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groups. The amendment allows review or appeal of decisions by Customs and Excise on group registration. I commend it to the House. Amendment agreed to.

Schedule 7 --

Insurance premium tax

Amendment made : No. 34, in page 260, line 5, leave out sub-paragraph (7).- - [Sir John Cope.]

Clause 68 --

Special accounting schemes

4.15 pm

Sir John Cope : I beg to move amendment No. 38, in page 52, line 9, at end insert

( ) The reference in subsection (3)(a) above to a premium under a taxable insurance contract includes a reference to anything that, although not actually received by or on behalf of the insurer, would be such a premium if it were so received.'.

Those hon. Members who served on the Committee and those people who have read the Committee proceedings will recall that we have introduced an arrangement for a special accounting scheme which allows the insurance premium tax to be accounted for when the premium is written rather than when the premium is received by the insurer or by an agent on his behalf. The amendment enables the date of the writing of a premium to be the tax point if that happens before the premium is received.

In the explanation that I gave in Committee of what was then new clause 15, about the advantages and disadvantages to an insurance company of having a premium written arrangement, that was assumed, but the amendment confirms that it will be possible for the regulations to make such an arrangement. It would be confusing to an insurance company to have a written premium or cash, whichever was the later, in the case of a specific transaction. It is obviously better for the company to go wholly on to the written premium basis from every point of view. Without the amendment, that might not be possible. It clears up a doubt.

Mr. Darling : This is technical stuff, but it is important. I understand the Paymaster General's argument. Of course all members of the Committee welcomed the Government's agreement to allow the tax to be discharged on the basis of the date on which premiums were written.

However, if I read amendment No. 38 correctly, it could also cover a situation in which tax would be payable whether or not the premium was ever received. I simply want to check with the Paymaster General whether that is intended. As I understand it, the tax point is the date on which the premium is written, but the phrasing of the amendment suggests that if the premium is written but no cash is ever received, none the less tax would be payable on the unpaid premium. Am I right in assuming that ?

Sir John Cope : No ; I am glad to be able to reassure the hon. Gentleman. If tax is accounted for on a premium written basis and premium is not received by the insurer or on his behalf, the insurer can claim credit for the tax when he makes the adjusting entry to cancel the premium from his books, and it then comes off his insurance premium tax,

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for that accounting period. It may be a later accounting period ; in some cases it will be in the same accounting period ; but he does not eventually suffer the tax.

Mr. Darling : Just to be sure, it means that the tax is payable at the tax point, if at a later stage, rather similar to the case in which VAT is not recovered--a credit can then be claimed by the company if it turns out that it has to write off the premium.

Sir John Cope : That is correct.

Amendment agreed to.

Clause 70 --

Interpretation : taxable insurance contracts

Mr. Darling : I beg to move amendment No. 43, in page 52, line 35, leave out from beginning to end of line 44 on page 53 and insert A taxable insurance contract is any insurance contract that may be prescribed.'.

Madam Speaker : I understand that with this it will be convenient to discuss the following amendments : No. 40, in page 52, line 44, at end insert

(ba) the contract relates only to a motor vehicle where the conditions mentioned in subsection (2A) below are satisfied ;'. No. 41, in page 53, line 22, at end insert

(2A) The conditions referred to in subsection (2)(ba) above are that

(a) the vehicle is used, or intended for use, by a handicapped person in receipt of a disability living allowance by virtue of entitlement to the mobility component or of a mobility supplement, (b) the insured lets such vehicles on hire to such persons in the course of a business consisting predominantly of the provision of motor vehicles to such persons, and

(c) the insured does not in the course of the business let such vehicles on hire to such persons on terms other than qualifying terms.

(2B) For the purposes of subsection (2A)(c) above a vehicle is let on qualifying terms to a person (the lessee) if the consideration for the letting consists wholly or partly of sums paid to the insured by

(a) the Department of Social Security,

(b) the Department of Health and Social Services for Northern Ireland, or

(c) the Ministry of Defence,

on behalf of the lessee in respect of the disability living allowance or mobility supplement to which the lessee is entitled.'. No. 48, in page 53, line 22, at end insert

(l) the contract is Creditor Insurance, being a contract which provides specified benefits to protect income or financial commitments in the event of persons becoming incapacitated in consequence of sustaining injury as a result of an accident or sickness or infirmity or becoming unemployed.'.

No. 42, in page 53, line 41, at end insert

(7A) For the purposes of this section

(a) "handicapped" means chronically sick or disabled ;

(b) "disability living allowance" means a disability living allowance within the meaning of section 71 of the Social Security Contributions and Benefits Act 1992 or section 71 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 ; (c) "mobility supplement" means a mobility supplement within the meaning of article 26A of the Naval, Military and Air Forces etc. (Disablement and Death) Service Pensions Order 1983, article 25A of the Personal Injuries (Civilians) Scheme 1983, article 3 of the Motor Vehicles (Exemption from Vehicles Excise Duty) Order 1985 or article 3 of the Motor Vehicles (Exemption from Vehicles Excise Duty) (Northern Ireland) Order 1985.'.

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Mr. Darling : In Committee, we had quite a long debate on what constituted a taxable insurance contract, and it was the Opposition's view, and I think the view of one or two Conservative Members, that the Government should specify what an insurance contract was. The Paymaster General will recall that we cited the example of an Automobile Association or Royal Automobile Club premium, where the premium payable covered not only insurance services but the receipt of maps and other benefits. Equally, we discussed the case of someone buying a car who might receive a warranty on certain parts of that car, if not the car itself, and the question arose whether a warranty was a contract of insurance.

The Government's position, as I understand it, is that, although they could not describe an insurance contract, rather like an elephant, they knew one when they saw one. I do not want to misrepresent the Government's position, but, as I understand it, that is what it is. The Paymaster General said a number of times that, although a contract of insurance was defined nowhere, it was well settled. He said that he wanted to rely

"on definitions that are tried and trusted"--[ Official Report, Standing Committee A , 8 March 1994 ; c. 570.]

Given that the tax is being levied at 2.5 per cent., I am prepared to accept that at this stage there is unlikely to be widespread avoidance or evasion of it. But many people believe that 2.5 per cent. is simply the start and that successive Chancellors may seek to increase it. Many people may then try to avoid the tax by the granting of warranties rather than contracts of insurance. As I said in Committee, we could rely on clause 51, which makes it clear that the only person who can charge insurance is the insurer, and an insurer is defined in the Insurance Companies Act 1982. So the Government may be able to meet our objection by saying that the problem would not arise because insurance premium tax is payable by an insurer under clause 51.

I do not expect the Government to accept the amendment, which has been tabled simply to put down a marker for the future that the Government should define a contract of insurance. It is not just us who say that. Various professional bodies as well as people in the industry have suggested that it might be useful if, in a future Finance Bill, the Government were to spell out the meaning of a contract of insurance. It is not fanciful to think that, in future, individuals may want to get round paying motor insurance--for example, by covering through warranty certain parts of a car and even, ultimately, the theft of a car.

This probing amendment simply puts down a marker for the future. If, as I suspect, the Minister urges the House to reject it, I hope that he will undertake to consider the matter and table an amendment in a future Finance Bill or some other appropriate Bill.

It may be appropriate to say a word about the amendments tabled by the hon. Member for Exeter (Sir J. Hannam). I understand his intention to exempt certain vehicles used by handicapped people. His interest in the matter is well known and I appreciate what he is trying to do. I imagine that he, too, suspects that insurance premium tax will not remain at 2.5 per cent. and is concerned that disabled people, who are already hard pressed, will face increasing bills as a result of insurance premium tax. I doubt whether he will have much joy with the Government, although he may know something that I do not know, but we wish him all the best in moving his amendments.

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Sir John Hannam (Exeter) : Amendments Nos. 40, 41 and 42 in my name and that of my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) seek to exempt from the new insurance premium tax a specific and important group of disabled drivers who lease their adapted vehicles through the excellent charity, Motability.

I need not remind hon. Members of the importance of the Motability organisation. Most of us have, at some time, taken part in ceremonies to hand over the keys of vehicles provided by Motability to happy disabled recipients.

Originally, the Government provided the much-criticised invalid trike to disabled drivers. That was withdrawn in 1976 and the mobility allowance was introduced. Motability was set up as a charitable organisation--it is now a royal charity--to help those in receipt of mobility allowance to obtain vehicles of their own to replace the trikes.

Four group schemes are run by Motability : first, for those who lease a new car from Motability ; secondly, for those who buy a new vehicle on hire purchase ; thirdly, for those who buy a used car on hire purchase ; and, fourthly, for those who buy a wheelchair on hire purchase. Those with hire purchase agreements make their own insurance arrangements for their vehicles. But about 160,000 disabled drivers who lease cars are covered by Motability's block insurance policy.

The cost of the leasing and the vehicle insurance is covered by the mobility component of the allowance paid by the Government--the disability living allowance. It would be extremely hard for that group of disabled drivers to pay for new insurance taxes. Therefore, Motability is seeking to work out with my right hon. Friend the Paymaster General some way of exempting that group from the tax. The amendment will achieve that.

In addition to that group of 160,000, there is a small category of 1,500 severely disabled drivers who, although they purchase their vehicles through the Motability hire purchase scheme, are so severely handicapped that their cars need substantial and expensive adaptations. Their vehicles are often larger and non-standard. We often see the vans and trucks that are adapted for them.

The distinct group of about 1,500 severely disabled drivers is catered for by Motability, through a special Motability equipment fund, which provides special grants to assist with the high cost of adaptation. Motability is desperately anxious that the needs of that small group should be exempted from the tax. It has every hope that my right hon. Friend can find a way of achieving that. Special Treasury arrangements would be needed to ring-fence the group. Motability intend to assist by rearranging that category of insurance under its own banner to help facilitate the ring-fence provision. I thank Lord Sterling and Treasury Ministers for the help that they have given Motability over this serious problem. I hope that the amendments will be accepted by my right hon. Friend.

Mr. Dafydd Wigley (Caernarfon) : I am pleased to support the amendments of the hon. Member for Exeter (Sir J. Hannam). We all come across numerous constituents who depend on vehicles that have been provided under the Motability scheme. Over the past week I have been dealing with the case of a considerably disabled constituent. The significant costs of adaptation involved in that case are relevant to the comments of the hon. Member for Exeter.

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Often the cost of a disability is compounded by the disabled person's mobility requirements. Any increase in charges that might arise as a result of the provisions in this year's Finance Bill and which had an adverse effect on that group of people would be highly regrettable. It would hit people who cannot afford to pay. The Government would be under significant pressure to increase the level of mobility allowance payable under the disability living allowance scheme to compensate. If they did so, they would encounter problems about where to draw the line.

It would be simpler and more straightforward for the Government to accept the amendments or table amendments of their own exempting people who would be hit by the tax. We could all give examples that would graphically bring home the needs of people for mobility and their dependence on the Motability scheme. Motability faces increasing costs, and those who depend on the scheme may be unable to obtain everything that they want due to the cost. Every additional £1 of pressure is unwanted and should be avoided.

No doubt the Minister will have sympathy with that category of people, and I hope that he will find it possible to help them. The measure will have only a limited effect on the revenue raised by the Treasury. I imagine that it will be a relatively small amount relative to the global sums that the Treasury wants to raise through the tax changes. I hope that the Minister will be able to find a way of accepting the amendments or come forward with another positive proposal that has the same objective. I am pleased to support the amendments of the hon. Member for Exeter.

4.30 pm

Mr. Edward Leigh (Gainsborough and Horncastle) : I declare an interest as I am a consultant to Pinnacle Insurance plc. My amendment is tabled to clause 70(2), which lists the types of insurance cover that are exempt from insurance premium tax. I wish to add a further exemption to the list--creditor insurance.

Creditor insurance is designed to protect income and repayment commitments such as mortgages, loans and credit cards against death, disability and unemployment. For example, if an individual purchased a car using a loan, the credit insurance policy would make the monthly loan repayments for him if he became unemployed or was disabled as a result of an accident or sickness. In the event of death, the loan would be repaid. Similarly, under a mortgage creditor policy the mortgage payments would be made by the policy if the borrower became unemployed or disabled.

The benefit of that sort of insurance is that it prevents people from falling into arrears on mortgages, loans and other financial commitments, thus protecting a family's income stream. That has a knock-on effect in reducing the need to repossess houses or property as people with creditor insurance are less likely to default on their payments. It also reduces reliance on the state to pay the mortgage for them. The safety net of creditor insurance allows consumers to embark upon major purchases with confidence because, if they are unlucky enough to be made redundant or to have a serious accident or illness, the creditor policy will ensure that they can carry on making their payments.

Following the consumer boom and the recession, creditor insurance will help consumers to overcome their reluctance to make a major purchase. It will also boost the

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housing market and will be generally helpful to the economy. Consumers who do not take out such insurance will have to rely on their savings or fall back on the state if they become unemployed or disabled. Creditor insurance allows purchasers to maintain their savings and investment programmes and not to have to draw on them in unfortunate circumstances.

Why do I believe that creditor insurance should be exempt from insurance premium tax ? IPT is a tax on general insurance policies, but life insurance policies are exempt. My right hon. Friend the Paymaster General has said that IPT should apply at a low rate over a wide base, with few exemptions. To exempt creditor insurance would not set a precedent for other exemptions, as this is a unique situation. The exemption would clarify, not confuse.

There are a number of social and economic reasons for exempting creditor insurance from IPT. First, it should be exempt because it is really life business. Before the first EC insurance directive, most creditor business in the United Kingdom was classified as life business. It was transferred to general insurance only because of the need to comply with the directive. My right hon. and learned Friend the Chancellor has already exempted life insurance from IPT. It is just a quirk--nothing less--of insurance classification that creditor insurance is not already exempt.

Unlike other general insurances of possessions and property, creditor insurance is insurance of the person. It can include a combination of life, accident, sickness and unemployment cover. The life element is already exempt from IPT. Furthermore, some of the accident and sickness cover will be written in the long-term fund--for example, policies in excess of five years--and is then cover classified as permanent health insurance. The remaining accident, sickness and unemployment cover is classified as general business and therefore subject to IPT.

As creditor insurance is a composite product, it is ridiculous to have to split the various elements. I appreciate my right hon. and learned Friend's concern that special exemptions produce borderline cases and confusion. I know that the Treasury always wishes to avoid that. However, I understand that creditor insurance is the only significant insurance product that spans both life and general classes. It is the only wholly UK product where premiums will need to be apportioned between exempt and non-exempt risks.

The Government have been concerned with the practical issues arising from the implementation of IPT and they have tabled various useful amendments to deal with practical problems. However, the anomaly to which I refer still exists. Making creditor insurance exempt will be clear cut and rather than create confusion it will alleviate it.

Secondly, creditor insurance should be exempt from insurance premium tax because the playing field will not be level throughout the union. Other European Union countries treat accident and sickness cover as life business for premium tax purposes. In Belgium, for example, that element of general cover would be treated as complementary cover if written with an associated life contract, and would not be subject to premium tax. Hence, what is treated as life business for premium tax purposes differs from country to country, despite the harmonisation rules. That could create major problems in future.

Thirdly, creditor insurance should be exempt from IPT because the policy benefits are already taxed. Accident and sickness benefits can be captured for taxation under the rules relating to permanent health insurance.

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Fourthly, creditor insurance should be exempt from IPT because the playing field will not be level between banks, building societies and insurance companies, and the cover offered could well become self-insured by credit institutions such as banks and building societies.

The cost of providing a waiver of payments in the event of the disability or redundancy of a customer could be met by increasing the interest rate charged to the customer. For example, a typical creditor product providing disability and redundancy cover could be offered by adding an extra 1 per cent. to the interest rate charged to the customer, so a bank normally charging 8 per cent. could provide a payment waiver by charging 9 per cent. instead. As it is a waiver of payments and not an insurance contract, IPT would not be payable, so banks providing such cover would have a price advantage over insurance companies of, currently, 2.5 per cent. of the gross cost. The advantage may appear to be small, but it is roughly equivalent to the profit margin operated by insurers under creditor business.

If the tax rate increases in future--everyone suspects that that is almost certain--the advantage will become more significant, so an unfair advantage is now being given to banks and building societies over insurance companies.

A similar position applies to surety bonds, which when offered by banks and building societies are not insurance. Ministerial confirmation has been given that surety bonds and similar contracts of guarantee written under general class 15(b) are not insurance contracts for the purposes of IPT.

It could be argued that there is an easier way of correcting the anomaly for creditor insurance. The IPT legislation could be changed so that banks offering such a waiver have to pay IPT. That may attract the Treasury in terms of extra revenue. However, it would require new legislation to include those contracts within the IPT net. It effectively extends IPT beyond insurance and it would be difficult to define in practice, thus the only practical way of correcting the anomaly to which I have alluded, and I hope explained, is to exempt creditor insurance from IPT.

Charging tax on creditor business will distort the market, but will not bring revenue to the Exchequer because the way of providing cover will change. The Government will have nothing to gain by taxing creditor business.

Fifthly, creditor insurance should be exempt from IPT because the development of insurance products to complement state benefits will be hindered if IPT is charged on such products. This is a more political point. From 6 April, employers have to meet the costs of statutory sickness pay. One way of meeting that cost is via an insurance contract, so the prudent employer who takes out an insurance contract to cover statutory sick pay liabilities will not only have to meet the expected cost of sick pay, but will have to pay tax on it.

We have seen Government interest in encouraging the private sector to assume a greater role in providing what are currently state insurance benefits for accident, sickness and unemployment. My right hon. Friend the Chief Secretary to the Treasury is on the Front Bench ; I know that this problem will be of interest to him and to my right hon. Friend the Secretary of State for Social Services. A range of creditor schemes could be offered by insurers to replace state benefits such as unemployment benefit, statutory sick pay, state invalidity benefits and income support. They could cover mortgage repayments,

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loan commitments, household bills and many others. Such schemes, if taken up, could greatly reduce the Government's expenditure on current state benefits. Such savings will far exceed the annual revenue expected from IPT on creditor insurance, which will represent only about 3 per cent. of the annual IPT income to the Exchequer. The imposition of the new tax, with a prospect of rate increases in future years, could make such creditor schemes less attractive to the private sector.

A new business is on the point of getting up and running and taking a huge load off the Government. It will deliver precisely what the Government believe is of utmost importance : it will involve the private sector in social insurance which is proving immensely damaging to Government finances. But at the very point when private insurance companies are prepared to provide this scheme and solve enormous problems for the Government, the Treasury slaps down a new tax. Hence it may not be worth while for private companies to become involved in this area in the future.

Even if the Government do not accept my more technical points about harmonisation between building societies and insurance companies, or my points about a level playing field in Europe and our insurance companies being disadvantaged, I hope that, in their general review of the social security system, they will take stock and consider whether they are doing the right thing or whether they are throwing out the baby with the bath water. I hope that, in my brief remarks, I have given a comprehensive account of why I believe that the Government should rethink their decision. I very much hope that they will do so.

Mrs. Diana Maddock (Christchurch) : I welcome the opportunity to support the amendments proposed by the hon. Member for Exeter (Sir J. Hannam). Insurance premium tax will hit us all, but I think that it will hit vulnerable groups, such as those with disabilities, particularly hard. My hon. Friends in the Liberal Democratic party and I oppose the whole idea of tax on insurance. But if it cannot be stopped in its entirety, we believe that we should try to help those who will be hit hardest.

I have already spoken at some length in the House against insurance premium tax. It is a very unfair tax. Not only does it tax something that we want people to do, both for their own benefit and for that of the state, but it taxes those who need insurance most, such as people who are unfortunate enough to live in crime black spots, and the elderly and disabled.

People with disabilities who can drive usually own specially made or adapted vehicles, and they need vehicles more than most. It is already expensive for them to buy a suitable vehicle and many of them have special mobility needs which are recognised in the mobility component of the disabled living allowance. People in receipt of that component are exempt from road tax and those who receive higher rates of mobility allowance can also nominate others for that exemption. That is a welcome recognition by the Government of the importance of mobility to people with disabilities.

The cost of adapting vehicles is very high. It is also difficult for many disabled people to purchase cheap cars. They often have to buy at the top of the range because they

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need cars with automatic gearboxes. It is estimated that 60 per cent. of disabled drivers need cars with automatic gearboxes. The mobility organisation which was set up at the instigation of the Government helps people with disabilities to use their higher mobility allowance to buy or hire cars. But the organisation admits that it will have to pass on additional insurance costs to customers. I have been told by at least one organisation which helps disabled drivers--the Mobility Information Service--that the mobility allowance currently does not cover the cost of hiring, let alone buying, cars. Disabled people who can drive need their cars more than the average person, so how can we possibly put extra obstacles in their path ? The Mobility Information Service estimates unofficially that people suffering from epilepsy commonly pay 15 per cent. to 20 per cent. extra insurance because they are considered to be a high- risk group. The cost goes much higher for people with other illnesses and disabilities. In addition, modified vehicles may attract higher insurance premiums.

Liberal Democrats believe that insurance premium tax should not be imposed at all because it is a tax on something that we should encourage, and we are very disappointed that the Government do not agree. But when it comes to disabled people, for large numbers of whom cars or electric wheelchairs are absolutely essential for an active and fulfilling life, taxing vehicle insurance is very much more than disappointing. I hope that the Government will find some way to support the amendments proposed today.

4.45 pm

Sir John Cope : The leading amendment in this group is No. 43, which was moved by the hon. Member for Edinburgh, Central (Mr. Darling). I must admit that the amendment rather surprised me, because it would delete a whole range of exceptions offered by the Bill. I accept that the hon. Gentleman moved it in a different spirit ; he described it as a "marker for the future". He said that he still thinks--although we have discussed the matter before--that the legislation should define what a contract of insurance is. I have told him in the past--I am still of that view--that the common law lays down what insurance is and hence what is taxable. I think that that definition is understood fairly well and I do not foresee any particular difficulty in interpretation. The hon. Gentleman asked, very fairly, that we keep the position under review, and I am happy to say that we will do that. I think that it is the correct thing to do, particularly when new taxes--such as this one and the airline passenger duty--are being introduced. I do not think that we shall need to change the legislation, but we shall keep it under review. My hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) and others said that, throughout the discussions in preparing the tax, we have believed in the principle of low rate and wide coverage. I think that that is the correct principle. For that reason, I am reluctant to go down the road that he suggests with regard to creditor insurance. I do not say for a moment that creditor insurance is not a worthwhile and prudent, and every other complimentary adjective that he can think of, form of insurance, and he made some interesting points about it. As

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I have said to the hon. Member for Edinburgh, Central and the House, we shall keep the details of the tax under careful consideration. The hon. Gentleman made some points which my colleagues--he referred to several of them--and I will consider very carefully. At one stage,, he said that banks and insurance companies should be treated in an even-handed way. I am very keen for banks and insurance companies to be treated in that way and we have discussed the matter before, in Committee. Indeed, we are having useful discussions with the British Bankers Association and others about the borderline between taxable insurance and guarantees and other financial circumstances that are outside the scope of the legislation.

It is already clear that few of the financial services provided by the banks will carry any insurance premium tax liability, but banks and insurance companies must be treated in an even-handed way. When an insurance company provides a guarantee or a service which is identical to that provided by banks, it will also be exempt under the legislation. Similarly, when banks provide true insurance services in the same way as insurances companies, they will be liable to insurance premium tax.

I am sensitive to what my hon. Friend the Member for Gainsborough and Horncastle said about the comparison between banks and insurance companies. However, I do not think that it would be right for me to recommend that the House support his amendment at this stage, although I promise that we shall examine it in the light of his remarks.

Mr. Leigh : That is extremely helpful. I believe that my right hon. Friend is saying that, if I were to provide evidence of how insurance companies were being put in an unfair competitive position in relation to banks and building societies or foreign competitors, he would consider it sympathetically. I am grateful for that.

Sir John Cope : I do not want to make any promises to my hon. Friend or to increase his hopes more than is justified, but I am certainly willing to listen to the new points that he has raised and to any further ones that he might add.

In our discussions on this tax, as in those on the airport duty, it has been my job to expose the hard face of tax collectors. I stand by the general position that we have adopted of a low rate and wide coverage. It is perhaps therefore not inappropriate, in the closing minutes of this part of the debate, if I display to my hon. Friend the Member for Exeter something that is seen more rarely--the Treasury's heart.

My hon. Friend has been supported by all the hon. Members who have referred to Motability. Motability itself and my hon. Friend the Member for Exeter have made forceful representations to us. Because of its unique position, Motability already has a number of special arrangements in taxation matters, and we think that it is right to extend them to the insurance premium tax. Therefore, I recommend that the House support the amendment moved by my hon. Friend the Member for Exeter.

Mr. Darling : All hon. Members will welcome the concession that the Government have made in respect of the amendment moved by the hon. Member for Exeter (Sir J. Hannam). People with disabilities already face formidable additional expense, and an exemption from insurance premium tax will be welcomed by everyone.

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As the Paymaster General said, amendment No. 43 is a probing amendment. It was not intended to be anything more but, in some ways, the right hon. Gentleman made my point when replying to those made by the hon. Member for Gainsborough and Horncastle (Mr. Leigh). The right hon. Gentleman said that the Government were engaged in discussions with the British Bankers Association about certain bank guarantees and the difficulties that might arise vis-a-vis them and certain insurance contracts. I shall not repeat the arguments made in Committee, but he must recollect that, in our exchanges on 6 March, the right hon. Gentleman had to reply to a number of instances where it was not clear whether something was insurance, a warranty or a guarantee. I still believe that at some point it would be useful for the Government to reconsider that matter.

Another reason that we should return to that point was highlighted by the hon. Member for Gainsborough and Horncastle, who went to the heart of the discussions that took place on Second Reading and in Committee. He mentioned the philosophical approach that we should adopt to insurance. I can understand why the Government, in their present state, looked around for something to tax in order to raise revenue, and realised that insurance, which, generally speaking, is taxed in the rest of the European Union, has not been taxed in this country until now. What the hon. Member for Gainsborough and Horncastle said about creditor insurance could equally be said about motor and household insurance.

Insurance is a social and economic necessity, and it is something that we should encourage. The hon. Member for Gainsborough and Horncastle made some good points about creditor insurance. He referred to prudent employers insuring against the sickness or illness of their employees. In Committee, we mentioned instances where the principal of a business might ensure against a long and debilitating illness because the business might collapse if that person was off sick.

They are good points, but the difficulty is that, if the Government allow exemption after exemption, the tax base shrinks. I fully accept that, and it is perhaps something with which the Government should have dealt before they sought to impose the tax. It seems that the Government looked for something to tax, found that insurance was exempt and decided to impose IPT. It might have been useful if, before they had done so, we had debated the philosophical approach to insurance.

Mr. Leigh : The hon. Gentleman is making a good point. I am sure that the House accepts that the Government are in an impossible position : whatever arguments are advanced, they do not want more exemptions, which complicate the system. Does the hon. Gentleman accept my point that creditor insurance is unique because it is a mixture of life and general policy ? Trying to take it out of life policy and put it under general policy is unfair and merely confuses the issue. Would it not simplify the issue if creditor insurance was exempted ?

Mr. Darling : I appreciate the hon. Gentleman's argument, but my recollection is that there is provision in this part of the Bill for hybrid insurance, where there is a mix of short-term and long-term insurance contracts. I see that the Paymaster General, who has probably read this part of the Bill more recently than I have, appears to be nodding in assent. There is provision for exemption, but I readily accept that a case can be made for creditor insurance.

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Indeed, we tabled probing amendments in Committee which made similar points to those made by the hon. Member for Gainsborough and Horncastle.

However, as I said, the same arguments can be advanced for motor insurance, because it is not in society's interest for people to drive around without paying their insurance. Nearly 40 per cent. of people in London do not have household insurance. Some people cannot get it, which is another issue that we have not discussed. We all agree that people should take out insurance. Many people want to do so but cannot get cover, because companies will not give a quotation or will quote a price that people cannot afford. The problem has been mentioned in the newspapers and the Government should have regard to it.

However, the central point raised by the hon. Member for Exeter, which can be canvassed under amendment No. 43, is that the House tends to legislate first and think about the consequences later. In this case, it might have been useful to have examined the consequences and the approach that we should take to insurance before imposing tax. Taxation has consequences, a notion with which the Government have not dealt.

I understand the Government's problem. They still have to deal with the highest public sector borrowing requirement that this country has ever had and, of course, their past mistakes have to be paid for. People who pay premiums on insurance contracts have to contribute. I understand the Government's desperate plight in trying to raise money but their actions will have consequences that the Government have either not realised or on which they are not prepared to focus. The Paymaster General can indeed say with some force that, at the moment, the rate is only 2.5 per cent., but how many of us believe that the rate will stay the same ? The Government are committed to indirect taxation. If there is a choice between direct and indirect taxation, they will return to insurance premium tax. We did not call insurance premium tax "VAT on insurance" for nothing. If it had not been for a European directive, I am sure that VAT would have been imposed on insurance. The proposed tax will have a damaging effect on many people who have to pay insurance. Amendment No. 43 would have allowed the House to focus on the effects of the tax because we could have dealt with the philosophical approach to be adopted. Clearly, the Government decided to exempt long-term or life insurance for very good reasons, and no one would argue that it should be taxed. Nor would anyone argue that pensions, which are a form of insurance, should be taxed. Private pension provision and state provision are complementary ; they go hand in hand and should be encouraged. However, general insurance is important and has social and economic effects, which is why we opposed the introduction of the new tax on Second Reading and in Committee. I understand why Conservative Members are raising such matters. Although the Government can make exemptions, such as the welcome one made in response to the hon. Member for Exeter (Sir J. Hannam), when wider exemptions such as those for creditor insurance are made, the tax base shrinks.

The Minister said that he wanted a low rate with wide coverage. I guess that in future there will be wider coverage and higher rates. In most people's experience, once a tax is imposed it is not removed. We now have a

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