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8.15 pm

My first point is that the arrangements that we are considering, which have been carried out over a period of years by Prime Health in Guildford and by other insurers elsewhere, were entirely normal within the conduct of their business. There is no question of avoidance action to frustrate the Revenue.

Secondly, until the Chancellor's announcement on 2 July, there was a legitimate expectation on behalf of policyholders that their arrangements would stand until notified to the contrary. Certain undertakings had been entered into along with courses of action and there was the reasonable expectation that those would continue. As I said in Committee, there could be severe difficulties where contracts have been concluded, perhaps on a verbal basis, and tax relief withdrawn if the insurer were to hold the policyholder to a contract that he could no longer afford to maintain.

Thirdly, despite the helpful efforts of the Financial Secretary to clarify the matter, there is still a degree of ambiguity in her letter. We need to return to it to ensure that the points that it incorporates are thoroughly nailed down. In the hon. Lady's letter of 25 July to all members of the Standing Committee, she writes:

"There is no suggestion that the contracts have to be in writing--this is a matter of general, not tax, law".

Yet previously in that same letter she denied any intention of extending transitional relief:

"to verbal or monthly contracts or to contracts . . . commencing"

after 2 July.

Against that background, I still do not feel that these matters are as clear as perhaps the House is entitled to wish or as the Financial Secretary will wish to claim. I begin to piece together from an analysis of the Financial Secretary's letter the following scene--I should be grateful if the hon. Lady would harken to it as I think myself through these matters. I ask her to confirm later whether I am right.

First, I am sure that the Financial Secretary is right, although I am not a lawyer, that a contract is a contract is a contract, whether verbal or written. If there were

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a contract between an insurer and a policyholder, one taken out before 2 July when the Chancellor made his announcement and subsequently confirmed in writing, if it was not written at the time that it was taken out, that contract would stand and would attract tax relief for the period of the contract.

As I understand the Financial Secretary's letter, the main thrust of the clause is about contracts concluded on or after 2 July and not about contracts taken out before that date. The hon. Lady is claiming, however, that she is giving helpful and additional transitional reliefs. The first would be in the instance of a new contract where the understanding was that the contract would be taken out but it had not been signed up to, for whatever reason. The hon. Lady is saying, possibly with the thought in mind that some such contracts may be real pre-2 July contracts but not nailed down in writing, that providing writing appears by 1 August and premiums are paid by the end of March 1998, they would qualify for tax relief for the current year.

The second category comes within renewal. It takes up the point that my hon. Friend the Member for Guildford raised in terms of Prime Health. I am referring to a contract taken out ahead of Budget day but not coming into force until a few days thereafter. That contract would be honoured for tax relief purposes in the current year, as long as it was consecutive on a contract that was already in place.

I apologise for these complications; I am certainly not trying to trip up the Financial Secretary. We are all anxious to get the legislation as right as we can. We are conscious, too, of Pepper v. Hart--hence the need for certainty in the debate.

The third category to which my hon. Friend referred comprised monthly contracts, or as I call them, quasi-annual contracts. Perhaps the Treasury has some sort of administrative concession in mind. I should prefer an administrative concession to nothing at all. There are awkward precedents for extra-statutory concessions--the Revenue allows them from time to time--that are not eventually validated in substantive law later on. Such concessions are an uncomfortable way to relieve a problem: to whom should they be made, will they be extended equally to everyone, and so on? Furthermore, they cannot, by definition, be justiciable. I submit that the last of my hon. Friend's amendments would serve the purpose much better, and I hope that the Financial Secretary will refer to it in due course.

Mr. Clifton-Brown: Does my hon. Friend agree that extra-statutory concession is a far from satisfactory way of dealing with the matter? It would be far fairer to people over 60, many of whom are not especially au fait with complicated tax law, to set down clearly in statute what is involved, thereby allowing their insurance companies to inform them clearly of their position.

Mr. Boswell: My hon. Friend makes the point better than I could. It is, of course, better to be clear in the statute. If the Government are not inclined to do that, some concession is better than none--but I was going on to mention the importance of how the concession is implemented. How will it be notified to policyholders, many of whom are elderly and who may get confused--although many have a pretty good idea of what is going

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on? They will need to deal with their insurers, as they already do with the operation of relief at source. But they will need to know how this is to work, the more so if it is delivered by this roundabout route.

The devil is certainly in the detail, and the Government cannot behave as if the detail does not matter. It clearly matters a great deal to policyholders and insurers; and in terms of the smooth operation of revenue law and of fairness as between individuals.

We are still looking for greater clarification. It is the very least the Government can do for people who, even if the transitional arrangements are relaxed or at least clarified, will assuredly suffer in years to come from the principle behind these changes. We continue to oppose it.

Mr. Ross Cranston (Dudley, North): I have been provoked to rise by the speech by the hon. Member for Guildford (Mr. St. Aubyn), who made certain assertions to which I shall return later.

In Committee, certain comments were made about the drafting of the Bill. On other occasions, I have been critical of the style of drafting that we use in this country, but clause 17 could not be a clearer statement of Government policy. As the Financial Secretary said in her letter of 25 July, the Bill's contents, including clause 17, must be interpreted against the background of general law--and the general law is quite clear about when a contract is made. A contract made orally and confirmed later in writing is made at the time of the oral agreement, so this is not a matter of deciding by "regulatory fiat"--the phrase used by the hon. Member for Guildford--nor is the matter very complicated.

I was provoked, as I have said, by some of the extraordinary statements made by the hon. Gentleman. He claimed that 1 million people were involved, but the Conservative spokesman conceded that at most 550,000 people might be affected by the tax relief. On Second Reading, we made the point that that number had hardly increased since the relief was introduced.

The hon. Member for Guildford also made the extraordinary claim that the abolition of this relief, combined with the relief gained from the cut in VAT on domestic fuel from 8 to 5 per cent., was regressive. On Second Reading, I described the extent of fuel poverty in the UK, quoting figures to show that those on lower incomes spend a much higher proportion of those incomes on domestic fuel than do those on higher incomes. So the VAT reduction has had a beneficial, progressive impact.

Help the Aged has commented on the measure, saying that it will affect only 5 per cent. of people over the age of 60:

"Help the Aged is more concerned about seeing improvements to the NHS so older people will receive high quality, accessible and free health-care."

Mr. Tim Loughton (East Worthing and Shoreham): Not for the first time, there seems to be some incongruity in the hon. Gentleman's arguments. He is arguing against the amendment, which seeks to protect pensioners with monthly medical health insurance who would otherwise lose the relief immediately. The amendment is designed to allow them a fair phasing out, in line with others who hold annual policies. At the same time, the

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hon. Gentleman is taking us down the highways and byways of VAT on fuel. On the other hand, proposals elsewhere in the Bill would delay the RPI benefits of a reduction in VAT on fuel until the following year. His colleagues have rather craftily chosen the date of 1 September instead of later in that month. Would the hon. Gentleman care to be consistent?

Mr. Cranston: The Minister will reply specifically to the amendments in a moment. As for rolling monthly contracts--it will be a matter of looking at each contract separately. Is it an indivisible contract, or is it a series of separate contracts?

Mr. Loughton: So that is a no?

Mr. Cranston: I am not sure I even understood the hon. Gentleman's question--

Jacqui Smith: That is because there was none.

Mr. Cranston: Earlier, my hon. Friend dealt very well with the non-regressive intent behind clause 17, combined with the reduction in VAT.

Finally, even the hon. Member for Daventry (Mr. Boswell), on Second Reading, quoted the comments of Mr. William Laing, from the consultants dealing with these matters. He said that this tax relief--the hon. Member for Daventry did not quote the words exactly although he alluded to the report--was ridiculous and could not possibly be justified in terms of savings to the national health service. So all this spilt milk about the impact on the NHS is just so much hot air.

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