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Firearms (Amendment) Bill

Again considered in Committee.

To report progress and ask leave to sit again.--[Mr. Jamieson.]

Committee report progress; to sit again tomorrow.

16 Jun 1997 : Column 90

Private Medical Insurance (Tax Relief)

Motion made, and Question proposed, That this House do now adjourn.--[Mr. Jamieson.]

8.12 pm

Mr. Nigel Waterson (Eastbourne): I begin by welcoming the Financial Secretary to her new responsibilities, and by wishing her well. I raise this issue tonight because I received several letters during the recent election campaign from elderly constituents expressing concern about Labour and Liberal Democrat proposals to scrap tax relief for private medical insurance. Perhaps I should also declare a sort of interest in the debate: the law firm I founded has a corporate private health scheme for staff. I have a constituency interest also, as Private Patients Plan is a major and respected employer in Eastbourne.

My hon. Friend the Member for Woking (Mr. Malins), who is not in his place, wished to be present for my Adjournment debate, as he is the sponsor of early-day motion 26 concerning tax relief for medical insurance. However, illness in the family has sadly prevented his attendance tonight. I know that he takes a close and detailed interest in this issue.

For once, we have a clear pledge from the new Labour Government: in this case, to abolish private medical insurance. In opposition, Labour made no secret of its hostility towards it. It might be helpful to examine the background to this issue. The White Paper, "Working for Patients", which was published by the previous Government in January 1989, set out the growing importance of the private medical insurance sector in this country. It referred to


There is no general tax relief for the costs of private health care, but tax relief is given for private health insurance for the over-60s. That relief is given by making a deduction from the amount of the premiums due, so that even non-taxpayers benefit.

In the 1989 Budget, the then Chancellor, Nigel Lawson, announced that the relief would come into effect from April 1990. In the November 1993 Budget, the then Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), announced that the relief would be limited to the basic rate of tax with effect from April 1994.

One obvious reason for limiting the relief at that time was that it had become quite expensive because it had become popular. The total cost of relief is estimated at £120 million in 1997-98. That sum is payable in respect of some 400,000 contracts, providing cover for about 600,000 individuals. When the relief was introduced, only 400,000 individuals were covered--so it is easy to see the rapid rise in its popularity.

It is estimated that 5 per cent. of the population of the United Kingdom over the age of 60 have a tax relief PMI plan. In my constituency, there are some 600 subscribers--involving 1,150 people, as obviously some policies cover a couple or a family--to PPP alone. The number of my constituents who have plans with other

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providers--I gather there are about 30 in the market at present--will be much higher. I have no doubt that a high percentage of those subscribers are over 60. According to recent statistics, some 40 per cent. of voters in my constituency are over retirement age.

The growth in the appeal of private medical insurance to the over-60s is interesting. As the Association of British Insurers has pointed out, three factors might lead one to expect that fewer older people would be covered by medical insurance. Those issues were addressed in the 1989 White Paper.

The first factor is the increased cost of insurance as one grows older. Secondly, as a rule, that portion of the population does not have access to employer-provided insurance. Thirdly, the over-60s tend to have less disposable income than those in full-time employment. Therefore, it is reasonable to conclude--as the ABI did--that the tax relief on these premiums is a major factor in encouraging a high level of take-up among the over-60s.

Labour spokesmen often try to drive a wedge between the NHS and private health provision for purely dogmatic reasons. The fact is that the two ways of providing health care in this country are complementary, and--as I shall demonstrate in a moment--a substantial fall in private health provision could cause major problems for the NHS. We should remember also that elderly subscribers to PMI have supported the NHS throughout their working lives by paying tax and national insurance contributions. They have made a personal decision--a choice--to use some of their spare resources to acquire PMI cover. The Government want to abolish that choice.

There is also considerable logic in providing tax relief only for the over-60s because, first, premiums naturally increase with age; and, secondly, upon retirement, people often take over the payment of premiums after leaving a corporate scheme. Tax relief therefore helps to ease the transition from the world of work to retirement.

There is no doubt that private medical insurance carries a major burden in terms of health care for the over-60s. We know that 80 per cent. of the premiums paid on such plans are paid out in treatment costs. The private sector now treats 28 per cent. of all hip operations, 20 per cent. of all heart conditions and 20 per cent. of all acute conditions.

Figures provided to me by Prime Health show that 6,840 hip or knee-joint replacement operations alone were carried out in the past eight months, at a cost of about £40.5 million. The average stay in hospital was 10.85 days for this procedure, equating to a potential of nearly 72,000 days' accommodation for hip and knee-joint replacement patients.

Apart from hip replacements, other common procedures such as cataract removal, coronary bypass and prostatectomy operations carried out on customers increased by no less than 30 per cent. in 1996 over 1995.

I have already said that people already expect their premiums to increase as they grow older. There are also yearly adjustments for inflation. The ABI tells me that that means that there is already a natural incidence of lapses in cover and what is called trading down, which is buying a policy with lesser benefits.

My argument is that policyholders know in advance that their premium costs are likely to increase, and can therefore budget and plan to meet likely increases.

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The ABI tells me that the industry average for the lapsed rate is between 5 and 10 per cent., rising to between 15 and 20 per cent. when age-related increases are made to the premium rates.

The removal of tax relief at 23 per cent. means that policyholders will in effect pay an extra 30 per cent. According to Prime Health, its research has shown that, when an increase of 30 per cent. was mentioned, 35 per cent. of policyholders said that they would cancel their policies or look for a replacement policy. According to the ABI, some companies estimate that up to 50 per cent. of policyholders would lapse their policies.

That is not all. There is also what the ABI calls a domino effect. As the number of existing PMI policyholders decreases, an additional burden will be placed on remaining contributors. That in itself would increase the cost of premiums yet further, causing even more policyholders to lapse their cover. I am told that there would also be significant administrative costs to the insurers in abolishing tax relief.

But, I hear you ask, Mr. Deputy Speaker, "Does this matter?" Surely these people could revert to relying on the NHS for any medical care they needed. Well, let us remember that we are talking about an age group of whom many will already have a pre-existing condition, which in turn makes it difficult for them to shift health schemes or trade down, or who, because of their age, are more likely to develop health problems than younger sections of the population.

National health service hospitals such as my local district general hospital would suffer if the Chancellor of the Exchequer removed the relief. Thirteen pence in every pound paid out, for example, by PPP goes to the NHS. That amounts to about £220,000 paid to the NHS by PPP alone every working day, or £55 million a year. That is only one company.

I do not have the figures for all the other companies, including, for example, BUPA, but no doubt the Minister will be able to supply them in her reply. The point is that the Government would have to find additional resources merely to maintain the financial status quo. Additional costs, which are difficult to quantify, would also arise for the NHS because many subscribers are elderly and require expensive treatments, and more often.

I hope that the Minister has her own best estimate of the revenue stream that would be lost, and also the knock-on costs of many current elderly subscribers reverting to health care on the NHS.

Mr. Geoffrey Clifton-Brown (Cotswold): I am sorry to interrupt my hon. Friend. I am listening with great care to what he has to say. I wonder whether, in his research, he has carried out any costings on the differential between abolishing tax relief on private medical insurance and the cost to the national health service of those people who will inevitably have to opt out of PMI and into the NHS, thereby costing the NHS a considerable sum. Is he able to tell the House the sums involved?


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