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Mr. Waterson: I am grateful to my hon. Friend, who in his inimitable fashion has put his finger on the central issue. It is easy to draw attention to the figures on the one side, which are the savings to the Treasury. I think that the Minister referred to them in a written answer recently, and stated that they would amount to £120 million.

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On the other side of the equation are two significant areas of costs. Direct revenue will be lost from the private sector to the NHS on a daily and yearly basis. In addition, there will be all the additional costs to which my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) has referred, as a result of policyholders opting out and lapsing their policies, and relying on the NHS instead. That is the key point.

The plain truth is that there is a massive contradiction at the heart of the new Government's policy on this issue. My right hon. and hon. Friends will well remember that, during the election, the Labour party made five major pledges, one of which was that it would cut NHS waiting lists by 100,000. I think that Labour party members even carried little cards setting out their five major pledges. In fact, their proposal to abolish tax relief for PMI would put greater strains on NHS resources.

In my constituency, with a high proportion of elderly residents and many PMI subscribers, I have little doubt that waiting lists would lengthen, not least because some of the elderly who were previously relying on private health care would be waiting for difficult and expensive treatments from the NHS. I must stress to the Minister that the constant theme in the letters I have received on the subject from constituents has been that it was tax relief that made the cover attainable, and that removing it would make all the difference as to whether they could continue paying their premiums.

The Government may rethink their proposal--I certainly hope they will--but if, for what are clearly dogmatic party political reasons, they are determined to proceed, may I urge upon the Minister the ABI's view that, at the very least, the withdrawal of the tax relief should be phased? There has already been a reduction in the maximum tax relief from 40 to 23 per cent. There was a similar staged reduction in tax relief on mortgage interest, which is a useful parallel.

I have already said that the relief costs about £120 million a year. Against it, as my hon. Friend the Member for Cotswold has said, must be weighed the extra costs to the NHS of subscribers who give up their PMI as a result of losing relief. As I have described, we could be talking of up to 300,000 people. The Minister's reply will be entirely meaningless unless she can tackle that specific question, and in detail. There are worrying parallels with other Government policies, such as the recent Bill to abolish the assisted places scheme. Like that measure, the one that we are discussing is petty and vindictive, with no tangible saving. It has at its heart the desire to remove choice.

The proposed measure is yet another policy initiative that has not been properly thought through. Perhaps it should join the ever lengthening queue of reviews promised by the Government. It is yet another attack on pensioners in our society. We may well see an attack on private pension provision in the forthcoming Budget. Now it is being suggested that pensioners should pay prescription charges, and that those going into hospital or being visited by a general practitioner should also be charged. None of these dramatic departures from the founding principles of the NHS appeared in the Labour manifesto.

Mr. Clifton-Brown: I am sorry to interrupt my hon. Friend again. Is it not at the heart of the issue that

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pensioners whose income is on the margin will have to relinquish their private health schemes? We are talking not of wealthy pensioners but of those whose income is at the margin. That is what is so cruel.

Mr. Waterson: My hon. Friend is absolutely right. As I have described, it is just one of a series of measures that the Government have brought forward, or will bring forward, that will have the effect of disadvantaging pensioners in my constituency, in my hon. Friend's constituency, and across the country.

I urge the Government not to break faith with pensioners in respect of private medical insurance.

8.29 pm

The Financial Secretary to the Treasury (Dawn Primarolo): I congratulate the hon. Member for Eastbourne (Mr. Waterson) on securing the debate. He made a number of interesting points about tax relief for private medical insurance, to which I paid careful attention.

I realise that tax relief on private medical insurance is a matter of some interest to many of the hon. Gentleman's constituents, and I hope that he will understand if I do not comment on the possibility of any future tax changes affecting this relief. It would not be appropriate for me to anticipate in any way what my right hon. Friend the Chancellor of the Exchequer may do in his forthcoming Budget. I am sure that, in this, the hon. Gentleman had no great expectations.

Tax relief for premiums paid on private medical insurance for the over-60s is of fairly recent origin. It was introduced only in 1989 and took effect from 1 April 1990. When it was first introduced, as the hon. Gentleman said, relief was given at both the basic and higher rates of tax. That did not last long. Relief at the higher rate was withdrawn with effect from 6 April 1994 in relation to payments made on or after that date.

That change reflects, perhaps, a less than total commitment to the relief by the then Government. It is certainly true that, when the relief was first introduced, there were reservations even on the Conservative Benches about whether it was right to give such a tax relief. Indeed, on Second Reading, the previous hon. Member for Beaconsfield expressed "major reservations" about the introduction of such a tax relief.

The tax relief is not unconditional. There are restrictions about the type of treatment that can be included if payments under a contract of insurance are to qualify for the relief. To qualify, a private medical insurance contract can offer only certain approved benefits, which, broadly speaking, are limited to medical and surgical treatments of a kind normally available in the national health service.

When the relief was introduced in 1990, the then Government stated that they intended the relief to encourage the take-up of medical insurance by older people. Arguments against the relief centred on the fact that the cost was largely what is known as dead weight. It would primarily benefit those who had already taken out medical insurance or who would have done so anyway. Events have largely confirmed the truth of that concern.

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In the period from 1990-91 to 1996-97, the estimated number of contracts rose by only 25,000, from 350,000 to 375,000. The number of people covered by such contracts rose, on our estimates, from about 500,000 to 550,000. It seems that the cost of this relief continues to be largely dead weight--that is, going to people who have already decided to take out medical insurance. In addition, a tax relief for a select group of taxpayers ran counter to the policy of having a broad tax base and low rates. That was the stated policy of the then Government, but they chose to make an exception in this instance.

Let me assure the hon. Gentleman that the Government are not opposed to private medical treatment; it clearly has a part to play in the care of people in this country.

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The public sector, which is supremely important in its provision, can have a good working relationship with the private sector.

I assure the hon. Gentleman that I have taken note of all his comments and concerns on behalf of his constituents, and that any of my right hon. Friend's decisions will be based on effective and genuine need and on a proper assessment of what is best for the taxpayers of this country. I assure the hon. Gentleman that the Government intend to support the health service, to continue to support the lowest-paid pensioners, and to do nothing to undermine their access to the national health service.

Question put and agreed to.

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