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5.15 pm
It is normal for annual policies to be renewed about a month ahead of the renewal date. By the cut-off point of 2 July, a month's worth of renewals had been contracted for between health insurers and their customers. By changing the rules and imposing a guillotine on the tax benefit, the Government will change those contracts after the event.
I ask the Minister to consider applying the old rules to such contracts, just as we apply the old rules and rates to property contracts that have been exchanged but not completed. That would be consistent with the conduct of the previous Government, and it should be the approach of this Government. If contracts have been exchanged, but the start date has not yet been reached, the provisional arrangements should allow for that situation. The wording of clause 17 is not clear, and I should be grateful if the Minister could clarify the point.
As my hon. Friend the Member for Daventry pointed out, more than half the business of some private health insurers will be affected if monthly contracts are not taken into account. Monthly contracts are a form of payment for health insurance over a year, and they have been specially approved by the Inland Revenue. Had the Government taken more time over the introduction of the measure, they could have spoken to the Inland Revenue and found out more about the situation before they made speculative and highly optimistic assumptions about the effects of the clause.
It is essential, in the interests of the Government's objectives, that monthly contracts fall within the transitional arrangements. If all the monthly contracts are denied relief from the end of this month, all the customers with such contracts will require consultations at once, instead of over the year as their contracts come up for renewal and the ending of the tax relief hits them. It is unrealistic to expect even Norwich Union, let alone any of the other insurers, to cope with half their customers at once calling to ask about less expensive insurance.
We can predict the consequences. Many of those people, because they will not receive adequate counselling, will take the only decision they can afford, and cancel their insurance contracts. As a result, the savings on which the Government's arguments are based will disappear in additional costs to the national health service.
The Financial Secretary has already pointed out that the measure will make a 25 per cent. saving. Only one in four of those currently enjoying the benefit of private health insurance will have to cancel for the Financial Secretary's entire calculations to be thrown out of the window.
We know that health insurance costs for the elderly have gone up by much more than inflation.
Mr. Derek Twigg (Halton):
Does the hon. Gentleman recall a report in the Financial Times on 24 April 1997 that the chief executive of Western Provident Association, Julius Stainton, had told a recent conference that insurers had only themselves to blame for the Labour party's plans for abolition, as many had used the introduction of the tax relief as a cover for a sharp increase in premiums for the elderly.
Mr. St. Aubyn:
The hon. Gentleman makes an interesting point. There is always a risk that a tax relief will be misused in some way. If that is the case, the Government should phase out the relief step by step over a number of years, and see what consequences that might have for the numbers involved.
Mr. St. Aubyn:
Let me answer the question.
I understand from the industry that the real reason why costs have gone up is that, as private health insurance has become more popular, the industry has no longer been able to subsidise the cost of elderly patients by charging more than can be justified in commercial terms to younger patients.
Mr. Boswell:
Does my hon. Friend agree that the costs in the national health service for provision for elderly patients have also risen sharply? To my recollection, when the age of 75 is reached, the annual cost to the public purse is about £1,300. It is not surprising that private medical insurance costs should have risen commensurately.
Mr. St. Aubyn:
My hon. Friend makes a good point. Over the past seven years, many of those costs have risen. In a commercial world, the increase in the cost of health insurance for the elderly primarily reflects market forces, not any effect of the tax relief. Despite the increased cost, the number of elderly taking advantage of health insurance has risen. Without the relief, the number would have fallen, and the costs to the health service would have been very much higher.
Mr. Twigg:
You cannot have it both ways. You said that, in that case, the Government should phase out the tax relief. Now you say that you agree that it should be phased out.
Mr. St. Aubyn:
It would be extremely unwise to phase out the tax relief at all, but you would be much wiser to phase it out over a number of years than to cancel it halfway through this year. That is the point that I was making.
My general point is that the rush with which the change is being introduced shows a greed on the part of the Treasury for which all patients--those who are well off and those who are not--will suffer. More people will make demands on the health service, and that demand has not been budgeted for this year or beyond. We will all suffer as a result. The proposal is damaging to the many, not just the few.
Liz Blackman (Erewash):
I begin by saying to Conservative Members that I am staggered that you have come to the House to talk about a relief that you implemented in 1990--
The Second Deputy Chairman of Ways and Means (Mr. Michael Lord):
Order. Several hon. Members keep using the word "you". Will they please try to remember not to do that when they make their speeches? I know that it is difficult to do, and that everyone is new to it, but it helps enormously if I do not have to keep getting to my feet to interrupt hon. Members.
Liz Blackman:
I apologise, Mr. Lord. I am staggered that Conservative Members who implemented the relief in 1990 and have had seven years to operate it should come with so little evidence and ask Labour Members to evaluate their measure. I want Conservative Members to reflect on that. Was no evaluation undertaken during that time? It seems incredible that the effect of the relief has not been analysed.
One of the factors that distinguish the Labour Government from the previous Government is their attitude to taxation--the way that we raise revenue to fund policy and to service debt. In that respect, we inherited a considerable legacy.
Taxation strategies are not neutral. Behind them are values and priorities of a particular political complexion. What is taxed, and how, reveals a Government's priorities. Whacking tax or VAT on fuel reflects a different set of values from those that underlie the proposal to remove the tax relief on medical insurance premiums.
It is essential that the principles are clearly spelled out, to give people a yardstick by which to judge us. Labour has made no bones about the principles that should underpin the taxation system that we impose. We aim to promote work, to encourage savings, to encourage investment and to demonstrate an element of fairness. Those are the principles by which we will be judged.
By fairness, we mean a broad-based system, under which no sector of the population is unfairly burdened or has an unfair advantage, and where taxation serves the majority, not the minority, and specifically avoids punishing the less well-off. The tax relief that we are discussing fails all those tests. It does not serve the majority. It gives an unfair advantage to the few. It falls unduly on the less well-off as taxpayers.
The Government are committed to the NHS, to which all taxpayers contribute and which is open to all. We showed that commitment in the Budget. The private health sector is part of the market economy. That is accepted by the Government. The market economy, in the private health sector, offers choice to a small number of people. What is desperately unfair is the expectation that the majority of taxpayers should fund that personal choice. It is a subsidy. I hope that I can use the word "you" in this context. The adage, "You pays your money and you takes your choice" is applicable.
It is interesting to note that the assisted places scheme is a similarly unfair tax. The same logic has applied to the abolition of that scheme.
The substantial funds would be far better used to reduce the VAT on fuel, as has been mentioned. That would have significant benefits for many people in this society, especially those on limited incomes. That is just.
By their own standards, the previous Government did not achieve what they had intended from the measure, which was to increase the uptake of private medical insurance. The Conservatives have no statistics of their own to demonstrate its impact. They failed by their own criteria, but, above all, they failed the test of fairness, which, under a Labour Government, is a significant test. That is why the relief will be abolished.
Mr. Nick Gibb (Bognor Regis and Littlehampton):
This clause, and clause 19, which we shall debate later, make the Budget one that hurts pensioners. Pensioners suffer from an 11 per cent. devaluation of their pension funds from the ACT changes, and they suffer from the vindictive and envy-motivated decision to abolish tax relief on medical insurance for the over-60s.
The relief was introduced by the then Chancellor, Nigel Lawson, in his 1989 Budget as a way of encouraging people to take out or to keep on their private medical insurance in retirement. That, in turn, would help to relieve some of the burden on the NHS.
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