Finance Bill

Gordon Banks Excerpts

Thursday 15th July 2010 Commons Chamber

[Chris Leslie]

I am glad that we have had the opportunity to debate these important tax changes. I have the greatest respect for all my constituents and the British public generally, but when we talk about financial matters such as pensions, savings and insurance, there is a tendency in the British culture for the fog to descend and for people to say, “Well, these things are very complicated and I don’t quite understand them.” A lot of people therefore get trapped by their own inertia in certain policies, bank accounts or pensions, and they do not necessarily shop around to get the best deal. I am afraid that insurance products are in the group of services to which our constituents sometimes do not pay attention. I urge members of the public to examine their policy documents and payments closely because insurance can represent a significant cost, although it is a merit good and something that we should encourage people to take out.

[Gordon Banks (Ochil and South Perthshire) (Lab)]

Some areas of the country, including part of my constituency, face significant flood risk. Does my hon. Friend agree that such a tax increase on insurance will mean that people who are already paying significant amounts to protect their homes and lives will face an even greater cost? If those people do not continue to insure themselves, however, it will wreak havoc on lives throughout the country.

[Chris Leslie]

My hon. Friend is entirely correct. It is important that we ensure that all our liabilities are properly covered, so that the cost of our individual failings or mishaps does not fall on the general taxpayer. Responsible individuals have to insure themselves.

--- Later in debate ---

Let me come on to the effects of insurance premium tax on buildings insurance and contents insurance. When times are tough, many of my constituents may well look at their outgoings and think: “What could I do without? What will go first?” Clearly, they know that there are legal obligations to pay council tax, utility bills and so forth. Those things that are on the margins, such as home insurance and contents insurance, tend to go first, and that is extremely regrettable. Of course, adding further tax to those items will speed up the decision for many of my constituents, who will say, “This is becoming unaffordable.”

[Gordon Banks]

My hon. Friend talks about house insurance. Has he considered that people might retain insurance, but end up being under-insured?

[Chris Leslie]

Absolutely. A lot of people, when they apply for insurance, will be asked what amount they wish to have—I am trying to recall the phrase—as the amount that one ends up paying before one can claim.

[Gordon Banks]

The excess.

[Chris Leslie]

I thank my hon. Friend for his assistance. On home insurance, the excess is typically £100 or £200. Those hon. Members who are IT-literate, and who use the interweb to purchase their insurance, will realise that on many sites there is a little bar that one can shift across the page to increase the excess to £400, £500 or more. It effectively means that people will rarely, if ever, claim against that insurance, and it thereby removes not only much of the cost of the initial premium, but the chances that they will ever use that product. Again, that will leave people under-insured, with poor cover, and with a poor product for what could be a great expense if they are broken into or have problems with internal flooding or other damage to their property.

In some parts of the country, particularly where there is a flood risk, far too many people are still uninsured, and the pressure that they put on the taxpayer more generally to pick up the tab will be great. In some ways, the measure is a false economy by the Treasury: it discourages people from taking out insurance, yet they will undoubtedly be under pressure to pick up the tab in flood-risk areas.

There is a rumour going around that the Treasury might also impose an extra tax on those who live in flood-risk areas in order to cover the extra costs to the taxpayer of flood-prevention work—yet another example of a crude and unfair measure. I am sure that the Minister will be happy to tell the House that that is not the case and to put our minds at rest, because it would be a shame if such a measure were to come forward.

--- Later in debate ---

[Mr Gauke]

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. The analysis of VAT, another indirect tax, shows that two thirds tends to be passed on straight away and that much of the rest is passed on over the following 12 months. However, it is not always possible to predict and it partly depends on the level of competition.

[Gordon Banks]

I just want to make a simple point. The Minister is saying that he expects consumers to pay twice—once through increased premiums and once through increased IPT. Does he find that acceptable?