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5.30 pm
The existence of a strong private sector in both health and education provides a gold standard against which the state sector can compare itself and towards which it can seek to improve. Of course, that assumes that the private sector will provide a better service, which the Labour party does not necessarily accept.
Here we see the root of Labour's plan to abolish tax relief on private medical insurance--the old Labour insecurity about the private sector, old Labour's drive towards homogeneity and lack of choice. Thanks to 18 years of a Conservative Government who believed in free enterprise and choice, 5.7 million people now have private medical insurance--about 10 per cent. of the population.
As Labour Members have said, only about 5 per cent. of people over 60 have medical insurance--a proportion significantly lower than that in the population in general. The tax relief was introduced to encourage take-up in that section of the population. Although the Labour party claims that the introduction of the tax relief has not increased take-up among the over-60s, the facts state otherwise.
In 1989, there were about 400,000 individuals over 60 with private medical insurance. Today, there are 600,000. There are our statistics. That amounts to a 50 per cent. increase while the tax relief was being given. It is an especially high increase given that, in the same period--between 1990 and 1997--the total number of individuals covered by medical insurance dropped by 7 per cent. in the early 1990s and rose over the following seven years to broadly the 1990 level.
In other words, there was no overall increase in the number of people covered by medical insurance between 1990 and 1997, yet there was a 50 per cent. increase in the number of people over 60 who were covered. The over-60s now account for one third of all individuals with medical insurance, compared with only one quarter when the relief was introduced.
We should not be hearing Ministers and other Labour Members claiming that the tax relief had no effect on the numbers taking out private medical insurance. The facts state otherwise, and those who say that there has been no effect are simply wrong.
I shall now say something about the cost of abolition. The Red Book shows that the gross savings from the abolition of the tax relief would be £115 million in 1998-99 and £135 million in 1999-2000. The relief equates to more than £500 million of gross premiums.
According to the Association of British Insurers, the overall claims ratio for that age group--the cost of claims expressed as a percentage of premiums--is about 80 per cent. That means that £500 million in gross premiums represents £400 million--worth of medical treatment. The insurance industry has estimated that abolition of relief, which will increase premiums by about £25 a month, will result in one third of the over-60s with insurance terminating their policies and becoming reliant on the NHS. That corresponds to £133 million--worth of extra medical care, which the NHS will have to find as a result of the abolition of the relief. That compares with a saving of only £115 million.
It is absurd for the Financial Secretary to the Treasury to dispute those figures on the basis of a marketing advertisement in The Times. I hope the Government are basing their statistical analysis on more than that. Their figures do not add up.
There is worse. As my hon. Friend the Member for Eastbourne (Mr. Waterson) pointed out in an Adjournment debate on 16 June, there will be a domino effect if 200,000 people cancel their policies. As the number of private medical insurance policyholders decreases, an additional burden will fall on those who remain. That means higher premiums for them. Thus, more people will be priced out of insurance and become reliant on the NHS.
When one considers that the types of medical treatment most likely to be required under the private insurance contracts are hip replacements, cataract removals and knee joint replacements--operations which are already stretching the NHS to breaking point--one realises how absurdly the Government are acting in abolishing the relief. People who need hip replacements and new knee joints suffer much discomfort and pain, and the Government's policy will mean longer waiting lists for those procedures in the NHS. That shows how mean-spirited is the Government's abolition of the relief.
I have received many letters from retired people in Bognor Regis and Littlehampton asking me to urge the Government not to abolish that much needed and sensible tax relief. On their behalf, I urge the Government to drop their proposal, and I urge right hon. and hon. Members on both sides of the Committee to vote for the amendment and against clause 17.
Jacqui Smith (Redditch):
I oppose the amendment because it is designed to put off the implementation of an important measure in our Budget. I cannot understand why Conservative Members are so keen to keep a measure which clearly has not worked, even in their own terms. It has fulfilled neither the Opposition's aims nor ours.
Let us talk about the Opposition's aims first. The hon. Member for Daventry (Mr. Boswell) has used similar arguments to those used yesterday, when the Opposition said that mortgage interest relief at source promoted home ownership. I disagreed with him at the time.
Today, the argument is that we should keep private medical insurance because it promotes the practice of older people taking out private insurance--
Mr. Boswell:
The hon. Lady said that she disagreed with the proposition that MIRAS promoted home ownership. Does she therefore feel that it should be abolished altogether?
Jacqui Smith:
My argument yesterday was that the decision in the Budget on MIRAS was right, because MIRAS does not promote home ownership, and that the money saved by the Government's current proposal on MIRAS could be put to better uses.
The Conservatives' argument presumably is that the tax relief promotes the take-up of private medical insurance by older people. Incidentally, it seems strange to argue that the only way to save the NHS is by persuading as many people as possible not to use it. That says something about Conservative Members' attitude to our national health service, which Labour Members believe should be available to everyone who needs it.
Private medical insurance relief has not achieved what the Opposition want it to achieve. Despite the fact that it has cost £560 million since April 1990, there is little, if any, evidence of an increase in take-up of private medical insurance among the over-60s. In fact, I would argue that those receiving it would have taken out private medical insurance in any case. That seems to be the suggestion from the fact that when an extra incentive is given people in large numbers do not take out more insurance. There is no reason to believe that scrapping the relief will cause a flood of elderly people returning to the NHS. The amendment does not stand up.
The relief has failed even in Conservative terms--the previous Government recognised that when they reduced it at the higher level--and it certainly does not achieve what the Government want. It subsidises the few who can already afford private health insurance.
I am sure that all hon. Members were interested to hear about the mother of the hon. Member for Daventry; I am extremely pleased that she can afford private health care. My mother is not yet 60, so she would not have qualified for the relief in any case, but my dad is; he does not have private medical insurance, but, through his taxes, he subsidises that of the hon. Gentleman's mother. I have no animosity towards her, but I feel that it is slightly unfair that my dad should have to subsidise her private choice through taxation.
Mr. Boswell:
As the hon. Lady has been kind enough to refer to my mother, does she recognise the inequity of the position whereby my mother's private health tax relief will be withdrawn to support my expenditure on heating oil in a somewhat larger house than hers?
Jacqui Smith:
It may be my fault, but I do not quite follow the logic of that. My argument about inequity was that, at the moment, the taxpayer is subsidising private choices.
The relief shows the same defeatist attitude towards public service that my hon. Friend the Member for Erewash (Liz Blackman) pointed out in the case of the previous Government's attitude to the assisted places scheme. Have our public services really got to the state where, to keep
them going, we need to bribe people with taxpayers' money not to use them? Conservative Members clearly think that we have to bribe people out of the state education system and the national health service.
If that is so, it is because of the effect of 18 years of Conservative government on our schools and hospitals. We should not accept that as a fait accompli: we should consider ways of improving those facilities so that we no longer have to ask taxpayers to fund people opting out of public services.
Unlike the hon. Members for Guildford (Mr. St. Aubyn) and for Bognor Regis and Littlehampton (Mr. Gibb), I do not have people queuing up at my surgery and begging me to maintain the tax relief. I met an elderly man last week who had already waited 18 months for a knee operation and did not have private health insurance.
Mr. Swayne:
Will the gentleman's condition be assisted by additions to the queue owing to people having to give up their private health insurance?
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