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Dawn Primarolo: If this issue is so important to Liberal Democrat Members, why were they not here this afternoon to move the relevant amendment?

Mr. Davey: As I have already explained, I was disappointed to learn that amendment No. 43 was out of order. That is why I am now raising the wider issues involved.

The recent victory of Lunn Poly against the original introduction of the selective premium tax is especially germane to my point. The European Court found that the higher rate of IPT was incompatible with Community law to the extent that it constituted state aid under article 92(1) of the relevant EC treaty, and that the United Kingdom Government had not notified the Commission of that as they were supposed to.

As the Financial Secretary told the Standing Committee, Customs and Excise is appealing against that decision. It asserts that it has no implications outside the

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travel industry, but many people outside the House do not share that opinion. Indeed, hon. Members may be interested to hear that the European Commission itself is not sure of the legality of the remaining selective rates. In answer to a question from the Liberal Democrat Member of the European Parliament, Graham Watson, Commissioner Monti said on 8 June:

    "the Commission has been in contact with the British authorities and is still assessing the compatibility of a selective IPT with Article 92".

Although the Minister may not wish to comment in detail on the matter because it is sub judice, I hope that she will at least admit to the House that the European dimension is a factor that will have to be considered in any review of the remaining selective rates, in addition to issues of fair competition. It is to those issues that I now turn, as they are especially germane to the Bill.

When the Financial Secretary replied to the debate initiated by the hon. Member for Galloway and Upper Nithsdale on 27 January, she did not reply to a large number of the substantive points that he made about the effect of the tax on the electrical retail industry and the motor retail industry. She was expansive in respect of the travel industry, and we can perhaps now see why, but I should like to draw her attention and that of the House back to the other affected sectors.

The first is the electrical retail sector. There is a great deal of evidence to suggest that the value shifting that Customs and Excise suspects has been taking place in the sector has not been happening, and that the tax is therefore not necessary. Some of the evidence was cited by the Financial Secretary herself in a debate on the Finance Act 1997. Other evidence was put forward by the hon. Member for Galloway and Upper Nithsdale in his debate: he quoted the report of the Monopolies and Mergers Commission on the supply of domestic electrical goods, which is directly relevant, as it argues that, far from reducing the price of electrical retail goods, companies have been keeping prices artificially high.

The Government cannot have it both ways. Either prices are being kept low to avoid tax, with value being shifted on to related insurance policies to avoid VAT, or prices are being kept high, as the President of the Board of Trade seems to accept.

The Government collectively seem confused on the issue, but the result of that confusion as regards insurance premium tax is serious damage to United Kingdom companies in terms of lost business and lost jobs. Last year, the Financial Secretary herself cited the examples of Thorn and Granada, which, between them, have lost an estimated £20 million and around 800 jobs across the country.

Ironically, the compliance costs to the sector have been exceedingly high. High-street television rental companies were forced to write to all customers explaining the change and to produce new contracts for customers wishing to renew. That exercise cost around £1 million, and the firms lost business. As a result, many electrical products are now sold without insurance cover. That diminishes the protection to the consumer, who may or may not go to a direct insurer. Of course, direct insurers are keen to step into the breach and are marketing themselves strongly to gain the business. However, many consumers will not have the same protection as before.

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The Association of British Insurers has issued a general information sheet encouraging customers to buy insurance from direct insurers, as opposed to one-stop shopping. It poses the following question:

The response makes clear the intentions of the industry:

    "By not buying your insurance from the same place you buy your domestic appliance".

What greater evidence does Customs and Excise need of how the higher rates of insurance premium tax are distorting the market? What right does Customs and Excise have to do that? I hope that the Minister will examine the way in which officials looked at the case of the high-street electrical sector, as she was prepared to do for the travel industry. It has been unfair and almost vendetta-like.

Mr. Alasdair Morgan (Galloway and Upper Nithsdale): Does the hon. Gentleman agree that many people outside the House who listened to Labour in opposition might have expected more from this year's Finance Bill? Unfortunately, it is yet another example of Labour saying one thing in opposition and doing something else in government.

Mr. Davey: I am grateful to the hon. Gentleman for that intervention. He makes a telling point. However, the Government deserve some credit, as they have made some progress on the travel industry. We should not be churlish, as we welcome that. Unfortunately, however, they have missed two major sectors, and that is causing great problems.

The second sector that the Government have failed to address is the motor vehicle retail sector, to which similar arguments about the problems of unfair competition and reduced consumer protection apply as a result of the failings of the Bill. I want to highlight consumer protection, as that aspect is particularly worrying.

As a result of its insurance policies attracting the higher rate of tax, as much as 50 per cent. of the motor vehicle retail industry has switched from issuing insurance policies to issuing warranties with its cars. The significance for consumer protection of that trend can best be appreciated if we examine the distinction between an insurance policy and a warranty. In essence, a warranty is an undertaking by the seller as to the condition of the property, and an undertaking that future deterioration of that condition will not arise. On the other hand, an insurance contract indemnifies the insured against loss or liability if and when such deterioration occurs. So the cover is different. A warranty is less attractive because it is not usually provided by a third party. If the seller goes broke, the warranty becomes useless. The consumer is protected only in so far as his or her supplier does not go bankrupt.

Dawn Primarolo: I am perplexed by the hon. Gentleman's concern about this subject. Will he say when he raised it in Committee and where were the relevant amendments? Third Reading is not the appropriate time to raise the issue. I do not remember his mentioning it in

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Committee, and no amendment is mentioned in Hansard. Nor was the hon. Gentleman here to move his amendment earlier today.

Mr. Davey: The Financial Secretary may recall that the clause in question was debated very late at night when the Whips failed to make a proper agreement, so the argument remains germane and it is important that it is heard.

Dawn Primarolo: Is the hon. Gentleman saying that the issue is extremely important to his party except when he needs sleep or cannot get here in time for a debate?

Mr. Davey: The Minister does not seem to want us to raise the matter, and that is unfortunate. She was happy to raise it when she was in opposition, but now that her party is in government she does not want to hear about it. The hypocrisy is on her side for not addressing the issues now that she is in power.

The move away from insurance policies to warranties by many motor vehicle retailers--driven by this selective rate of tax--is seriously reducing consumer protection in this country. If the Minister is concerned about the state of the country's finances, she ought to listen. The Exchequer may lose even more money than it did from any previous tax avoidance--if such avoidance was occurring--because of the shift to warranties which fall outside the tax base. How ludicrous it is to have an anti-avoidance measure that reduces the revenue to the Treasury and exposes the ordinary citizen to greater risk.

So what is the solution? I believe that levelling down to 4 per cent. is the best solution, mainly because I do not believe that there should be any selectivity in principle.

Mrs. Liddell: Will the hon. Gentleman give way?

Mr. Davey: I have given way several times and I am now coming to the end of my speech.

Mrs. Liddell rose--

Mr. Davey: I am not giving way--[Interruption.]

Mr. Deputy Speaker: Order. We cannot have barracking from the Government Benches. The hon. Gentleman is entitled to be heard.

Mr. Davey: I believe that levelling down would be the best approach and that, in practice, such a reduction, by ending the switch to warranties, would net more revenue for the Exchequer, for the reasons that I have outlined.

I hope that the Financial Secretary will address the points that I have raised. She seems to think that it was somehow illegitimate to raise them, but they are extremely important because they affect jobs and businesses outside the House. Whether the Government like it or not, they must address the issues, and I hope that they will have the courtesy to do so tonight.

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