Paymaster General (Sir John Cope) : It may be convenient for the Committee if I speak briefly at this point. I hope to have more time to speak later in the debate, and certainly later in Committee. I had hoped to speak yesterday and earlier today, but I will not take time now rearguing the debate on the timetable motion that we have had for most of today.

The introduction of any new tax is the subject of careful consideration, and that includes the insurance premium tax. Careful thought was given before the Budget to the matters listed in the amendment, and to other matters, before we made the proposals in the Budget that are incorporated in the Bill. Since the announcement was made on Budget day, we have been able to consult much more

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widely outside the Government with all kinds of other interests affected by it. I want to make it clear to the Committee that those consultations are continuing. In some cases particular points are outstanding. I shall refer to those in a moment.

In common with other financial services, insurance and associated services are exempt from VAT. That exception is expressed in European Community agreements. That is one of the reasons why we have introduced the tax. Similar taxes apply in many other countries within the European Community. It seemed to the Chancellor that this area of consumer expenditure was subject to less indirect taxation than many others. It was therefore appropriate to introduce the tax when we faced the financial problems that the House has endlessly discussed. We must consider the impact of the tax on private individuals and those policy holders who will be affected by it and also the insurance industry and other industries which must pay it. On the rate and the scope of the tax, it is important to understand that there are exceptions, which are part of the nature of insurance. For example, if we were to tax reinsurance, it would create double taxation. It is important not to do that. The principal exemption is long-term insurance-- life insurance, endowment mortgages and pensions. We see those essentially as a form of savings and investment that are quite distinct from the bulk of general insurance, to which the tax is addressed. We have provided for them to be left out of the tax. We have no proposals to change that at any time. I am happy to reassure the hon. Member for Edinburgh, Central (Mr. Darling) on that point. We have been careful in the design of the tax to exempt overseas risks. The British insurance industry insures many risks all over the world, through both reinsurance and direct insurance. It is important not to damage our international earning capacity in that way. Also covered by exemptions are various marine and aviation risks, international trade credit, and so on.

Our approach has been to have an inclusive tax. The tax is intended to apply across a broad base. In so doing, it can be set at a low rate. The hon. Member for Edinburgh, Central implicitly--almost explicitly-- recognised that fact in what he said about private health insurance. As he recognises, we have designed the tax so that it applies to private health insurance. We see that as a form of general insurance. Like other general insurance, it offers an indemnity against costs incurred in a particular eventuality. I do not think that there is any reason to treat it any differently.

That brings me to the point that the hon. Gentleman made about whether we were trying in some way to discourage insurance. To tax something is not necessarily to say that one does not think that it should take place. After all, we tax income. We have taxed many other things that we are not trying to discourage but which nevertheless we think form a proper basis for contributions to the national Exchequer.

8.45 pm

Mrs. Anne Campbell (Cambridge) : Will the Paymaster General give way?

Sir John Cope : In a moment.

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It is a fact that, in the past, and up to now, insurance has been exempt, for example, from VAT and has not paid much in indirect tax. That is why the Chancellor has looked in this direction.

Mrs. Campbell : Does the Minister agree that a tax on insurance will deter people, particularly those on low incomes who are already subject to high rates of crime in their neighbourhood, from taking out any insurance?

Sir John Cope : I will say something about particular individuals in a moment.

Applying the tax at a relatively low rate of 3 per cent. across such a broad base serves to achieve as fair as possible a distribution of the tax burden. As the hon. Lady suggests, there are inevitably variations in the level of premiums depending on the risk insured. In setting the rate, the Chancellor was able to conclude that it would be unlikely to have a significant impact on the overall cost of insurance and thus on the take-up of insurance. Clearly, the price of insurance is dictated by a range of things.

At 3 per cent., the impact of the tax will not realistically be a major influence, particularly if one reflects, as the hon. Member for Edinburgh, Central did, on the significant premium increases that the market has borne in recent years. The impact of the tax on individual taxpayers will vary considerably according to their particular pattern of insurance in every respect.

Mr. Darling : The Paymaster General seems to be saying that cost does not matter. That must fly in the face of everything that Tory Ministers have been telling the country for years. He is saying that, because costs are going up anyway, it is all right to slap another tax on top from the Government. That surely cannot be right.

Sir John Cope : No, that is not what I said earlier. I said that if one looks at the effect of the way premiums have increased in recent years one can see--or one can try to measure--the effect that cost increases have on the take-up of insurance. That is relevant in considering the potential effect of the introduction of the tax on the take-up of insurance.

The hon. Gentleman pointed out also that the Chancellor had said, and it is a fact, that the average cost of the tax to a household with buildings, contents and motor insurance--some 44 per cent. of households--will be about 35p a week. Obviously, as the hon. Gentleman and everybody else will recognise, that is an average. The average cost of the tax on three quarters of households with some contents insurance will be about 6p a week. Sixty per cent. of households have some motor insurance. The tax for them is expected to average about 18p a week. Overall, the figures reveal that the tax is mildly progressive, because on average richer households pay more on insurance as a proportion of their income than poorer households, and have more valuable possessions of every kind.

Mr. Robert Ainsworth (Coventry, North-East) : Will the Paymaster General give way?

Sir John Cope : I am not anxious to give way a lot, because many hon. Members wish to speak in the debate. I shall give way to the hon. Gentleman in a moment, after I have finished making this point.

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The family expenditure survey shows that the poorest 20 per cent. of households on average spend about £120 a year on taxable insurance. That means that their IPT would come out at about 7p a week. The richest 20 per cent. of households pay about £800 a year. Their IPT will come out at about 47p a week.

Mr. Ainsworth : Will the Paymaster General depart from his prepared script for a moment? He mentioned the progressive nature of the tax. The insurance premiums of the people to whom he referred are low only because they have few possessions ; many others have no insurance at all, because the incidence of burglary in their area has made the premiums unaffordable or, indeed, has caused the insurance companies to refuse them cover.

Some inner-city dwellers feel that the Government are already effectively taxing them by not providing a decent standard of law and order, thereby forcing up insurance premiums. To impose a tax on top of that is appalling.

Sir John Cope : The hon. Gentleman must make his own speech, if there is time.

The financial facts, as I said earlier, demonstrate that the effects of the tax will be mildly progressive. A similar picture can be seen in the business sector, in that the tax will have a fairly even impact across industry. On average, insurance represents about 1 per cent. of business costs ; the new tax will add about 0.03 per cent. to those costs.

The tax will, of course, have the greatest impact on the insurance industry itself. Although it will be applied to insurance premiums rather than directly to the insurance companies, its introduction will coincide with the current upswing rather than with a downturn in the trading cycle of what is, after all, a very cyclical business. Naturally, the industry is also concerned about the workings of the tax. The hon. Member for Edinburgh, Central listed some technical matters, which we will no doubt discuss later ; however, we have made it clear from the outset--in the consultations to which I have referred--that we wish to minimise the compliance costs incurred by the industry, and indeed by the Government and Customs and Excise. I am pleased to say that our dialogue with the industry has been extremely constructive. In response to the invitation extended by the hon. Member for Edinburgh, Central and to representations from a number of my hon. Friends, some of whom are present now, we are prepared to consider sympathetically the industry's case for being given the option of accounting for the tax on the so-called premium written basis, thus tying in more closely with many of the industry's current accounting arrangements. Such an option would, however, be subject to further examination of its implications with the industry. In my view, those implications include the use of gross premiums as the base of tax, rather than the net premiums that we contemplated originally. Customs and Excise is continuing to discuss the matter with the insurance industry, and we shall of course return to it later in the Committee stage ; indeed, the details of all these matters will be discussed by the Standing Committee.

The hon. Member for Edinburgh, Central raised the question of creditor insurance. I must give him the same answer that I gave in regard to private health insurance : we consider that the tax should apply to all general insurance, at a low rate. The hon. Gentleman also asked about the motoring organisations. Perhaps I should declare an

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interest, in that I belong to the RAC. Subscriptions to the RAC, the AA, National Breakdown and other motoring organisations are divided up from the VAT point of view : they are partly exempt and partly zero rated, in recognition that part of the subscription is in the nature of insurance. It is to that part that the new tax will apply : it is insurance in any ordinary sense of the word, although its mechanics happen to be rather different.

As my right hon. and learned Friend the Chancellor made clear in his Budget statement, we introduced the tax in an effort to raise revenue in a way that is fair to all concerned, with the least possible compliance costs. It is, however, a revenue-raising tax, and it deals with a sector that has hitherto paid little in the way of indirect tax, for reasons that I gave earlier. No doubt we shall return to the details in this and future debates.

Mrs. Barbara Roche (Hornsey and Wood Green) : This new tax proposal illustrates the Government's basic lack of principle. Last week, it was said that during the election the Conservative party promised to be the party of low crime ; in fact, it is the party of high crime. It also promised to be the party of low taxation--but, as we have seen in recent weeks and will see again following the passage of the Bill, it is the party of high taxation.

To my constituents, those two matters seem closely linked. London Members of Parliament look around them and see a city that has become the crime capital of Europe. There are 60.2 incidents of burglary and car crime per 1,000 members of London's population ; there are 45 such incidents in Paris, 32 in Rome and 23 in Madrid. That demonstrates the difficulties experienced by the Metropolitan police. In a recent survey, the Association of London Authorities stated that crime was one of the major concerns of Londoners--and who can blame them, given the doubling in recorded crime in the capital since 1979?

How will the Government respond? My constituents--like those of every other hon. Member--will be hit by a tax on protecting themselves from crime : a tax on household insurance, as well as all the other types of insurance that the Bill will capture. Not only do my constituents have to suffer from the increase in recorded crime that we have seen in Britain and from all its economic consequences, but they will have to pay yet another tax when they insure themselves against crime. As my hon. Friend the Member for Edinburgh, Central (Mr. Darling) said, insurance premiums are already sky high. The people who have been hit hardest are those who live in the less prosperous areas of the inner cities. They pay up to seven times more than those who live in more affluent areas. Yet the Chancellor indicated in his Budget speech that for the typical family that tax will cost about 35p a week. That figure belies the great differences resulting from the nature of the locations in which people live. As several of my hon. Friends have said, some people are lucky to get insurance at all. The Consumers Association reported recently that in some high-crime areas insurance companies will not provide cover at all. Researchers anonymously asked 16 insurers for cover for a three-bedroom London house with a record of two theft claims in the last year--by no means unusual, as my constituents and, I am sure, the constituents of other hon. Members could confirm. Only one of the 16 insurance companies would quote a figure. Yet the Paymaster

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General has the nerve to describe this as a progressive tax--"mildly progressive" are the words that I think he used. Nothing could be further from reality.

9 pm

As my hon. Friend the Member for Sedgefield (Mr. Blair) showed last week, the average cost of household contents insurance rose from £66 in 1988 to £114 last year--an increase of more than 70 per cent. Last year insurance claims for home break-ins totalled £2 million a day, or £25 per second. And claims resulting from car crime have doubled in the past two years.

A tax on insurance is an unfair levy on the victims of crime. It is they who are too often forgotten when we discuss this matter. This tax is also likely to mean that some people will simply be unable to afford to insure their homes and cars, even if they are lucky enough to find a company willing to take the risk. Last week one of my constituents wrote to me about the proposed new tax. She said : "Not only are premiums ever increasing but now the Government has added a tax surcharge, and twice this month I have received outrageous insurance bills. First, my contents insurance has cost me nearly £220 for £12,000 contents cover and I had to reject higher cover because I could not afford it. If I am now burgled, or my flat burns down, I will not financially be able to recover my possessions."

Can the Paymaster-General tell me what I am supposed to say to that constituent--apart, of course, from "Don't ever vote Conservative again"?

During the Chancellor's Budget speech he justified levying a tax on insurance by saying that it would broaden the tax base. Once again the Government are asking the people of this country to pay for the economic mistakes of the Chancellor and his predecessor. Not only that, but the amount that the Government will raise from this measure--estimated by the Chancellor at more than £750 million a year--is as high as that because of the high premiums resulting from the huge increase in crime that has occurred since the Government came to power. There has been a massive 124 per cent. rise in crime since 1979. The very Government who presided over this increase have the cheek now to tax people who take the precaution of insuring themselves against crime.

The Labour party has consistently pressed the Government on crime prevention--urging them to implement the Morgan report and to abandon their policy of centralising police forces and undermining the very morale of the men and women who so bravely police our streets. We in this country still spend so little on crime prevention--the very thing that we need to stop crime.

The RAC recently launched a poster campaign about car crime with the slogan

"It isn't the car that's broken down, it's law and order." That slogan could very well be adopted by the many people in Britain who have had their cars vandalised and their homes violated by burglary after burglary.

What is to be done about this problem? By imposing the levy, the Government are merely taxing the victims. As has been said often and recently, we are getting to the position of having to ask how one can insure oneself against insurance premiums. I should like to end with the words of my constituent when she considered rather despairingly what she and others would be able to do :

"This is another example of how this Government has created an environment where those who can will, and those who can't won't."

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Mr. John Greenway : I begin by declaring an interest, with which hon. Members are familiar : I have worked for more than 20 years in the insurance industry.

It is fair to say that the insurance industry is disappointed by the imposition of the insurance premium tax. I share its view. Anyone who has followed what is happening in the industry across the Community will observe that it is not entirely surprising that the Government have copied what virtually every Community Government have done, recognising that, under directives, VAT cannot be imposed on insurance premiums. The Government have therefore announced insurance premium taxes instead.

Mr. Darling : On a point or order, Mr. Lofthouse. I do not want to stop the hon. Member in mid-flow. He was good enough to declare his interest, having worked in the industry for some years. As I understand it, the rules of the House are more extensive. The hon. Member's entry in the Register is extensive. I understand that it is incumbent on hon. Members to declare all the companies of which they are a director, and those from which they have an employment or office or trade or profession and their clients.

I know that it would take the hon. Member a long time to do so, but given his interest in the matter, the House and those who follow our proceedings should know what his interests are.

The First Deputy Chairman : The House will be fully aware of the hon. Member's interests from the Register of Members' Interests. If the hon. Member for Ryedale (Mr. Greenway) feels that he should enlighten the House further, that is a matter for him.

Mr. Greenway : I shall enlighten the House further on one or two other points of interest that relate directly to what I shall say. I am sure that no hon. Member thinks that I would deliberately wish to mislead the House or hide my interests.

I said that I have been involved in the insurance industry for more than 20 years. I am an elected member of one of the industry's regulators, and my comments hitherto, far from causing the hon. Member for Edinburgh, Central (Mr. Darling) to think that I am entirely in the pocket of the Government, were on the industry's response.

It is a pity that, after 24 hours of hot air and piffle on this Committee stage, some of the serious, important issues on the future of the insurance industry arising from the application of this tax have not been addressed. We have heard the kind of speeches that we heard on Second Reading--and even before that, in the debate on the Budget.

The Government have merely copied what other member states have done, by imposing an insurance premium tax. The idea is not new. I am aware from discussions that the Association of British Insurers was not entirely surprised by the Government's decision. That does not mean that it does not have concerns--as I shall show, it most certainly has--but the argument that taxation on insurance is a new concept in this country is nonsense, because insurance funds are taxed.

If there is one matter on which I agree 100 per cent. with the hon. Member for Edinburgh, Central, it is on the need for the Government to deliver on their promise in the Finance Bill last year that something should be done about the wicked way in which reserving is taxed in the United

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Kingdom compared with our competitors in the European Community. If we are saying that, by introducing an IPT, we are merely putting ourselves on the same footing as other member states, the tax regime should be the same.

I want to draw attention to one or two of the technical points that concern insurers before dealing with another important but rather different matter. First, I think that the Paymaster General's acknowledgment earlier in the debate of the possibility--I think that "option" was the word he used--of dealing with the tax on a written premium basis rather than a cash received basis will have come as some relief to United Kingdom insurers. Since he has made that announcement, perhaps for this evening we ought to let the matter rest there, except to urge him to pursue the discussions with all due urgency. October 1 sounds a long way off, but companies will have to put systems in place soon if they are to introduce the tax smoothly on 1 October.

I shall not mention the subject of commission, as an insurance broker, except to say that I suspect that the only streamlined and simple way of dealing with the tax will probably be in the end to tax the whole premium, because there are grave difficulties throughout the industry in accounting for commission on a fair basis. A third problem, to which my right hon. Friend the Paymaster General did not refer but which is of grave concern to United Kingdom insurers, is the fact that the tax will apply only to premiums for a risk that is situated in the United Kingdom. Although, in the great majority of cases, that will not cause a problem, there are a significant number of insurances taken out by multinational groups for which the risk may be situate partly in the United Kingdom and partly elsewhere.

Currently, no mechanism is used for other purposes which would distinguish between the proportion of premium that relates to United Kingdom and non- United Kingdom risks. The practical problems of making such a distinction are considerable, and it is important that they should be solved in a way which provides certainty and administrative simplicity.

That argument leads to two others. First, it is crucial that the imposition of the tax does not drive business away from the London market. That could be possible if there is uncertainty about the basis on which the split between United Kingdom and non-United Kingdom risks will be made, or if there is a significant difference of approach to such a distinction between the United Kingdom and other European jurisdictions which also impose those premium taxes. Secondly--this worries me--any allocation of premiums between United Kingdom and non-United Kingdom risks that is not formula- based is likely to involve considerable judgment on the part of the insurer. If an element involving considerable subjectivity is to be introduced into the tax, the uncertainty involved is likely to cause considerable apprehension about the basis on which Customs and Excise will audit insurers accounting for the tax.

That is a worry, because, given the proposed penalty arrangements in the Bill for incorrect accounting, there is a general view among insurers-- which I share--that the proposed penalty regime could be unduly harsh and could be wholly inappropriate, given the uncertainties and complexities which are likely to be involved. It could be a mistake to apply such a regime on the introduction of the tax from day one, given those potential uncertainties, and we may need to consider some

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bedding-in period, during which there could be continuing consultation between the industry and Customs and Excise--in which I am sure my right hon. Friend would want to take an interest--and there should be penalties only where there is clear evidence of an attempt to evade payment of the tax.

I know that my right hon. Friend has encouraged Customs and Excise staff to discuss those matters with the industry, but, as I have said, time is pressing, and I think that the industry feels that those matters need to be concluded perhaps by as early as February, and certainly by Easter, if we are to introduce the tax in time for a starting date of 1 October.

There is another point to be made about the transitional arrangements. The Bill contains provisions to prevent the avoidance of insurance premium tax by the use of insurance contracts commencing before 1 October but ending more than 12 months later. Clearly, that is a measure intended to prevent evasion.

It is consistent with practice in the case of most insurances where the normal contract duration is 12 months but, as my right hon. Friend the Paymaster General will realise, it is common for some types of insurance to last a number of years--mortgage indemnity insurance and extended warranty business are two clear examples. I suggest that extended warranty business should perhaps be exempt altogether, because such warranties are not conventional insurance but part of the overall contract of sale and the acquisition of stronger guarantees for the consumer.

9.15 pm

There are grave misgivings among the major United Kingdom companies and property investors about the intention to apply insurance premium tax to premiums collected by pool re for terrorism insurance. For more than a year, we have been fighting an uphill struggle to persuade more companies to avail themselves of terrorism insurance through the pool re facility. It seems extraordinary to some of us that, in those circumstances, we should want to add the 3 per cent. tax to an already heavy premium which, through the pool re scheme, will of course be substantially more than companies previously paid for terrorist cover.

I declare a further interest in a different sphere. I am the honorary, which means unpaid, adviser to the British Health Care Association. I have written to my right hon. Friend many times in this regard. It would not be unreasonable to say that most of the association's member schemes are affiliated to the trade union movement, and they will not be especially pleased with what the hon. Member for Edinburgh, Central said when he urged my right hon. Friend not to extend the exemptions for medical insurance. The matter is catered for in the Bill, and the Chancellor said in his Budget speech that insurance premium tax would not apply to permanent health insurance.

I think that it was the hon. Member for Edinburgh, Central who mentioned company directors and said that they might insure themselves for when they are sick or in case of a major accident. Many people take out income insurance through permanent health policies, especially if they are self- employed.

The insurance policies provided by the British Health Care Association do not strictly come into that category, as they are not permanent but cancellable, and contribution rates and benefits are varied, usually on a three or four-year

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basis. The uprating of premiums every year to take account of IPT, especially if the rate varied in future, would cause considerable administrative difficulty.

In general terms, a contributor to one of these schemes purchases units of cover which provide cash benefits during stays in hospital, or which specifically reimburse NHS dental and optical charges. Most contributors have their payments debited from their pay, with the gross amount paid to the member scheme by their employer. That is one reason why there is often trade union involvement in persuading members to take advantage of such facilities.

The schemes aim to provide low-cost health benefits. Although not charitable in their formal structure, they are non-profit-making and return a high percentage of income to contributors during stays in hospital. Any surpluses are used to purchase medical equipment or to make donations to local NHS hospitals or medical charities. Hon. Members may recall that, a few months ago, a donation from one of the BHCA schemes, the Westfield contributory scheme, based in Sheffield, donated £5,000 for the purchase of a minibus for the relief effort in a Bosnian hospital.

Having been associated with the BHCA for some years, it is clear to me that, if insurance premium tax was levied on members' contributions, it could deter contributors and would lead to less generous support of local hospitals by member schemes. Many of the contributors to those schemes are at the lower end of the income scale, and are not able to afford the cost of permanent health insurance. They do, nevertheless, recognise the prudence of having a cash benefit to help cover loss of earnings during a stay in hospital or during maternity. In that respect, while the technical nature of those policies is different to permanent health insurance and therefore cannot be said to be long term, the motivation, the benefit and the effect on the individual are largely the same.

I urge my right hon. Friend the Minister to think again to try to find a way of exempting such cash-benefit health insurance policies. I willingly admit that it does not help our argument that those schemes are not especially different from the sort of private insurance schemes that the hon. Member for Edinburgh, Central mentioned.

Nevertheless, I remind the hon. Gentleman that there are some 3 million members of the BHCA schemes, who contribute about £158 million in premiums. Therefore, we are considering tax of about £4.7 million. If that money is taken in tax, apart from any potential deterrent effect to people belonging to the schemes or increasing members' benefits, the BHCA will have £4.7 million less to donate to the NHS and medical charities.

Mrs. Diana Maddock (Christchurch) : Like other hon. Members, I had hoped to speak yesterday, and I had hoped to speak to a Liberal Democrat amendment. In the time that I have been here, it has become obvious to me that nothing is certain in this place.

We are happy to support the amendment, because at least it would stop the tax being implemented before it received heavy scrutiny. Each year, the Budget causes a great deal of speculation, and every Chancellor likes to bring a few surprises. Certainly, the Chancellor entered into that spirit with his first Budget. In recent years, the abolition of a tax has been part of that surprise. After years of rhetoric about the Conservatives being the Government of low taxation, it certainly was a surprise to hear the Chancellor proposing not one new tax, but two.

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We have already dealt at some length with the Chancellor's new tax on airports. With the second tax, on insurance premiums, I fear that the Chancellor is set to go down in history as the man who really did make a drama out of a crisis. Having sprung IPT on us, he boldly claimed that it was nothing, a mere 3 per cent. He said that everywhere in Europe has such a tax and claimed that this country's was the only finance industry that was not taxed. He further claimed that the tax would mean a 35p increase only for the average household.

Let us examine those claims. The tax will be 3 per cent. only, but, once it is in place, there is no knowing where that tax will be hiked. After all, it cannot be worth the cost of all that bureaucracy for a mere 3 per cent. The Chancellor's claim that our finance industry gets away with it compared to Europe does not entirely stand up either. Since he is such a disciple of indirect taxes, he cannot have missed the VAT paid by insurers and policyholders on costs incurred. That VAT is not recoverable by insurers, as they are VAT-exempt.

As the Association of British Insurers readily points out, insurance companies already bear levies for the Policyholders Protection Board and the Motor Insurers Bureau. United Kingdom insurance companies are, as we have already heard, at a tax disadvantage generally when compared with their overseas competitors. They cannot set up tax-deductible equalisation reserves. As has already been said, although there has been a consultation document on that, there has been no commitment so far to meetings with the Department of Trade and Industry or with the Inland Revenue. The Chancellor claims that the cost will be only 35p a week on average for each household. The insurers do not agree with that figure. They point out that the Chancellor bases the average figure on the so-called "typical" family with motor, home contents and building cover. That neatly neglects the effects of the new tax on travel policies, warranties on electrical goods, personal liability, accident cover and even membership of motoring organisations. The greatest sleight of hand comes in referring to the average or the typical. I do not know whether the Conservative party in its heart still subscribes to the idea that there is no such thing as society. When it suits Conservatives, they seem to believe in the average. In reality, the effects will vary greatly depending on where one lives, and on individuals' personal and family circumstances. Other hon. Members have talked about their own constituents. A family taking out household and contents cover for a three-bedroomed, semi-detached house in Wolverhampton, for example, will pay about £10.50 more on that cover alone. A one-bedroomed flat in an apartment block in Hampstead could cost £18 more a year--the Chancellor's figure of 35p a week--just for the property cover. Whom will the electorate believe--the Government or the insurance companies? It is an indication of the regard in which the Government are held that it will be the insurance companies.

Why are I and my Liberal Democrat colleagues so opposed to this tax? First, there is simply no justification for it at this time. In the 14 years in which the Government have been in power, crime has more than doubled. Directly linked to that, there has been a rapid rise in the cost of

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insurance. Between 1987 and 1993, household contents insurance rose by more than 60 per cent. in real terms, and car insurance has more than doubled.

The need for insurance has never been greater. In my county of Dorset, between 1979 and 1992, there was a 78 per cent. increase in the number of motor vehicle thefts notified to the police and an alarming 171 per cent. increase in the number of domestic burglaries. The tax will merely add to the misery of the victims of car theft and burglary.

It rubs salt into the wounds of those who have already suffered enough from rising crime during 14 years of this Government. It is a tax on those who most need protection people like the frightened woman living alone who wrote to me saying that she lives in fear of being the next victim.

The Chancellor may try to pretend, as others have tonight, that the tax is nothing. I know that the electorate are not so easily fooled. To too many of them, it will be yet another increased bill. That is true particularly for those on fixed low and falling incomes. 9.30 pm

The tax will not come in isolation. Under the Government, water bills shot up after privatisation. The boom-bust economy has meant that those living on investment incomes have seen that income plummet as interest rates have fallen. State pensions have not kept up with average earnings, and the Government are now taxing invalidity benefit. Social housing rents have increased, particularly those of housing associations and, most cruelly, VAT is to be imposed on domestic heating and lighting.

Our second big objection to the tax is that it is unfair. We have already heard from other hon. Members that it will affect those in high crime regions, which have the highest insurance premiums. They are often our inner cities. Indeed, parts of our inner cities are in postcode regions where it is impossible to obtain insurance. Our inner cities desperately need regeneration, which means investment in housing, infrastructure and, vitally, in new business. But how will those regions be regenerated if small businesses in particular are not attracted to them because the insurance is either prohibitively expensive or impossible to obtain ?

The Government are very fond of arguing that switching from direct to indirect taxation promotes consumer choice. Therein lies the fundamental problem with placing indirect taxes on those goods and services that are, at the very least, difficult, and often impossible, to do without. There is little choice when it comes to necessities. Why should people who have provided for themselves and paid taxes and national insurance all their lives now be penalised even further ? That is what people outside the Chamber are asking. They cannot understand why the Government keep taking from them when those who better off continue to be rewarded. People want taxes to reflect their ability to pay, not their need to live--the tax does not do that.

Our third objection to the tax is that it is inefficient. It is a new tax, and will lead to more paperwork and more bureaucracy for, as we have heard, very little extra revenue. There are 28 clauses in the Finance Bill. Some 40 pages deal with the tax and there will be more details in the secondary legislation that is to come.

As with insurance forms, it is the small print that we need to study. The insurance companies say that millions

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