Finance Bill

John Redwood Excerpts

Thursday 15th July 2010 Commons Chamber

One might also talk about what happens in dentistry. It is almost impossible now to access free dentistry on the NHS. Indeed, I understand from the British Dental Association that, in terms of value, about half the dentistry in this country is practised in the private sector, and a lot of that is funded through insurance. If we want a nation that prides itself on having about the worst dental care of anywhere in the world, we are heading in the right direction. I am sorry that my hon. Friend the Member for Mole Valley (Sir Paul Beresford) is not here to supplement my points about that, but there is an increasing crisis in dentistry in this country, because of a lack of resources that are funded by the taxpayer. In moving the amendment, I am not asking that those taxpayer resources should be greater; rather, I am trying to ensure that proper incentives are in place to encourage people to take responsibility for such insurance themselves.

[Mr John Redwood (Wokingham) (Con)]

I am delighted by the case that my hon. Friend is making. As he is suggesting, people who insure for their health needs are paying twice, because they are also paying their contribution to the NHS, thereby helping doubly. Does he therefore think that keeping the tax rate at 5% is enough, or would he really rather it were lower?

[Mr Chope]

My right hon. Friend asks a pertinent question. I would prefer the tax to be much lower—indeed, perhaps there should be no tax at all—for particular insurance premiums. However, in order to try to carry as many people with me as possible in this debate, I thought that I would limit my ambition, by saying, “Why don’t we not increase the tax from 5% to 6% for specific types of insurance premiums?”

I have picked out a couple of examples of that, and I will come to another in a minute, but obviously the principles could apply much more widely. For example, many people are now taking out insurance against their long-term care needs. Indeed, the Conservative party said in its manifesto that for an £8,000 premium, a family would be able to secure themselves against the cost of having to fund long-term care. I do not know whether such a premium, if it were paid, would be subject to insurance premium tax, but perhaps my hon. Friend the Minister will be able to tell us about that. At the same time, perhaps he can let us know when he expects that part of the Conservative manifesto to be brought before the House for implementation in legislative form.

The principle of insurance is one that most Conservatives—most of my constituents—applaud. People can either self-insure, which means that they take the risks themselves, or they can pool that risk by buying an insurance policy, which many people do, by buying life insurance, pension insurance and so on. In the case of pension insurance, we are talking about incentives for saving; in the case of life insurance, we are trying to encourage people to ensure that if they die prematurely, their dependants have some support and are not wholly dependent on the state. Those examples do not fall within the scope of my amendments, but they would be covered by amendment 15, which goes rather wider. However, it is important that we should have this little debate, to try to tease out a bit more from the Government on these important issues.

Turning to my amendment 19, let me say that we have a real problem with motor insurance in this country. For young people, the price of motor insurance is almost prohibitive. Indeed, it is so high that people cannot afford to buy it. Instead, what happens is that young people might get their parents to put them on their policies, if they are lucky enough to have parents who will do so—sometimes in quite dubious circumstances, as we have been reading in the newspapers recently—but quite often they will take a risk and drive uninsured. I regard driving without insurance as an extremely serious motoring offence. It is reckless, and those who do pay for their motor insurance end up having to pick up the bill for those who cause accidents and injuries as a result of not buying insurance.

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[Stewart Hosie]

I am a great supporter of innovative product design, marketing and pricing strategies, and I hope that all those things happen, but we are debating an amendment to the Finance Bill in which the Government are putting up IPT. I shall not strain the limits allowed by the Chair, but shall stick to the amendment and what is in the Bill, while supporting any innovation that the insurance sector, which is massively important in Scotland, might bring forward.

There is a deterrent effect on those who wish sensibly to insure themselves against many risks, and that effect will be enhanced as the cost of insurance rises. There are also specific consequences for individuals. Some 1.2 million people—about one in 20 motorists—regularly drive uninsured, and honest motorists pay the £30 premium I have mentioned, which is likely to go up. If someone is caught driving without insurance, the police are entitled to remove their vehicle from the road and charge them for the cost of transporting, storing or scrapping it. However, some cars may be worth less than the cost of insurance and there will be a burden on the public purse as a result of that removal, storage and scrapping of vehicles if people choose simply to abandon them.

People might also cut corners and opt for the “free” travel insurance offered by credit card companies, which might leave some travellers without the necessary levels of cover and might be costly in the long term. I do not intend to take up much of the Committee’s time on this issue, as this is a probing amendment, but this issue is more serious than I had initially imagined. I look forward to hearing the Minister’s comments on that last point in particular, because if people decide not to pay insurance premiums and instead settle for the “free” cover offered by their credit cards, they might be underinsured in certain circumstances. Also, business might be driven from the traditional, successful, good insurance companies, and I am conscious of what the net loss of jobs, revenue and profitability in that sector might be. So, putting up IPT will have consequences for the sector, for individuals and for jobs. All these points need to be answered properly and considerable comfort needs to be given that we are not going to turn into a nation that says, “We can’t afford insurance; we’ll do without it and let other people pick up the tab.” I shall listen very carefully to the Minister’s reply.

[Mr Redwood]

My hon. Friend the Member for Christchurch (Mr Chope) has highlighted the two very important and different issues of health insurance and motor insurance. Let me start with motor insurance, which is a legal obligation that is imposed on everyone who wishes to own and drive a car.

Like my hon. Friend, and, I suspect, everyone else in the House, I think it quite right that there should be that obligation. It reminds people that driving a car is a serious business and that they could do considerable damage to others or themselves if they do it badly. It also means that, were someone to drive badly or to be involved in an accident that was not their fault, there would be redress and injured third parties who might need substantial compensation would not be left without it. For all those reasons, we think that car insurance is a very good idea and we accept that it should be a legal obligation.

The coalition Government think that one way of raising more revenue is to increase the tax on that compulsory purchase, but quite a lot of people in the House think it would be better to raise more revenue from the existing level of insurance tax on motor insurance by getting more people to be insured. We are rightly very concerned that, because of the way in which the insurance market works, a significant number of people, particularly younger people, may not be taking out any insurance or may not be taking out proper insurance for their circumstances, and that that places other people at risk and could mean losses that those young people could not afford to pay if they had an accident. That clearly means a loss of revenue for the Exchequer, because those people are not making their contribution by paying their share of insurance tax. We would like the Minister to consider whether better enforcement of the insurance rules could help with his task of filling the coffers and narrowing the deficit. That might be a better route than increasing the tax.

I am sure that the Minister will remind us that we are talking about a 1% increase and that it is quite a modest sum of money. We have been reminded a few times that young people with certain kinds of vehicles, or some young people with any kind of vehicle, can be required to pay a four-figure sum each year for their motor insurance, so we could be talking about £10 or more. The additional increase would not be welcome, because most young people find such sums of money quite large in the first place, and a further 1% would not be helpful.

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[The First Deputy Chairman]

Order. We are not referring to taxes that are not proposed in the Bill. We are talking specifically about the amendments to the Bill.

[Mr Redwood]

How wise you are, Mr Evans.

I was making the point that the Minister, in responding to this debate on the insurance premium tax, might assuage some of our grief if he were to say that the Government had looked at the total package of taxes on the motorist and that they were aware that this was yet another example of the piling high of taxes on the motorist. Although this individual tax increase will not be large for many motorists—it will be more penal for young drivers and high-risk drivers—it is none the less an additional burden. Even if the Minister cannot accept the amendment, I hope that he will look at other ways of dealing with the problem of fair motoring taxes.

Every time something like this happens to motorists—this time, it is the insurance tax levy—they say, “We are being sandbagged again. Where are those better roads? Where is that safer junction? Where is the wish to spend money on improving the flows on the roads so that we can travel in a more fuel-efficient, green manner of which the Environment Secretary would approve?” There never seems to be the money to do that. We know that this bit of taxation on the motorist, like most others, primarily goes not to making better roads but to a wide range of other purposes; it gets lost in the general coffers.

[Lorely Burt]

A number of speakers today have singled out specific kinds of insurance, but as I understand it, the Bill proposes to increase insurance premium tax on a whole range of insurance products, which we would encourage people to take in a responsible manner. I have every sympathy for young drivers and for other motorists, but why does the right hon. Gentleman feel that we should specifically single out motorists or people who take out private health insurance? Why should those people be specifically excluded?

[Mr Redwood]

That is what I am trying to explain, while remaining in order on this narrow amendment. The bottom line of my case is that motorists comprise a large category and, when polled, they say that they feel badly done by because they pay a disproportionate amount of tax and do not get much back. It is argued that motorists ought to pay more because they get the use of the roads, which are provided free at the point of use in most cases. It is not like that, however, because the bulk of the taxes levied on the motorist, including this insurance premium tax, are used for purposes other than roads and motoring. That is why motorists feel hard done by.

I hope that the Minister and his colleagues will consider carefully the general category of the motorist. I would love it if he could make a concession to my hon. Friend the Member for Christchurch, but if he cannot, it would help us and the people we represent if he could say that the Government were at least aware of the bad deal that the motorist has been getting in recent years, and that, where possible, they will do something about that. As we have heard, people in rural areas have no choice; they have to use their cars. People in urban and suburban areas also have no choice at certain times of the day or at weekends. People who work antisocial hours clearly need a car. Most MPs need a car, for example, because we still work antisocial hours.

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I am following the right hon. Gentleman’s argument with some care. He said that motorists get only a limited amount back from the taxes that they put in. Does he therefore support arguments in favour of the greater hypothecation of taxes such as the insurance premium tax, to help to resolve that problem?

[Mr Redwood]

No, I do not. I am sufficiently in tune with Treasury thinking to know that all Treasuries under any Government hate hypothecation, and I understand the complication. Critics of motoring and cars often argue that motorists are walking off with all these free goods, but people have come up with lots of figures that show conclusively that, in a hypothecated way, motorists get a particularly poor deal. People now look at these issues in such a way partly because the green movement has made them do so. It has now been demonstrated that, calculated in a hypothecated way, motorists put in a lot more than they get back. I do not think that the Treasury should operate all its taxation on that basis, but it does need to take account of the mood and the politics surrounding this question, which we are here to represent.

The feeling of unfairness is now quite extreme among the motoring community, and motorists want to communicate through us the fact that they are often motorists because they have to be. There is no train to take them to the shops, for example. The train might be 2 miles away from their home so, unless they have plenty of time to walk to the station, they need to start their journey in the car and sometimes they might as well finish it in the car as well. There is often no alternative, which is why some 86% of our journey miles are carried out by car, and only some 6% by train. There is a basic necessity, which is why we need to be fair when making any tax proposals affecting motorists.

The case of private health insurance is somewhat different, as I am sure my hon. Friend the Member for Christchurch would agree. I make my declaration: I have no private health insurance, so I am not arguing my own case. I rely on the NHS, should ill health befall me, as I am sure do many other Members. However, I am not saying that some of my constituents are wrong to take out private health insurance. It is still a legal thing to do. Indeed, in a way, I feel that I am cheap-skating at their expense, because they are paying twice and I am paying only once. I pay my taxes, and if something happens to me, I hope to receive NHS care, whereas they contribute to everyone else’s NHS care through their taxes—they have no choice, of course, but some of them do it graciously—and then make the additional choice to pay for their own insurance. There is a double advantage: more money comes into the health sector, but when those people become ill they make no claim on the health service, even though they contribute to it.

My hon. Friend the Member for Christchurch is making a reasonable point. Given that it is not illegal to have private insurance, and that those who have it help to eke out NHS funds, should we be taxing it more? That is a very good question to raise. I shall make no stronger statement than that, but it will be interesting to see how the Treasury responds. After all, on this side of the House, we are all now big society fans and advocates—[Interruption.] Well, practically all of us, perhaps. There might be one or two of my right hon. and hon. Friends who are not so enthusiastic about it, but I am; I think it is a great idea. The essence of the big society idea is to harness private money, voluntary effort and charitable activity, and to understand that the state cannot solve all the problems. In a complex, difficult and expensive area such as health care and related social care, we need voluntary and private contributions as top-ups, or in addition to public sector care.

This issue poses a particularly interesting question for Ministers. If they are really serious about the big society idea, do they want to increase the taxes on people who make voluntary contributions and take some of the demand away from public services? Ought they not to be encouraging people to do such things? I look forward to hearing my hon. Friend the Minister’s reply to these nice philosophical questions in this wonderful caring, sharing age of coalition government, in which the big society will require some erosion of the old boundaries between public and private.

[Mr Byrne]

It is an enormous pleasure to follow the hon. Members for Christchurch (Mr Chope) and for Dundee East (Stewart Hosie) and the right hon. Member for Wokingham (Mr Redwood). The strength of their contributions was in illustrating that the proposals in clause 4 raise a wide range of policy concerns and debates. Hitherto, the House has not had much explanation of the logic or rationale of all the changes set out in the clause. The arguments for some of the proposals are fairly easy to deduce, but the core of the clause is the increase in the standard rate of insurance premium tax, which has not been explained.

The lack of explanation underlines the fact that the Bill is somewhat piecemeal. It is fragmented. It is not a whole Bill; it is not even a half Bill; it is a bit of a Bill. We were told with great fanfare a few weeks ago that the Government were introducing an emergency Budget. The Bill and the clause illustrate in our debate this afternoon that the only emergency was the need to get some pretty difficult changes on to the statute book by the summer, before Liberal Democrat members on the Treasury Bench got cold feet or had, dare I suggest, too many conversations with their constituents.

So the result of that emergency—something that some would uncharitably call a panic—is a Finance Bill with measures such as clause 4 that so far are bereft of logical explanation. The strategy has also produced clause 5, which we shall debate later this afternoon, which withdraws tax legislation without putting anything back in its place. Where there is certainty, the Government in their panic have decided to substitute mystery. So much for the simplification credentials.

The effect of clause 4 on one level, as I have said, is reasonably straightforward. It raises the higher rate of insurance premium tax from 17.5% to 20%. That would appear to be a fairly automatic consequence of the decision to raise VAT to 20%. The higher rate of IPT was introduced in 1999 to prevent a problem called value shifting, whereby some retailers and other producers tried to lower prices of goods and bundle them with insurance policies, for which they redeemed some of the value. I was not sure whether that was some of the financial innovation that the hon. Member for Dundee East was beginning to welcome in his remarks. Perhaps he will say more about that a little later.

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[Chris Leslie]

Thankfully, Labour has shifted the terms of reference for this debate, and not just in this country, where the Liberals and the Conservatives—the Conservatives in particular, to be fair to the Liberals—have now accepted that the NHS is one of the jewels in the crown of our welfare system. It is respected worldwide, and there is no longer any attempt, or at least no overt attempt, by the Conservative party to unwind the change that has been made, although having listened to Government Back Benchers, there may be some straws in the wind. I agree more with the hon. Member for Christchurch (Mr Chope) on amendment 19 on motor insurance.

[Mr Redwood]

Was the absence of support for amendments 18 and 19 from the Labour Front Benchers a sign that Labour will not vote for those two amendments?

[Chris Leslie]

I have absolutely no idea. As a humble Back Bencher, I simply make my comments and observations. Clearly, I will happily take a lead from our Front Benchers; they are immensely sensible individuals, and will make their arguments. But I have my own observations to make about the changes.

One of those observations is that there is a level of compulsion that distinguishes motor insurance. In a way, private health insurance is an entirely discretionary commodity, so I suppose one could argue that paying tax on it is a matter of choice, but that is not the case for drivers and for motor insurance. As the right hon. Member for East Yorkshire (Mr Knight) said, in the case of third-party car insurance we are talking about adding a tax on top of a charge that is effectively a requirement in law. That raises the hackles. It makes me feel aggrieved that there is a bit of opportunism on the part of the Treasury. It is a parasitical choice effectively to cream off more money from something that the general public have no choice but to get.

I suppose that those on the Treasury Bench might say that members of the public could give up driving and stop purchasing cars. Perhaps that would be good for the environment more widely, but in the real world, people have to get around, have to get to the shops and to school, and have to commute. It is part and parcel of ordinary life. I am very worried—genuinely worried—that ratcheting up insurance premium tax on motor insurance will create a disincentive for people to comply with the law, take out insurance, and ensure that the cost is covered if any accidents occur or harm is caused to other members of society and the wider public.

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[Ms Eagle]

My hon. Friend raises a reasonable point. Changes in this area have to be made very carefully to avoid the law of unintended consequences, especially when large amounts of tax-privileged income are at stake. The Minister knows that, which is why she said that there would be no increase in tax-avoidance opportunities.

[Mr Redwood]

Can the hon. Lady remind the House how many private sector final salary pension schemes actually closed as a result of the taxes and regulations introduced by the last Government?

[Ms Eagle]

We would have to have a long debate about a range of issues to answer that, but I am happy to defend our record. The closure of defined-benefit schemes took place for a range of reasons and the closures began in earnest when I was still at school, so I do not take personal responsibility for that.

When we look at the impact assessment, we see that the changes will affect a tiny minority at the very top—a mere 8,000 people on the Government’s estimates, out of 445,000 people who annuitise every year. They will affect only those who can afford to live without touching their pension pot until fully 10 years after retiring. We know that two thirds of people take their annuity upon retirement and that only a much smaller number of people last beyond 70, so the flexibilities that the Government are looking for will be required by only a tiny number of very rich people. The Minister therefore needs to justify why this is a priority and why we need a rushed consultation of only eight weeks over the summer to bring it about.

[Mr Redwood]

I will be brief, Mr Evans, because I believe that some Members have other things to do later on. I also remind the House that in the Register of Members’ Financial Interests I have explained that I offer business advice to a couple of companies.

I would like to briefly praise the Minister and her team for their proposal. For many years, the Conservatives while in opposition urged the then Labour Government to allow people a bit more flexibility and freedom with their money in retirement. Even now, after the election defeat, the party does not get it. This was not the main reason it lost the election, but it was one of many things where it misread the public mood. People want more freedom and flexibility over their own resources and more control over their own lives, but Labour was always trying to stop them. This is a small but important move, and I think we might find that it affects rather more people than the hon. Lady says—

[Ms Eagle]

It is in the Government document.

[Mr Redwood]

The hon. Lady is protesting. I know it is in the Government document, but I am suggesting that the Government might be wrong and might have underestimated the number—it is extremely difficult to know how many people might take advantage of the provision. I also think it will not necessarily be only rich people who are affected. I know that Labour never wants any successful people to make money and be able to spend their money sensibly.

[Mr Graham Stuart (Beverley and Holderness) (Con)]

It did a really good job stopping them.

[Mr Redwood]

Indeed, it tried to stop them on many occasions. If we do too much of that, however, we have a poorer country, a smaller tax base and all the rest of it. It is a pity that the Labour party still has such a downer on success, prudence and savers, but it might be surprised—hopefully, pleasantly surprised—in due course to find that people on more modest means take advantage of this flexibility as well. We no longer live in a world in which everybody retires at 65 and does no more work. I see around my constituency many people taking on paid work into their late 60s and early 70s, either because they want to or, in some cases, because they have to in order to supplement their resources. Why should we debar them from this flexibility any more than richer people, if they have savings?

[Bill Esterson]

The right hon. Gentleman mentioned the record of the last Labour Government on pensions, but what about the record of the previous Conservative Government when it came to the mis-selling of pensions? I trust he would accept that that was a serious problem.

[The First Deputy Chairman]

Order. That is much wider than the amendment.

[Mr Redwood]

I would love to deal with that point, but I shall take your advice, Mr Evans. The real sin was the tax and regulatory raid on pensions under the last Government, which led to the wholesale closures of final salary schemes, and as a result of which most people starting out in work today have no access to a final salary work-based scheme in the way that their parents’ generation did. That is a great tragedy. However, this provision is a small move in the right direction, so I hope that the House will warmly welcome it. Well done to the Minister.

[Justine Greening]

I thank my right hon. Friend for his kind words. This provision is a step forward. As he said, it might be a small one, but it is an important one that will open up a flexibility that many whom we want to encourage to start saving for a pension will value, which is why it is important that we take the time to make an early start on this matter.

I want to respond to a couple of the shadow Minister’s points, including the one about the consultation document not being published in good time. This clause allows us to engage in a consultation. It was not necessary to launch the consultation today, but as it was it was launched at 12.30 pm, and by the time we got to the clause it was 5 o’clock—several hours after the document became available—which has meant that we have had a more informed debate today.