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Mr. Quentin Davies: One always tries to avoid technical terms in this place, but the hon. Gentleman mentioned price elasticity of demand. Underlying the Minister's presentation of the Government's case is the clear assumption that price elasticity of demand for health care insurance is precisely zero. Does the hon. Gentleman agree that that is fundamentally implausible? Can he think of any commodity on God's earth for which the price elasticity of demand is literally zero, because it is only in that context that the hon. Lady's remarks make any sense?
Dr. Cable: The hon. Gentleman is right; I can think of no such commodity. The logic of the Budget suggests that the Government believe that behaviour can be changed through taxes and tax incentives. The purpose of increasing petrol taxes was to discourage motoring; the purpose of increasing excise duties on cigarettes was to discourage smoking; and the purpose of reducing MIRAS was to dampen the demand for housing. We know from experience that any impact is likely to be relatively small, but not zero. That is the point of my contribution.
In the absence of any sensible estimates, we have to work with the rough arithmetic we have been given. My understanding is that the cost to the Treasury of this tax relief is about £120 million to £140 million. I also believe that the total annual pay-out for medical insurance is about £400 million, so it would require only a quarter of the insurers to drop out of the scheme to eliminate completely the gain to the Treasury from the abolition of relief.
We have to put that in the context of the overall health service budget. The Liberal Democrats have been labouring to bring to the Government's attention the marginal position of the health service budget. On the basis of estimates produced by the Library, we believe that increased inflation will cut the health service budget in real terms by £400 million this year. After the additional injection of cash, the budget may be increased by about £420 million next year.
Mr. Ross Cranston (Dudley, North):
I start with a digression. The hon. Member for Daventry (Mr. Boswell) referred to my contribution yesterday. When winding up last night, he quoted Shakespeare. I should have thought that a close study of Shakespeare would have given him an appreciation of the use of irony, but apparently not.
The hon. Gentleman also does not seem to appreciate the impact of the defeat that his party suffered on 1 May. He has not realised that our victory was so massive because we appealed to the many rather than the few. The tax relief that we are talking about benefits very few--little more than 500,000 individuals. Only the relatively affluent can take out private medical insurance. The hon. Gentleman quoted a premium of £133 a month. Most people over 60 in my constituency cannot afford £133 a month.
A great deal has been made of the possible impact of the measure on the national health service. The Conservative amendment would defer the removal of the relief until the impact on the NHS has been assessed. There can be some speculation about the possible impact of the measure. There seems to be a price inelasticity. Many of those who are already taking out private medical insurance will continue to do so. I think that the hon. Member for Grantham and Stamford (Mr. Davies) finally grasped that a moment ago.
The insurers have made various assessments of the impact on the NHS. PPP suggested that the measure would increase NHS waiting lists by more than 100,000. Western Provident said that the added cost to the NHS would be as high as £300 million. BUPA has given a different estimate. If the insurers are unclear about the impact, I suggest that we should not postpone the measure for an assessment that will not be clear for a number of years.
I was taken by the remarks of Mr. William Laing, a leading analyst in the area. He was quoted in the Financial Times as saying:
Mr. Cranston:
The hon. Gentleman does not seem to listen, quite apart from his inability to appreciate irony.
The hon. Member for Daventry made certain remarks about the aging population and the increasing demand on the health service that it would impose in coming years. There is certainly an element of truth in that.
The important reason why the Government have taken this measure is that it frees up money for other steps which will have an immediate impact on helping the elderly--especially, as my hon. Friend the Financial Secretary to the Treasury said, the reduction of VAT on fuel. On Second Reading, I gave some figures of the extent of fuel poverty. It is a serious problem, which causes very serious health problems among the elderly, and the Government have taken an immediate step on it.
In addition, as my hon. Friend the Financial Secretary to the Treasury said, this tax relief measure has been ineffective. It began in 1990. At that time, about 500,000 individuals took out private medical insurance. One estimate I have seen is that, in 1995, only 550,000 people took out private medical insurance; so there is little evidence that that relief has led to any significant increase in the purchase of private medical insurance.
Indeed, Mr. William Waldegrave, who is no longer in the House, following the voters' decision on 1 May--to take up a point raised earlier--argued at one point for the abolition of medical insurance premiums relief. He said that it had not increased take-up of private medical policies, and was expensive to administer. Conservative Members would benefit from sometimes taking into account what some of their former colleagues have said.
The expense of the measure has been referred to. According to the Red Book, it has cost about £560 million since its introduction in 1990. That is very significant. One reason why the cost has gone up is that insurance premiums for the elderly have gone up at three times the rate of those for everyone else. The removal of such an expensive measure will free up funds which, as I said, will more immediately benefit the elderly.
I oppose the amendment, and support the budgetary measure.
Mr. St. Aubyn:
I welcome the comments by my hon. Friend the Member for Daventry (Mr. Boswell), because some of the points he raised--I hope the Financial Secretary will take them on board--will have a direct impact on Prime Health, a major health insurance firm based in Guildford, and on many elderly people in my constituency.
I estimate that more than 5,000 elderly people in the Guildford constituency currently enjoy the benefit of the tax relief. In the light of what the Financial Secretary said this afternoon, I am concerned that if--or rather when, for I fear it will happen--some of those 5,000 people cancel their health insurance policies, because the removal of the relief has increased the costs so much, they will at some point make a claim on our local health service. When that happens, the many will suffer as a result, not just the few. Everyone who wants to use the health service at the Royal Surrey hospital in Guildford will suffer.
It should be understood that one of the reasons for delaying the implementation of the clause is that private health insurance benefits the whole community, not just those who take it out. It benefits the whole community, because it relieves the national health service of costs that it would otherwise have to meet.
Kali Mountford (Colne Valley):
What is your evidence for suggesting that all private medical insurance holders would be forced to use the national health service? I have had only one person in my constituency complain about the measure, on general grounds. What is your evidence to the contrary?
Mr. St. Aubyn:
I assure the hon. Lady that I have considerable evidence to the contrary. I have received almost as many letters on this subject as on any other that has arisen in the past few months.
Many of those who have written to me have said that they fear that they will have to stop receiving the benefit of private health insurance. They will have to rely on the local health service, and, as a result, they will impose a burden on it that all will have to share, if the speculative savings from abolishing the tax relief are to be diverted into changing the rate of VAT on fuel. It is obvious that those parts of the country with the most people having health insurance will have the most cancellations. The damaging results of the measure will hit all the people in such areas, including my constituency.
The Secretary of State for Health said earlier today--I wrote down his words as he said them--that, if there is a harsh winter this year, he will take responsibility. I will remind him of those words this winter when people who have had private health insurance in my constituency can no longer afford it.
"the amount of a typical PMI premium is far higher than the cost to the NHS of the treatment covered."
He went on:
"Taken together, this means the tax relief was ridiculous and could not possibly be justified in terms of savings to the NHS".
Mr. Swayne:
Does the hon. Gentleman agree that the most important testament is that of the voters? [Laughter.]
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