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Dawn Primarolo: Perhaps the hon. Gentleman can tell me why taxpayers' money should be used to subsidise activities in which individuals had already decided to engage.
Mr. Clifton-Brown: As the Financial Secretary has read the excellent book by Lord Lawson so carefully, can she tell the House of any other lessons that she has learnt from it, which she intends to implement in future Budgets?
Dawn Primarolo: None of that relates to this clause. To put the record straight, when the relief was introduced in 1990 by the Conservative Government, there were 350,000 contracts for private medical insurance in this category, covering some 500,000 people. There are now only 375,000 contracts, covering at most 550,000 people, and that clearly shows that the relief has subsidised action that people had already decided to take. Clause 17 has nothing to do with choice or forcing people to use the national health service. It is a question of how taxpayers' money is used to benefit the majority, not a tiny minority. This Government have already given £1.2 billion extra to the national health service, so we will take no lessons from Opposition Members about investment in it.
The hon. Member for Guildford (Mr. St. Aubyn) first raised the question of contracts during our debate in the Committee of the whole House. I am not a lawyer, but I understand that a contract arises when an offer is made and accepted. Had the notes on clauses meant written contracts only, they would have said so. I did not seek to mislead the hon. Gentleman about verbal contracts. He raised the fear that companies that operate through telephone sales will lose out. I think--I shall say this very delicately, in case I affront the hon. Gentleman--that that fear springs from a fundamental misunderstanding of the terms of clause 17. The clause is silent on verbal contracts. If an eligible medical insurance contract has been entered into before 2 July, it will attract relief until it expires. That is verbal and written.
I had no intention of misleading the hon. Gentleman; I simply assumed that he interpreted "contracts" in the same way as I do. This is not a matter for the Inland Revenue, but a matter of contract law. I cannot debate the niceties of contract law with the hon. Gentleman, because, as I said, I am not a lawyer, but that is the advice that I was given by the Revenue, and that was my understanding when I gave the hon. Gentleman the answer that I gave him in the previous debate.
Dawn Primarolo:
Does the hon. Gentleman wish to intervene?
Mr. Boswell:
I was only going to say, "So far, so good."
Dawn Primarolo:
That is a relief, although not one that costs a great deal of money.
The next issue that was raised related to contracts made before 2 July, but commencing after that date. An insurance contract can be written so that the period covered does not commence on the date on which the contract is legally entered into, but commences at some date in the future. Opposition Members referred to that. Clause 17 would not stop such contracts attracting tax relief, unless an insurance company tried to be too clever by half and entered into a contract before that date. The contract would then cover a period longer than a year, but it would not qualify for relief.
Mr. St. Aubyn:
The Financial Secretary is being very helpful. Will she make it absolutely clear, however, that if a contract renewal was agreed before that cut-off date of 2 July, but the natural period for renewal was a 12-month period beginning shortly after 2 July, the renewal would nevertheless attract relief for the full period?
Dawn Primarolo:
No, it would not attract relief for the whole period, because it would now be for a longer period than the 12 months. There would have been a false start, in that there would have been an attempt to sign a contract before 2 July, when the starting period was well after that date.
Mr. St. Aubyn:
I beg to differ in regard to the interpretation that can be put on the hon. Lady's letter to me. In the normal course of business, some insurance companies--including one in my constituency, which told me about this--send out renewal contracts before the renewal date, and receive confirmation of renewal before that date. Those companies will, therefore, have received confirmation of renewal before 2 July, for a regular 12-month period that starts shortly after 2 July. I should have thought that, given that a genuine contract had been made for a regular 12-month period, it would be reasonable to expect such a contract to be given the normal relief.
Dawn Primarolo:
No, because the contract period starts after that date. The relief--and, following that, the transition--relates to contracts made before 2 July.
May I now deal with what the hon. Gentleman said about monthly contracts?
Dawn Primarolo:
May I just make this point?
The hon. Gentleman asked when a contract was a monthly contract and when it was not, and how the Inland Revenue interpreted the position. The Revenue has had discussions with a number of insurance companies, and with the Association of British Insurers. They have made it clear that they consider the overwhelming majority of these so-called monthly contracts to be annual and, therefore, caught within the relief as it is proposed. It is possible, however, that there are 3,000 or 4,000 truly monthly contracts. The relief applies only for the period of the contract--the month--because that is the trigger.
The point that the hon. Member for Guildford raised in connection with the company in his constituency is now well understood. This is not a concession from the Inland
Revenue. It is how normal business is done with regard to those contracts. That information about the present situation has been made clear to the ABI and a number of other organisations.
Mr. St. Aubyn:
The hon. Lady said in her letter to me:
In the debate on 16 July, the hon. Lady may recall that I made an analogy with contracts for the exchange of property, in which case if the contract is exchanged before Budget day but completion happens afterwards, the old rate of duty applies. That is accepted on all sides. This is an analogous case. Perhaps the hon. Lady would like to answer that point.
Dawn Primarolo:
The renewal itself does not necessarily make a contract. This a grey area. If the policyholder agrees, that is okay, but it is not the normal course of events. A renewal is sent out and then the person concerned agrees it. That is not covered, and I think that that is the point the hon. Gentleman is making.
Mr. Boswell:
I am grateful to the hon. Lady and I realise that she is doing her best and attending to these matters in detail. May I check on that last point? If she is saying that the renewal is not by itself a contract because the contract does not come into force until after the operative date, can the policyholder--the person who has taken out the new policy or the renewal--rescind that policy, given the change in circumstances? This is a critical issue. If people are trapped in contracts on one assumption and cannot fulfil them because of a change in the tax relief, it is particularly inequitable.
Dawn Primarolo:
That is the concept of a binding contract--an offer made and an acceptance. If a contract is made before, even if it starts after, 2 July, that is covered by clause 17. I was genuinely trying to explain that that is not an absolute, blanket rule. If the period of one year, which is the maximum for which relief is provided under the clause, is exceeded, all cases will not be covered. It is a combination--the contract and the 12-month period.
9.15 pm
"the relief is withdrawn . . . in respect of all contracts made on or after Budget day. Contracts made before then are not affected."
It seems from that statement and from my careful reading of it in conjunction with the Bill that, if a contract is genuinely entered into before 2 July, but the start date--for normal commercial reasons--is slightly after, it will be recognised. After all, it was made before the critical date of the Budget, without any cognisance of what the Budget might contain. It would seem unfair for people who have committed themselves to making payments with the benefit of the tax relief to find on Budget day that the contract was suddenly superseded.
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