Finance Bill

Michelle Thomson Excerpts

Tuesday 8th September 2015 Commons Chamber

[Chris Philp]

I thank the hon. Member for Worsley and Eccles South (Barbara Keeley) for raising the significant issue of fuel duty, which affects all our constituents. It is, however, important to recall the context in which that taxation arises, which is the need to close what is still a very large deficit. Where opportunities exist to adjust taxation sensibly, it is prudent to do so.

My hon. Friend the Member for Havant (Mr Mak) mentioned the context a few moments ago. Home insurance premiums have reduced by 8% year on year during the past year, and car insurance premiums have reduced by about 10% during the past three years. Those reductions more than offset this relatively modest tax increase. I share the distaste of my right hon. Friend the Member for Wokingham (John Redwood) for tax increases, but I understand how, in these times of financial difficulty and given the need for deficit reduction, difficult choices have to be made, and I fear that this is one of those difficult choices.

I want to expand on my intervention about the effect of the fuel duty escalator. One of the most significant areas of insurance premium taxation is that of motor vehicles. The suspension of the fuel duty escalator has had a really quite impressive effect on the cost of motoring. The hon. Member for Worsley and Eccles South mentioned an estimate that the insurance premium tax increase would add about 2p to a litre of fuel. I have done some rough calculations on my iPhone during the debate, and I estimate that the saving delivered by the freeze in the fuel duty escalator in 2011 has saved approximately 12p per litre. Taken together, the effect of this Government’s policies on the cost of motoring is a net saving of 10p per litre, which I very strongly welcome.

I want to say more about an opportunity to do more to combat the cost of insurance premiums. I have personal experience of the very widespread practice of making fraudulent claims, particularly for personal injury. I will mention some statistics in a moment, but I will first talk about my personal experience.

A year or two ago, my wife and I were involved in a very minor traffic collision: the car got a bit of a bump and the bumper had to be replaced, but it was nothing more serious than that. A claims management company based in the north of England somehow got hold of my mobile phone number. I have no idea how it did so—from the breakdown recovery company, the insurance company or the police—but weekly for at least a year after the accident, I was called by an extremely pushy and aggressive salesperson. Essentially, they incited me to commit fraud. No matter how often I explained that I, my wife and my young twins had suffered no injury, they insisted that I must have suffered an injury such as a bad back or an aching neck and that I had a claim that could be settled at the insurance company’s expense. They repeatedly and persistently incited me to commit fraud.

The figures show that that is not an isolated example. Aviva is currently investigating 5,500 claims of personal injury fraud. Such fraud has increased 20% year on year. Personal injury claims have increased by 50% since 2007, despite the fact that the number of road traffic collisions has fallen during that period. In this country, personal injury claims make up 35% of insurance pay-outs; in Germany, it is only 4%. Aviva estimates that those claims add £50 to each and every insurance premium paid in this country, which is significantly more than the tax increase we are debating. It is estimated that one in nine personal injury claims is fraudulent.

We have an opportunity to do more to stamp out such fraud and to reduce the cost of insurance premiums, as hon. Members on both sides of the House have mentioned. I believe that there is a case for simply banning outright outbound phone calls by ambulance-chasing law firms. We should just make it illegal for them to call people to incite fraudulent claims. I would certainly be very happy to vote for legislation to outlaw such a practice. If anyone has a genuine claim, they can find a law firm’s number in the “Yellow Pages” or on Google; people do not need to be phoned in this way. I urge both Government and Opposition Front Benchers to take my proposal very seriously.

[Michelle Thomson (Edinburgh West) (SNP)]

I will do something that feels slightly unusual and address my brief remarks to clause 43.

We know that there is a planned increase from 6% to 9.5%—an increase of 58%—but let us not forget that that also applies to administration costs. Throughout the debate, the figures have been evaluated and we have realised that the increase to house contents cover will affect about 20 million people. The people who are likely to move more frequently are those who are not owner-occupiers. Of course, that plugs into the argument, which has already been proven, that lower income groups pay more. The so-called poverty premium, which was explained by Donald Hirsch and backed up by the Joseph Rowntree Foundation, is therefore valid in this instance.

The Government state that the tax applies to only one fifth of all premiums, but that is the wrong measure. We should be concerned about the distribution of those premiums. Young drivers aged 21 to 29 make up 14% of the driving population, but 34% of uninsured drivers. Perhaps Adrian Smith of KPMG called it correctly when he noted wryly:

“All I can guess is that there were so many taxes David Cameron ruled out increasing that there weren’t so many left”.

If the driver for this proposal is an increase in tax-take, it should be noted that the rise in January 2011 actually saw a fall in tax receipts of 1.3% between 2011 and 2015. Despite that, the Government suggest that receipts are expected to grow by 1.9% year on year between 2015-16 and 2020-21. I wish I shared their confidence. It may be that higher income groups will drop their health insurance, which is included in their P11D liability. That would, of course, put more pressure on the NHS.

Although the tax is levied on companies, I believe that it will inevitably be passed to consumers. It seems somewhat anti-business that the insurance industry, having done the right thing in making determined attempts to reduce fraud and passing the savings on to consumers, is rewarded with such a significant tax rise over such a short timescale. Let us not forget that businesses will also be affected by the application of the increase to corporate premiums. My worry is that that will disproportionately affect small businesses, which continue to struggle with a range of factors in the current operating environment.

Ultimately, if insurance is about protection and the negation of risk, why should it be more expensive for those who have the most to lose—in other words, the lower income groups?

[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.

--- Later in debate ---

[Roger Mullin]

In relation to business investment, it would be normal practice to undertake considerable consultations. If big changes are proposed to the taxation affecting businesses, there would normally be a process of easing those changes in, to allow the businesses time to do the appropriate planning. There is no possibility of businesses in the renewables sector being able suddenly to change their financial plans for the next five or 10 years following the ridiculously fast introduction of this measure by the Government.

[Michelle Thomson]

It is anti-business and anti-innovation.

[Roger Mullin]

It is also anti-consumer and anti-environmental. The Government have managed to accomplish a whole series of negatives in one simple move, and it will give me the greatest of pleasure to vote against this proposal.