Finance Bill

Baroness Keeley Excerpts

Tuesday 8th September 2015 Commons Chamber

[Barbara Keeley (Worsley and Eccles South) (Lab)]

I beg to move amendment 1, page 59, line 19, at end add—

“(6) The Chancellor of the Exchequer shall, within three months of the passing of this Act, undertake, and lay before both Houses of Parliament, a review of the impact of any further rise in the standard rate of insurance premium tax with particular attention to the impact on—

(a) the price charged for insurance policies; and

(b) the take-up of insurance policies”.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

With this it will be convenient to take clause 43 stand part.

[Barbara Keeley]

The change in the level of insurance premium tax from 6% to 9.5% will have an impact on insurance premiums, and it will mean increased costs for families. Treasury figures show that the increase will have one of the biggest impacts on Government finances of any policy revealed in the summer Budget. By 2021 Ministers will have brought in an extra £8 billion from the measure, a cost that is likely to be passed on by insurance companies to consumers, so as we debate clause 43 and Labour’s amendment I want to ask the Minister to explain the reasons behind the level of this tax rise and to ask whether Ministers have fully considered where the impact of this rise will be felt and which groups will be most affected.

In 2010 the coalition Government announced a similar but much smaller rise in insurance premium tax from 5% to 6%, but this most recent change increases the tax by 58%. I want to ask the Minister for the reasoning behind that scale of change.

A colleague of the Minister in the Lords, Lord Northbrook, has described the insurance premium tax increase as an easy target. Taxes should not be increased just because they are easy targets. Indeed, any decision to increase Government revenue should be undertaken after a robust analysis of the impact the changes will have on individuals and businesses. There are still many questions to be answered about the impacts of this measure on family finances and on the take-up of insurance. So in addition to other questions later, I want to start by asking why the Government have chosen to make such a marked increase in insurance premium tax from 6% to 9.5%, an increase of 58%.

[Mr Alan Mak (Havant) (Con)]

Does the hon. Lady agree that the proposed new level of tax will still be substantially lower than the 19% rate levied in Germany, and that the proposals strike the right balance between raising revenue and making sure premiums are competitive?

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[Barbara Keeley]

I do not think making such comparisons is particularly valuable and I will come on to the reasons why.

The insurance industry has raised concerns about the impact of this increase. Huw Evans, director general of the Association of British Insurers, responded to the proposed increase in insurance premium tax by warning that consumers would be worse off. He said:

“Insurance Premium Tax is a tax on people and businesses at the point at which they buy a general insurance product. So it’s very disappointing to see a more than 50% tax increase being imposed on consumers, especially when the insurance industry and Government has worked so hard in recent years to bring down the cost of essential insurance.”

The ABI calculates that the new rate of insurance premium tax will add almost £10 to the average annual household insurance policy for buildings and contents combined, and over £12 to the average annual comprehensive motor policy. However, the increase will be much higher for some groups, and I want to come on to talk about them.

[Diana Johnson (Kingston upon Hull North) (Lab)]

Does my hon. Friend share my concern about householders in areas prone to flooding who might already have to pay high premiums and for whom this is an additional amount they will have to find on top? That is certainly the case for a number of properties bought under the Help to Buy scheme set up by the Treasury, as those properties built after 2009 are not eligible for the Flood Re insurance scheme the Government have brought in.

[Barbara Keeley]

Indeed, and I will come on to that, because the cumulative impact of this and other changes in the Budget on specific groups is of great concern. My hon. Friend is right that there could be a real issue in parts of the country prone to flooding. We do not want to see families in the properties my hon. Friend talks about that are outside the Flood Re scheme go without insurance.

[John Redwood (Wokingham) (Con)]

If the hon. Lady wants to forgo this substantial increase in revenue, what would she replace it with, given that her income tax proposals would also cut the revenue because the higher rate would collect less?

[Barbara Keeley]

It is not for me to make those suggestions; it is the Government’s Budget, not mine.

As I have said, the increased cost of this will be much higher than the averages for some groups. The AA has also shared its concern. After the Budget, AA president Edmund King said:

“The sting is in the tail. The Insurance Premium Tax increase on the average car insurance policy is still equivalent to a fuel duty increase of almost 2p per litre. Either way drivers are being hit in their pockets. This is an outrageous hike which could well backfire by leading to an increase in uninsured drivers.”

[Chris Philp (Croydon South) (Con)]

Will the hon. Lady join me in welcoming the fact that the freeze on the motor fuel duty escalator over the past three or four years has saved motorists far more than the 2p a litre to which she has just referred? It is saving the average motorist about £10 every time they fill up, which is far more than the 2p that she mentions. Will she join me in welcoming that measure?

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[Barbara Keeley]

No I will not. As I have just stated, the president of the AA, Edmund King, has said of the Budget:

“The sting is in the tail.”

It is fine to make improvements that help the motorist, but the sting is in the tail and he has made the point that this is an outrageous hike. I ask the hon. Gentleman to reflect on the impact on young motorists and the possible increase in the number of uninsured drivers. If that were the result of this hike, it would be a very dangerous development.

The chief executive officer of the British Insurance Brokers Association, Steve White, has also raised concerns about the impact of the tax on insurance policies and on the industry. He makes this important point:

“Those hit by this stealth tax will include the 20.1 million households with contents insurance, 19.6 million with motor insurance and 17 million with buildings insurance. The Government has been working with the industry to reduce the cost of insurance for consumers…It therefore seems counterintuitive to be taking measures which will add to the cost—effectively taxing protection.”

Let us be clear about what is going on. This is a tax on the protection that families need.

The Financial Secretary to the Treasury, who is now in his place, has made clear in the past his views on the impact of increases to this tax. In 2010, he said of the smaller rise that was introduced at the time:

“I am not denying that we expect the increase to be passed on predominantly to consumers; we expect that the bulk of it will be.”—[Official Report, 15 July 2010; Vol. 513, c. 1130.]

Indeed, some of the UK’s biggest insurers, including Aviva and RSA, have already confirmed that they are planning to pass on the cost to consumers.

We need to be clearer about which groups will be affected by this increase and what impact it will have. Car insurance and home contents insurance policies will clearly be affected. Of course we welcome the assurances that the Government have given about preventing a rise in VAT, income tax and national insurance, but families in the UK will still be hit by these changes to the insurance premium tax. This tax increase on families comes in addition to other Budget measures that will hit families, such as cuts to tax credits. We must always keep in mind the cumulative impact on families of all the Government’s policies.

Hon. Members have asked what else we would do. The tax rise is also contrary to what the Chancellor promised before the election. He said that

“tax increases are not required to achieve”—

further consolidation, and that this

“can be achieved with spending reductions”.

So the Chancellor did not foresee these measures. Despite his claim, however, he has chosen to deliver a Budget that increases taxes as well as placing a significant squeeze on public finances and services. The average household is likely to be affected by these changes in multiple ways. Many families purchase more than one type of insurance, which means that they will have to pay this tax increase more than once.

We must also consider the effect of the policy on different groups. People’s insurance needs differ depending on their age and income and on whether they own their home. Those who have high premiums are more likely to be adversely affected by this increase to the taxation rate. The groups that I single out are young motorists, homeowners and some businesses. For example, insurers have estimated that the average cost of a year’s cover for drivers under 25 will jump by around £50. The British Insurance Brokers Association has stated that

“a young driver or an experienced driver in an inner city area would see the amount of tax on an annual car insurance premium of £1,500 increase from £90 to £142.50”.

Young motorists already pay the highest premiums, with the average policy for someone who is under 25 already costing more than £1,200 a year. For a young apprentice, jobseeker or student, the increase could make the difference between being able to afford insurance so that they can travel to work for their first job and not being able to do so. Young people are already having their eligibility removed for housing benefit, jobseeker’s allowance and the new minimum wage, and this is just another financial burden that the Government are placing on them.

Another group facing higher insurance premiums are people who have become unemployed. A BBC report in 2012 showed that those without a job are generally asked to pay more for motor insurance cover than those in full-time employment. BBC research with three different brokers found that car insurance premiums averaged almost a third more—30%—for those out of work, but that the cost could be as much as 63% higher. People who are out of work already face many challenges: looking for a job; finding the money to pay their rent or mortgage; and finding the money to feed their families and run their homes. Insurance premiums are higher than regular premiums, so this increase is just another blow to people who are struggling to find work.

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[Huw Merriman (Bexhill and Battle) (Con)]

There seems to be the assumption that the entire increase will be passed on—perhaps in part it will—but I visited one of the country’s largest insurers in my constituency and it did not seem to have cause to pass on the increase. Perhaps the hon. Lady should reflect on that and see that passing on such costs may not be automatic. It may be that a reduction in corporation tax means that the costs can be absorbed.

[Barbara Keeley]

I think that I have already covered that. In a debate in 2010 it was accepted that these costs are almost always passed on. Almost every commentator has said that the costs will be passed on. Aviva and RSA have already announced that they will pass them on, so all the signs are that they will be passed on. Clearly, it would be good if any part of the insurance industry decided not to pass on the costs, but what we are seeing is an increase in premiums across the piece.

This tax increase on a merit good like insurance could undermine the message that individuals and society benefit if the correct level of insurance is taken out. An increase in the insurance premium tax of 58% punishes families and individuals for acting responsibly. When there have been previous increases in the tax, they have been something in the order of around 1%. There is a major concern that this steeper increase could be large enough to alter the coverage chosen by customers, which means that they would become underinsured. It may be that Conservative Members do not face problems of underinsurance in their constituencies. I must say that I have seen a lot of it in my constituency. People really suffer when they are underinsured. If levels of crime are high and there are other issues affecting them on the roads, underinsurance is a real issue.

The Government need to ensure that tax policies do not lead to a situation in which families struggling on low incomes decide to forgo insurance or let their previous policies lapse because prices have risen and they decide that they can no longer afford insurance. That could leave many families at risk of great loss in the event of burglary, or if they have a road accident.

Underinsurance could be a consequence of this rate rise. People could also opt for cheaper policies, which means that they do not get the right coverage, or they opt for higher excesses, which effectively means that their coverage is less. Buying insurance can be a complicated business and a good price may often take precedence over having the right level of coverage.

The HMRC policy paper for this rate rise estimated that there would be

“a small reduction in the demand for standard-rated insurance.”

Any fall in demand for insurance that leaves families open to greater risks should be avoided. Where does the Minister believe this “small reduction” is likely to occur and what is she doing to prevent reductions in the demand for insurance?

Finally, HMRC suggests that there could be changes in the behaviour of insurance companies. It states that there is likely to be

“a small increase in tax planning activity by insurance companies.”

What are the Government doing to minimise this further potential unwanted consequence?

Clause 43 is a typical measure from a Conservative Government who promise one thing and then deliver the opposite. In this case, the Chancellor promised before the election that he had no need to raise taxes, but then he raised this tax, which will have an impact on households throughout the UK and on their usage of insurance. The increase could have a number of negative consequences. Higher insurance premiums may lead to fewer families and individuals purchasing much-needed insurance to protect themselves against everyday problems, which happen much more often in some parts of the country than in others. I am talking about burglary and damage to property and possessions.

The Government must provide more information and analysis of the wider impacts of this tax increase, as well as strategies to prevent the negative consequences that are likely to result from this policy. Labour’s amendment to clause 43 asks the Government to consider the impact of any future increase of the tax.

The Institute for Fiscal Studies has called for a road map to indicate a long-term strategy for our tax system. The CBI has outlined its concerns about the UK tax system in a letter to the Financial Secretary, stressing the need for Ministers to recognise that

“changes to the tax system that appear innocuous can have wide-ranging effects.”

The CBI also stated that there was a need for “renewed discipline” in tax policy making and that the lack of consultation and notice period for tax changes can cause great uncertainty for businesses. None the less, the Government continue to increase and lower taxes for short-term policy goals. Labour believes that we need to consider how to reform our tax system so that people and businesses are taxed efficiently and fairly.

As I have outlined, there are particular concerns about this and any future potential rise in insurance premium tax because of the impact it might have on the price of insurance policies and the take-up of insurance by families and individuals. With that in mind, will the Minister comment on the potential for any further increases in the insurance premium tax during this Parliament, given the comment of her colleague in the Lords that the tax is an easy target?

Labour’s amendment will ensure that the impact of any future increase is properly considered by the Government. It will ensure that there are careful deliberations—much more careful than we have seen on this occasion—on the short and long-term consequences of any further increase in the insurance premium tax and its effect on families and business. I ask Members on both sides of the Committee to support our amendment tonight.

[John Redwood]

: I remind the Committee that I advise an industrial and an investment company and the details are set out in the register.

I found it interesting to listen to the hon. Member for Worsley and Eccles South (Barbara Keeley)speak from the Opposition Front Bench on this important matter. As someone who thinks that taxes are best kept low and that we need to do all we can to maximise the spending power of those we represent, I had a lot of sympathy with much of what she was saying. Of course, there will be people who do not want to pay an increased insurance tax—who does? In particular, some people will find it difficult because it is quite a high tax. I would have found the hon. Lady more convincing had she been able to answer the question in my intervention: if not this, what?

We have just had a passionate debate in this House in which the Opposition, understandably, wanted us to do more for Syrian refugees. That takes money. We are already being very generous with our overseas aid budget, and although we understand their motivation they are not proposing lots of reductions in spending.

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[John Redwood]

The hon. Lady might well find that some of her constituents have aspirations and could be successful; I am surprised that she is so negative about them. Many people in all parts of the country welcome the idea. In 10 or 20 years’ time, if there is a death in the family and assets pass, they would be grateful not to have that limit. It was a good effort and I accept that the hon. Lady came up with the least bad of the Labour attitudes. Everything else that Labour wants to do involves either spending more money or increasing tax rates, which will reduce the revenue.

[Barbara Keeley]

The right hon. Gentleman should be directing his question to the Chancellor, because, as I said, it was the Chancellor who said that

“tax increases are not required to achieve

further consolidation, as

“this can be achieved with spending reductions”

The right hon. Gentleman ought to be asking the Government and his right hon. Friend the Chancellor his question rather than the Opposition, because the promise to the electorate—this is the important thing—was that there would be no tax increases, yet here we are soon after the Budget with a tax increase that will hit many millions of households and bring in £8 billion.

[John Redwood]

But I support the Government on that. I think that they are right to want to make more progress in bringing down the deficit—I am not sure whether the hon. Lady agrees. I also think that they are absolutely right to honour the very important promise they and I made to our electors not to increase income tax or VAT. Better still, we must honour our pledge to get income tax down, particularly for people on lower incomes, by raising the threshold. I also wish to see reductions in income tax at the 40% level, which affects many of my constituents and those who aspire to better jobs and pay, which we hope our economic recovery will deliver to many more people. We are honouring our pledge not to increase income tax rates, but to make the cuts we specified over the five-year period, and we are honouring our pledge on VAT.

[Barbara Keeley]

There seems to be a very selective honouring of pledges going on. The pledge not to increase taxes is not being met, because £8 billion is being taken. The other thing that I am very concerned about is the Government’s decision to ditch the pledge to cap social care costs. It is one thing to allow people with properties worth £1 million not to pay inheritance tax, but it is quite another when people up and down the country will be hit by the dropping of the pledge to cap care costs. Perhaps the right hon. Gentleman would like to comment on that, because I am sure that it affects his constituents just as it affects mine.

[John Redwood]

I think that we are now going rather wide of the amendment and the clause that we are meant to be debating. I wish to see a generous care system that is properly controlled and disciplined. If the hon. Lady has individual cases where people will be adversely affected unreasonably, I am sure that Ministers will be willing to look at them. The last thing I wish to see is unreasonable cuts affecting people who really need the money, but I also wish to see more work done—this is what the Government are doing—to promote the abilities of many people, including those she suggests are disabled, because many people have many abilities. This Government are about encouraging those abilities, helping people to do more for themselves and, where possible, to get into work so that they can lead more rewarding lives, and so that they can receive pay in addition to the benefit assistance for which they currently qualify. There is a complete policy there to promote better lives for everyone in society, and cutting income taxes is an important part of that, and promoting abilities and opportunities is another.

[John Redwood]

That is very good advice, and that is exactly what this Committee is trying to do by highlighting the issue in a short but thorough debate.

I will now make some progress on the specific matters relating to insurance tax. It passes my first test, which is that if we have to increase a tax rate we must ensure that we get more revenue from it. It passes that test because the starting rate is sufficiently low, and the forecasts indicate that we will see a substantial increase in revenue as a result of the change.

The second question is what is its distributional effect. The hon. Member for Worsley and Eccles South understandably made much of the cases that are the hardest, but overall I would imagine—the Minister may have some figures—that people who are better off will pay more of this tax than people who are not so well off, because a lot of it is insuring property and asset and businesses, and it will be the people with the most substantial assets and businesses who will pay rather more of that tax. It therefore meets a general test of fairness in the sense that it is progressive.

My one nervousness about that—I look forward to the Minister’s response on this—is over the issue of the young driver, which the hon. Member for Worsley and Eccles South raised. I think that we need to ensure that we have a very supportive package for young people generally, because they are finding it difficult to price themselves into housing, and they do not always get the rates of pay at the beginning of their careers that we would like to see them enjoy. It is very important that we keep cutting the income taxes at the lower end of income, especially for them, because they really need to keep everything they earn if their starting pay is not very good.

The biggest problem for the young driver, particularly the young male driver, is that the starting prices for insurance can be exceptionally high. Indeed, it is sometimes difficult for the very young male driver to get insured at all. We have to ask ourselves why that is. The main reason, of course, is that the young driver is perceived to be a bad risk by the insurance company. There is some evidence that the younger driver may, on average, have a worse record than the older driver, and that is why the premiums can be particularly high on younger people.

Perhaps the Government can help rather more, through and with the industry, to tackle the main problem, which is not the tax on the premium but the initial height of the premium. Some good work has been done in the industry to provide methods of reassurance that the young person will drive well and safely by means of technology in the car that monitors them, at their own request and with their agreement. That may be the price of their getting the lower premium. We need to look at how technology and support for good driving can be reinforced so that a young person is more readily insurable at a realistic price. Of course, if the young person behaved recklessly, that would become obvious and the arrangements would have to be changed, but there are ways in which this can be done.

[Barbara Keeley]

It is not a question of technology changes. This £50 increase, at least, in the duty paid on the very high premiums that the right hon. Gentleman is talking about will prevent young people—presumably young men, more than young women—from getting to the point where they can start to gain experience. The age at which people will be able to be insured will advance and advance so that they will be unable to get started. That is the issue. It is not a question of technology but of making insurance affordable, and this makes it worse.

[John Redwood]

I am trying to deal with the underlying reason why it can be very difficult for young men, in particular, to afford insurance. The big problem is not the increment on top of the current insurance tax or the bigger increment resulting from this Bill; it is the starting level of the premium. People are working on ways in which we may be able to address that.

If the young person can accept a system that will reassure the insurer that they are going to drive sedately, prudently and safely, then the reason for charging them more disappears. By accepting the constraints of the technology, they can demonstrate that they are driving safely. That reinforces their cheaper premium and they can start to earn the bonuses that the rest of us enjoy if we have driven safely for a long period and then get discounts on the insurance costs. It is getting started that is so difficult for young males, in particular, when they are all judged by the average standards of high claims that the industry experiences. I hope that the Minister and her colleagues in Departments more directly related to the insurance industry will look at this problem. It is not caused primarily by the tax system but by assessment of risk and perceptions of driving behaviour. It can be very unfair on individuals, and the more that can be done to smooth that out, the better.

I do not like tax rises. Part of the reason I am in Parliament is that I want to be a voice to try to keep taxes down and have a more prosperous society as a result. I cannot say that I welcome this part of the Finance Bill, but as someone who believes that there are important public items that we cannot cut, and faced as we are with Opposition parties that very rarely come forward with any proposals to save public money, we have to raise a reasonable amount of money. We have been borrowing too much, and this is part of a series of measures to try to get our borrowing under some kind of control. With regret, I conclude with the Government that this is one of the least bad options for trying to do that. I hope that they will take on board the need to work away at some solutions to the underlying problem of individual categories such as young drivers who may find this to be another increment on top of a difficult situation.

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[The Economic Secretary to the Treasury (Harriett Baldwin)]

In responding to the debate, I hope to touch on many of the questions that have been raised by hon. Members.

Clause 43 increases the standard rate of insurance premium tax to 9.5%. The policy will increase the revenue raised from the tax and help to close the deficit.

Before I turn to the amendment, I will cover some of the points that have been mentioned. I confirm that the insurance charge includes the gross premium that the insurer chargers, including the broker commission and any other directly related costs. It is a charge on the insurer rather than on the individual. It is due on general insurance, which accounts for approximately one fifth of insurance premiums. As we have heard, it includes motor insurance, home insurance, employers liability insurance and medical insurance.

Some 80% of the insurance market is exempt, including reinsurance, long-term insurance such as life insurance and permanent health insurance, and the permanent health insurance that is used to pay for critical illness insurance.

Travel insurance and insurance that people purchase on warranties with, for example, white goods, is already charged at the considerably higher rate of 20% to prevent VAT avoidance. That, too, is unaffected by the change. It is important to remember that there is no VAT overall on insurance.

The new rate for the taxable insurance premiums will begin to apply with effect from 1 November 2015. In the tax year 2016-17, it will raise an extra £1.4 billion, which can be used to reduce the deficit. If insurers pass on the increase, it will affect businesses and households, particularly by increasing the cost of their property and motor insurance. However, we expect that any impact on consumers will be modest. Most households and businesses have some form of general insurance and any impact of a rate rise is therefore shared by a large number of people and organisations, as we have heard. To give some idea of what that means, if insurers chose to pass on the whole increase, the average household expenditure on insurance would increase by 70p per week.

We do not anticipate that the tax increase will reduce the number of people taking out general insurance. Even if insurers choose to pass on the increase, any increased costs will be a very small proportion of the overall cost of insurance. As the insurance market is competitive, customers affected by the change can shop around to find a policy that best fits their needs.

[Barbara Keeley]

I hope the Minister will address the point I made about the impact of insurance costs on unemployed people. I quoted BBC research, but work done for MoneySavingExpert.com found that there is an enormous differential when people lose their jobs. In one case, insurance for an office manager to insure her vehicle went from £359 a year to £1,034. It is all right to talk about averages of £10 here or £12 there, or even £50 for young people, but insurance premiums can be disproportionately increased by unemployment. That point was made in the social media debate on the Budget, and that is one reason why I have taken it seriously. The increase is unfair, because it hits people straight away when they become unemployed. We must start to reflect on that.

[Harriett Baldwin]

I will come to the distributional points raised by questions from hon. Members but, with the greatest respect, the situation the hon. Lady describes would be unaffected by the changes the Government propose this afternoon.

We heard from my hon. Friend the Member for Croydon South (Chris Philp) that the increase must be seen in the context of significant Government action to reduce costs for the insurance industry and for motorists. We are taking a lot of action to reduce insurance fraud. According to the Association of British Insurers, insurance fraud alone adds an average of £50 a year to average household insurance costs. Our previous action to reduce the cost of fraudulent claims includes a ban on referral fees in personal injury cases and reform of the regulation of whiplash claims. Those actions have been welcomed by both industry and consumer groups. The insurance fraud taskforce is due to report at the end of the year with suggestions on how further to reduce the cost of insurance fraud.

In the summer Budget 2015, my right hon. Friend the Chancellor announced a further consultation to establish how to introduce a cap on fees charged by claims management companies, and a fundamental review of the regulation of claims management companies, which is due to report in 2016. I note with interest the point my hon. Friend the Member for Croydon South made about banning outbound calls. More generally, the Financial Conduct Authority is working on how to encourage people to shop around for insurance, which will ensure that people find the best deal for their circumstances and that the market remains competitive.

The Government have been working hard with the insurance industry to develop the Flood Re scheme, which will continue to allow insurers to offer affordable home insurance. The hon. Member for Kingston upon Hull North (Diana Johnson) and I both have constituencies where there are a lot of flood-prone properties—I pay close interest to the topic. Of course, properties built after 2009 will be exempt from the scheme because we do not want to incentivise builders to build in flood-prone areas.

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[Harriett Baldwin]

The hon. Lady makes a very good point. She and I come across the same sorts of issues in our casework, and a lot of London is built on a flood plain. In some cases, I have had to work with specialist insurance broking to find a broker service. The British Insurance Brokers’ Association is very useful in that regard. I am sure she and I will continue to pay close heed to how the Flood Re scheme is delivering for our constituents.

A number of hon. Members raised the issue of motor insurance, particularly for young people. My right hon. Friend the Member for Wokingham (John Redwood) asked whether technology could help young people with the costs of their insurance. Young people can currently take the opportunity to install a telematic device. Many insurers will reduce the cost of motor insurance in those situations.

I am able to reassure hon. Members on the impact on young drivers’ insurance premiums. Young drivers pay a much higher premium at the moment, but the overall cost impact of this change for young drivers in their 20s is estimated to be 25 pence a week and the overall impact for a driver aged 17 or 18 about £1 a week. Obviously, all tax increases are unwelcome, but this needs to be set against the fact that drivers are currently saving about £9 every time they fill up their vehicles.

[Barbara Keeley]

The figures I was given from the industry were that the increase in duty alone on the average premium paid by a young driver would be from £90 to £142.50. That is not 50p or 25p a week; that is £1 a week. Various points have been made about fuel duty, but this is a tax that has to be paid. This is a very serious increase for young people who are being hit in the other ways that I outlined.

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[Harriett Baldwin]

My hon. Friend is right to point out the overall context; this measure should not be seen in isolation. The cost to businesses was mentioned earlier. I am sure that Members will welcome the fact that, according to the British Insurance Brokers’ Association, the overall cost of insuring a commercial vehicle has fallen by more than 13% in the past 12 months alone.

I hope that I have answered hon. Members’ questions, particularly those about young drivers and household flood insurance. In particular, I want to support the points my hon. Friend the Member for Croydon South made about personal injury claims management.

In drawing my remarks to a close, I must stress that most households will see very little impact from the increase in the standard rate of insurance premium tax. It will remain at a low rate compared with many other countries and will certainly not make the UK a less attractive place to do business. I therefore ask that clause 43 stand part of the Bill and request that amendment 1, tabled by Opposition Members, be withdrawn.

[Barbara Keeley]

I do not propose to withdraw the amendment. The reason for it is the lack of a full analysis of where the impact of the increase will be felt and the groups that will be most affected. I have been quite disturbed by the complacent attitude of some Government Members, including the Minister. I have quoted many senior industry figures on the impact on their business and industry and the strength of their feelings about this tax, which they have called a stealth tax. I will quote some additional comments. Janet Connor, managing director of AA Insurance, said:

“That premiums have been falling seems to be the Chancellor’s justification for the tax increase but he is wrong. His timing couldn’t have been worse; not only are premiums starting to rise but the tax can only lead to even greater premium increases than could otherwise be expected over coming months.”

She continued:

“There is no justification for this underhand and unfair tax increase.”

I have quoted various insurance organisations, but the ABI said:

“UK drivers benefit from one of the most competitive motor insurance markets in the world. But with pressure on claims costs”,

which some Government Members have recognised,

“and an increase in insurance premium tax adding an additional £12.80 to the cost of the average policy…other factors are starting to put up costs.”

The key thing is that a range of factors are in play, despite our having had a successful couple of years, which has reduced premiums and rates. I hope Ministers will not continue to be complacent about the cost of premiums for young drivers and the danger of under-insurance or no insurance.

Graeme Trudgill, the executive director of the British Insurance Brokers Association, has said:

“Insurance has been seen as a special case in terms of taxation as it is a social good”.

Ministers seem to be ignoring the fact that it is a special case, in that it is a social good. We must take that into account.

[Suella Fernandes]

Will the hon. Lady give way?

[Barbara Keeley]

No, I will not.

Mr Trudgill went on to say:

“Young drivers are the most over-represented age group for uninsured driving and increasing the cost of their motor insurance further is likely to increase the level of uninsured driving, which we are aware has now started to deteriorate.

The increase completely undermines the constructive work that the industry and government have done in the past few years to tackle fraud—particularly with regard to whiplash claims—which previously saw premiums soar.”

Ministers and Government Members should be clear that what they are doing is hitting the industry at a point when premiums have started to go in the wrong direction and the good work that has been done could be undermined.

I want to leave Government Members with a couple of other points about this amendment. The AA calculates that uninsured drivers cost the insurance industry around £380 million a year and add £33 to cost of every motor insurance policy. Finally, the Motor Insurers Bureau reports that 2.8% of UK motorists—and about 1 million vehicles on the road—are estimated to be driving without insurance. That is the risk that the Minister is taking.

Question put, That the amendment be made.