WITHDRAWAL OF RELIEF ON MEDICAL INSURANCE PREMIUMS (Hansard, 28 July 1997)

§ Mr. Nick St. Aubyn (Guildford)
I beg to move amendment No. 1, in page 10, line 29, at end insert 'and'.

Mr. Deputy Speaker
With this, it will be convenient to discuss the following amendments: No. 2, in page 10, leave out lines 32 to 36.

§ Mr. St. Aubyn
The amendment raises some technical points but also some issues that are fundamental not only to clause 17 but to the whole way in which the Bill has been framed and forced through the House.
On 16 July, my hon. Friend the Member for Daventry (Mr. Boswell) and I discussed a number of important cases of private medical insurance for which the intentions of clause 17 were not adequately clear. We identified three types of medical insurance. The first is verbal contracts entered into before the cut-off date mentioned in the clause—2 July—but where the confirmatory documentation had come after that date. The second is contract renewals, where an insurance company's client had agreed before 2 July the contract renewal of an insurance policy for another year, but where the contract came into effect after 2 July.
The third type of contract, and by far the greatest number—in the case of one insurer, almost half of its business is written in this way—consists of annual contracts written as a series of monthly contracts. This method of writing insurance contracts has been approved by the Inland Revenue because it avoids some of the complications of the Consumer Credit Act 1974. It is an entirely legitimate and approved way of doing business, yet clause 17 is unclear about how such contracts would be treated. Would the relief end at the end of the next month and at the start of the next monthly contract, or would it carry through to the end of the series of monthly contracts?
Those were the points which we put to the Financial Secretary to the Treasury. We did not ask for an immediate response. We understand that they are technical points. The hon. Lady was free to go away and think about the matter before clarifying to us what the clause was intended to do. But she wasted no time in putting my hon. Friend the Member for Daventry and me firmly in our place. She said that we simply had not read the clause clearly, and that if there were any doubts, the answers would be found in the explanatory notes from the Inland Revenue.
My hon. Friend and I reread the clause and the explanatory notes, but I am sorry to say that we found nothing dealing with verbal contracts, nothing that resolved our concerns about contract renewals and 84 nothing at all about monthly contracts. We were grievously misled, albeit perhaps unintentionally, by the words of the Financial Secretary.
If one reads Hansard, there is no doubt that we were given assurances that the answers would be found, but they were not to be found. If ambiguous clauses are put together in haste, as part of a Budget put together in haste, it is no use complaining if others do not grasp the intended meaning of the clauses. When others ask for clarification of the meaning, it is not good enough to hide behind official documents and statements that do not answer the specific questions raised.
I raised the matter with the Leader of the House, who told me in the Chamber that the correct forum for discussing it would be at a later stage in the proceedings on the Bill. So we are here tonight, in the correct forum to discuss how those important cases are to be treated.
The assurances that I hope we will get from the Financial Secretary must depend of the credibility of her words. Will she take this opportunity to correct another misstatement that we heard on 16 July? In the process of dismissing our concerns, which still exist, the Financial Secretary said:
There is no indication that those who have private medical insurance and receive relief will change their minds because of our decision."—[Official Report, 16 July 1997; Vol. 298, c. 417.] My hon. Friend the Member for Daventry pointed out that there had been a report recently from the Economists Advisory Group which made it clear that the withdrawal of the relief would have an effect on the numbers who take out private medical insurance. We know as the result of a letter from one of the insurance companies that the Financial Secretary had received a copy of that report in mid-May, yet she told us in July that there was "no indication" of the effect of the relief being withdrawn.
Did the Financial Secretary utter those words because she failed to read that important report on the effects of withdrawing relief on medical insurance, or because she failed to remember what she had read in the report, or did she simply fail to tell us, even though she had read the report and she did remember it? Perhaps she will let us know in which sense she misled us on this vital point.
There is an irony about clause 17 coming from a Government who claim to govern for the many, not the few. The irony arises from the clause, coupled with the relief on the rate of VAT on fuel. The combined effect of those two measures is regressive. Although the savings on fuel will benefit most those who spend the most on fuel, the study that I mentioned and others that I have received from insurance companies make it clear that—

§ Jacqui Smith
Does the hon. Gentleman agree that the definition of regressive taxation is based on the proportion of a person's income that the tax takes, not the absolute amount? Therefore, because VAT takes a larger proportion of the income of those on lower incomes, it is regressive. It is not the absolute amount but the proportion that matters.

§ Mr. St. Aubyn
If the hon. Lady will wait a moment, she will realise that the combination of measures is indeed regressive. Studies have shown that waiting lists will go up as a result of the measure. Some people will not be able to afford the premiums without the tax relief. 85 They will go back to depending solely on the national health service, and when they need treatment, they will add to waiting lists.
According to the report that I mentioned, an increase of 30,000 a year on waiting lists will be the first result of the measure, and those numbers will be concentrated. Everyone—not just the few, but the many—will have to wait longer if they want a hip replacement operation, cataract procedures, a coronary bypass or other operations commonly required by elderly people, many of whom never aspired to private medical insurance, but all of whom will be affected as those who had such insurance revert to reliance on the health service and add to the waiting lists.

§ Liz Blackman
Is the hon. Gentleman aware that insurance companies such as the Norwich Union already have advertisements in the newspapers stressing that there will be virtually no impact on their customers? They calculate that the impact will be virtually nil and that they will retain their customers.

§ Mr. St. Aubyn
I am sure that the hon. Lady is old enough to know that one should not believe everything that one reads in an advertisement. However, if one is so under the spell of people who are in love with advertising, such a mistake is understandable.
Many prominent insurance companies have written to me, to my hon. Friends and to others, making it clear that although they will try to mitigate the effect of the change by offering people restricted cover, which they can do on terms that do not substantially increase the premiums, the collective effect of restricting the cover means that certain expensive medical procedures will not be covered, and when those operations are required by some of their clients, they will have to be performed on the NHS. The burden on the NHS will be spread over the entire community, and the waiting lists for the entire community will increase. We should be in no doubt about that.
Who will gain from the withdrawal of the relief and the loss of money for health spending? Those who will gain are those with the largest homes, who have the biggest heating bills. I think of people such as the Paymaster General. He has a very large house in my constituency, which is one of his many houses; I wish him well. It is, however, an irony that he is one of the people who will benefit the most from this combination of measures while other people, who are much poorer than he and who struggle to provide for their health needs through their health insurance policies, will no longer benefit. They regret that they will add to the burden on the national health service and they regret that, having provided for themselves for so many years, when they are most likely to need the help of their insurance policy, they will have to give up paying the premiums. That is a very sorry tale.

§ Mr. Caplin
Will the hon. Gentleman tell the House how many people who have taken out such insurance will be affected? I have listened to him for 13 minutes now and he has not given us any facts.

§ Mr. St. Aubyn
I can assure the hon. Gentleman that according to the Inland Revenue's own figures—indeed, those who read the explanatory notes will know this— 86 about 600,000 individuals have policies. According to the industry, typically, the number of people affected by a policy is two so we are talking about upwards of 1 million people who benefit from medical insurance policies. The industry's further estimate is that withdrawing the relief entirely will mean that almost half those individuals will give up the health insurance that they have today. If the figures are even a fraction of that, the savings from abolishing the relief will be wiped out by the increased costs loaded on to the national health service. What makes this measure particularly painful for the health service is that none of the savings will be channelled into the health service. They will be channelled into a reduction of VAT on fuel.
The manner in which the Financial Secretary has dealt with our objections has smacked of pride. The manner in which the clause has been introduced smacks of prejudice. I am afraid that not even Jane Austen could easily write a happy ending to this tale. Let us, however, try.
Despite my criticisms of the Financial Secretary—I know that she is new to her post and I realise that it is difficult to get to grips with such a big job—I am grateful for her letter to me of 25 July. The letter, although it patronises me, is nevertheless helpful in clarifying the situation and I am only sorry that it did not come earlier. I should like to clarify one or two points in the letter and if the understanding I have reached is correct, having heard from her and from others in the debate, I may be prepared not to press some of my amendments.
The first point that the Financial Secretary makes is that the transitional provisions of clause 17, which phase out the relief during the year as annual contracts come to an end, apply only where there is no contract in place before Budget Day. That is a very significant statement because the letter goes on to say that
the relief is withdrawn … in respect of all contracts made on or after Budget Day. Contracts made before then are not affected. If I understand the Financial Secretary correctly, her letter means that the significant date is not the date from which the next contract runs, which might be after 2 July, but the date on which the contract was agreed. That is the type of contract we are talking about when we refer to telephone confirmations of contracts that were made before 2 July, but for which the documentary evidence was not completed until afterwards. The letter would appear to cover that.
The letter also appears to cover the case where a renewal has been put through to a client of an insurance company and the renewal has been confirmed by the client before 2 July. The contract is made, but the start date of the contract may be some weeks after 2 July.
The third and most important group, because it is the largest group of contracts about which we are concerned in our questions to the Financial Secretary, is monthly contracts. In her letter, the Financial Secretary states There is no suggestion … that monthly contracts are to be treated differently. The problem we have is that the way in which some monthly contracts are written by some insurers, including Prime Health, an insurer in my constituency and one of the largest, does not marry up with the way in which the clause is written.
Since I and my hon. Friend the Member for Daventry raised the matter in the House on 16 July, Prime Health and others, I am delighted to say, have had verbal 87 assurances from the Inland Revenue that all their monthly contracts, however they are written, will be treated like annual contracts and that the relief will continue until the end of the series of contracts is completed because they have been approved by the Revenue. That is extremely good news.
There is, however, an extremely important principle here. Shall we see the regulation of taxation carried out by regulatory, bureaucratic fiat—by verbal assurances behind closed doors—or shall taxation rules be decided on the Floor of the House in open debate? That is what amendment No. 4 is about. Whether the matter is agreed by the Inland Revenue by verbal assurance or whether it is agreed here affects not only the certainty of the agreement, but the way in which we conduct business.

§ Mr. Nick Gibb (Bognor Regis and Littlehampton)
Another, wider, point is that the verbal assurances were given to only one taxpayer. Those verbal assurances are needed by other taxpayers who face a similar problem. We are discussing a fundamental principle of the rule of law and my hon. Friend was absolutely right to table his amendments.

§ Mr. St. Aubyn
I am grateful to my hon. Friend. I shall listen with great interest to what the Financial Secretary says in due course. I know that she is uncomfortable about the idea, but it may help her to realise that we feel that on two occasions, we were misled by her during the debate on 16 July. Opposition to the amendment would not only be highly misleading in the light of the assurances from officers of the Inland Revenue, but would, more importantly, for the reasons that I and my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) have explained, be an abuse of the process by which we determine statute on financial affairs in this Chamber.
If the Financial Secretary is willing to accept the amendment and to give the assurances that we seek, all will be forgiven, all will be sweetness and light, and the insurance industry will have come to a happy understanding. The ball is firmly in her court.

§ Mr. Tim Boswell (Daventry)
The whole House owes a debt of gratitude and admiration to my hon. Friend the Member for Guildford (Mr. St. Aubyn) first, for his pursuit of this matter in such detail, secondly, for his elegance and lucidity in bringing it to the attention of the House tonight and thirdly, for his pointing out the salient issues raised by the amendment.
The purpose of the amendments has already been admirably explained by my hon. Friend. It is, essentially, to elucidate and, if possible, correct aspects of the Government's proposals on the implementation of the withdrawal of private medical insurance relief. Those issues, as well as the general ones, were the subject of exchanges in the House between the Financial Secretary and us on Wednesday 16 July. I shall come back to those points of detail later.
On the wider issues of private medical insurance, suffice it to say, particularly as my hon. Friend the Member for Guildford has spoken most eloquently, that we simply do not believe that the Government have 88 succeeded in proving their argument that there will be real savings to the Exchequer from these proposals. We believe that savings will be substantially nullified by a significant return of policyholders to the national health service. We believe also that those arguments are well advanced in the economists advisory group report. If there are savings, and even to the extent to which they are borne out in practice as a result of the Government's measures, there will be a loss of revenue to the Exchequer, an increased load on the NHS and ultimately a detriment to those who have to rely on the NHS because they currently hold no private medical insurance.
Be that as it may, and given that the Government are bent on the withdrawal of private medical insurance, it is clearly desirable that the withdrawal of relief should be fair in its implementation and that every effort should be made to get things right. That is surely the right approach.
Our earlier exchanges sadly revealed what is being seen to be the Government's characteristic approach to matters of detail. I do not know whether they adopt such an approach because they are careless of the consequences on individuals. Perhaps, to be less charitable, they are themselves uncertain of detail. If they are, I shall be charitable to them in this instance because I recognise that we are dealing with complicated issues.
I have noticed more than once, however, during the passage of the Bill that we have been told by Ministers that it is all entirely clear—usually in the new clauses because not even a tax expert could possibly say it was perfectly clear from the Bill. Even my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) has had some difficulty with certain aspects of the Bill.
Having been told that everything is perfectly clear, we poor souls have to admit that it is not entirely clear to us and that we still do not understand it. That was the way in which the Financial Secretary, for whatever reason, chose to respond to points made with a degree of modesty and diffidence by my hon. Friend the Member for Bognor Regis and Littlehampton and myself in Committee on the Floor of the House. Indeed, that is why we are returning to these matters this evening.
I do not know how the occupants of the Treasury Bench saw their role as the Labour party in opposition. We, the present Opposition, however, are prepared, up to the limits of our ability, to tackle the Bill and to listen to advice and expressions of concern from professional persons, given the impact of the Bill. We shall then seek to query details and offer improvements.
If I have one piece of advice for the Government, it is that they should not raise their hackles and assume on principle and in advance that all Opposition amendments are necessarily wrecking in nature and always wrong. Given the Government's haste in the sorry business of the Bill, we from time to time—I say this assuredly to the Financial Secretary—are trying to help the Government to get their legislation right. To be more accurate, perhaps I should say that we are doing our best to protect our constituents from the collateral damage that the Government's carelessness and haste have inflicted in general.
It is in that context that the three detailed issues brought forward by my hon. Friend the Member for Guildford should be carefully considered. As my hon. Friend has explained, they relate to three specific categories of private medical insurance. First, there is the category of 89 policy taken out in sequence as a series of discrete policies over 12 months, but not as one period with monthly payments. I believe that the reason for that approach in some instances may be the operation of consumer credit legislation. For all practical purposes, however, they are annual policies or, if we must so describe them, quasi-annual policies.
The second category features those insurances that are covered by verbal contract without a confirmation in writing at any particular time, and certainly not at the time of the conclusion of the contract. The contract takes effect before it is confirmed in writing.
The third category features those insurances where renewal has been notified by the policyholder in advance of the deadline of 2 July, but the contract did not enter into force until after that date.
My hon. Friend the Member for Guildford has explained the details of these implications extremely carefully and I do not need to take up his arguments. I shall make three detailed comments, however, before inviting the Financial Secretary to consider the position with me.
8.15 pm
My first point is that the arrangements that we are considering, which have been carried out over a period of years by Prime Health in Guildford and by other insurers elsewhere, were entirely normal within the conduct of their business. There is no question of avoidance action to frustrate the Revenue.
Secondly, until the Chancellor's announcement on 2 July, there was a legitimate expectation on behalf of policyholders that their arrangements would stand until notified to the contrary. Certain undertakings had been entered into along with courses of action and there was the reasonable expectation that those would continue. As I said in Committee, there could be severe difficulties where contracts have been concluded, perhaps on a verbal basis, and tax relief withdrawn if the insurer were to hold the policyholder to a contract that he could no longer afford to maintain.
Thirdly, despite the helpful efforts of the Financial Secretary to clarify the matter, there is still a degree of ambiguity in her letter. We need to return to it to ensure that the points that it incorporates are thoroughly nailed down. In the hon. Lady's letter of 25 July to all members of the Standing Committee, she writes: There is no suggestion that the contracts have to be in writing—this is a matter of general, not tax, law". Yet previously in that same letter she denied any intention of extending transitional relief:
to verbal or monthly contracts or to contracts …commencing after 2 July.
Against that background, I still do not feel that these matters are as clear as perhaps the House is entitled to wish or as the Financial Secretary will wish to claim. I begin to piece together from an analysis of the Financial Secretary's letter the following scene—I should be grateful if the hon. Lady would harken to it as I think myself through these matters. I ask her to confirm later whether I am right.
First, I am sure that the Financial Secretary is right, although I am not a lawyer, that a contract is a contract is a contract, whether verbal or written. If there were 90 a contract between an insurer and a policyholder, one taken out before 2 July when the Chancellor made his announcement and subsequently confirmed in writing, if it was not written at the time that it was taken out, that contract would stand and would attract tax relief for the period of the contract.
As I understand the Financial Secretary's letter, the main thrust of the clause is about contracts concluded on or after 2 July and not about contracts taken out before that date. The hon. Lady is claiming, however, that she is giving helpful and additional transitional reliefs. The first would be in the instance of a new contract where the understanding was that the contract would be taken out but it had not been signed up to, for whatever reason. The hon. Lady is saying, possibly with the thought in mind that some such contracts may be real pre-2 July contracts but not nailed down in writing, that providing writing appears by 1 August and premiums are paid by the end of March 1998, they would qualify for tax relief for the current year.
The second category comes within renewal. It takes up the point that my hon. Friend the Member for Guildford raised in terms of Prime Health. I am referring to a contract taken out ahead of Budget day but not coming into force until a few days thereafter. That contract would be honoured for tax relief purposes in the current year, as long as it was consecutive on a contract that was already in place.
I apologise for these complications; I am certainly not trying to trip up the Financial Secretary. We are all anxious to get the legislation as right as we can. We are conscious, too, of Pepper v. Hart—hence the need for certainty in the debate.
The third category to which my hon. Friend referred comprised monthly contracts, or as I call them, quasi-annual contracts. Perhaps the Treasury has some sort of administrative concession in mind. I should prefer an administrative concession to nothing at all. There are awkward precedents for extra-statutory concessions—the Revenue allows them from time to time—that are not eventually validated in substantive law later on. Such concessions are an uncomfortable way to relieve a problem: to whom should they be made, will they be extended equally to everyone, and so on? Furthermore, they cannot, by definition, be justiciable. I submit that the last of my hon. Friend's amendments would serve the purpose much better, and I hope that the Financial Secretary will refer to it in due course.

§ Mr. Clifton-Brown
Does my hon. Friend agree that extra-statutory concession is a far from satisfactory way of dealing with the matter? It would be far fairer to people over 60, many of whom are not especially au fait with complicated tax law, to set down clearly in statute what is involved, thereby allowing their insurance companies to inform them clearly of their position.

§ Mr. Boswell
My hon. Friend makes the point better than I could. It is, of course, better to be clear in the statute. If the Government are not inclined to do that, some concession is better than none—but I was going on to mention the importance of how the concession is implemented. How will it be notified to policyholders, many of whom are elderly and who may get confused—although many have a pretty good idea of what is going 91 on? They will need to deal with their insurers, as they already do with the operation of relief at source. But they will need to know how this is to work, the more so if it is delivered by this roundabout route.
The devil is certainly in the detail, and the Government cannot behave as if the detail does not matter. It clearly matters a great deal to policyholders and insurers; and in terms of the smooth operation of revenue law and of fairness as between individuals.
We are still looking for greater clarification. It is the very least the Government can do for people who, even if the transitional arrangements are relaxed or at least clarified, will assuredly suffer in years to come from the principle behind these changes. We continue to oppose it.

§ Mr. Ross Cranston (Dudley, North)
I have been provoked to rise by the speech by the hon. Member for Guildford (Mr. St. Aubyn), who made certain assertions to which I shall return later.
In Committee, certain comments were made about the drafting of the Bill. On other occasions, I have been critical of the style of drafting that we use in this country, but clause 17 could not be a clearer statement of Government policy. As the Financial Secretary said in her letter of 25 July, the Bill's contents, including clause 17, must be interpreted against the background of general law—and the general law is quite clear about when a contract is made. A contract made orally and confirmed later in writing is made at the time of the oral agreement, so this is not a matter of deciding by "regulatory fiat"—the phrase used by the hon. Member for Guildford—nor is the matter very complicated.
I was provoked, as I have said, by some of the extraordinary statements made by the hon. Gentleman. He claimed that 1 million people were involved, but the Conservative spokesman conceded that at most 550,000 people might be affected by the tax relief. On Second Reading, we made the point that that number had hardly increased since the relief was introduced.
The hon. Member for Guildford also made the extraordinary claim that the abolition of this relief, combined with the relief gained from the cut in VAT on domestic fuel from 8 to 5 per cent., was regressive. On Second Reading, I described the extent of fuel poverty in the UK, quoting figures to show that those on lower incomes spend a much higher proportion of those incomes on domestic fuel than do those on higher incomes. So the VAT reduction has had a beneficial, progressive impact.
Help the Aged has commented on the measure, saying that it will affect only 5 per cent. of people over the age of 60: Help the Aged is more concerned about seeing improvements to the NHS so older people will receive high quality, accessible and free health-care.

§ Mr. Tim Loughton (East Worthing and Shoreham)
Not for the first time, there seems to be some incongruity in the hon. Gentleman's arguments. He is arguing against the amendment, which seeks to protect pensioners with monthly medical health insurance who would otherwise lose the relief immediately. The amendment is designed to allow them a fair phasing out, in line with others who hold annual policies. At the same time, the 92 hon. Gentleman is taking us down the highways and byways of VAT on fuel. On the other hand, proposals elsewhere in the Bill would delay the RPI benefits of a reduction in VAT on fuel until the following year. His colleagues have rather craftily chosen the date of 1 September instead of later in that month. Would the hon. Gentleman care to be consistent?

§ Mr. Cranston
The Minister will reply specifically to the amendments in a moment. As for rolling monthly contracts—it will be a matter of looking at each contract separately. Is it an indivisible contract, or is it a series of separate contracts?

§ Mr. Loughton
So that is a no?

§ Mr. Cranston
I am not sure I even understood the hon. Gentleman's question—

§ Jacqui Smith
That is because there was none.

§ Mr. Cranston
Earlier, my hon. Friend dealt very well with the non-regressive intent behind clause 17, combined with the reduction in VAT.
Finally, even the hon. Member for Daventry (Mr. Boswell), on Second Reading, quoted the comments of Mr. William Laing, from the consultants dealing with these matters. He said that this tax relief—the hon. Member for Daventry did not quote the words exactly although he alluded to the report—was ridiculous and could not possibly be justified in terms of savings to the national health service. So all this spilt milk about the impact on the NHS is just so much hot air.

§ Mr. Boswell
I am grateful to the hon. Gentleman for giving way, or perhaps simply subsiding. The reason why I did not quote from Laing is that I quoted from the Economists Advisory Group study, which went into the arguments of Laing and his colleagues very thoroughly and in my view more than adequately exploded them.

§ Mr. Cranston
I am reminded of the particular point that the hon. Member for Daventry made on Second Reading. The report from the Economists Advisory Group shows that the abolition of the relief would mean at most 30,000 more persons using the NHS. That certainly does not stack up against the figure of 1 million mentioned by the hon. Member for Guildford.

§ Mr. Clifton-Brown
rose—

§ Mr. Cranston
I am about to conclude my remarks.
The amendments are of no worth. My hon. Friend the Financial Secretary has already dealt in writing with the points that they raise and will no doubt repeat in a moment what she has already explained.

§ Mr. Gibb
The amendment would mitigate some of the crudities in the implementation of a very unjust and vindictive clause. When she winds up the debate, the Financial Secretary will no doubt claim that clause 17 is so important that the Government must dismiss the amendments out of hand. She will no doubt say that the 93 Opposition have not presented a valid case showing that the tax relief introduced in 1990 increased the number of people over the age of 60 who took out medical insurance. She will say that, as a consequence, the Government have every right to ride roughshod over the House and to abolish the relief with no subtle amendments being accepted because the Government know best on this issue, as on everything else.

§ Jacqui Smith
Does the hon. Gentleman accept that it is not just the Government who know best? In 1991, the former Chief Secretary to the Treasury, Mr. William Waldegrave—who, sadly, is no longer with us—admitted that the relief on private medical insurance had not worked very well, was expensive to administer, and had not been taken up very widely.

§ Mr. Gibb
Although there was a lack of take-up among people in the higher tax brackets, which is why in due course the relief was removed from them, there has been an enormous take-up among people over 60 in the basic rate tax bracket. I will give some figures in a moment.

§ Mr. Loughton
What we heard from the hon. Member for Redditch (Jacqui Smith) is just another outrageous version of short termism. The tax relief was introduced only in April 1990 and had hardly had a chance to get going.

§ Mr. Gibb
I am grateful for my hon. Friend's intervention.
Figures show that in 1990 some 400,000 individuals over the age of 60 then had private medical insurance. By last year, the number had increased to 600,000—an increase of 50 per cent. The Financial Secretary will therefore be wrong if she claims that the amendment cannot be accepted because the Opposition have provided no proof that the relief had any effect. During that period, there was no overall increase in the number of people of all ages taking out private medical insurance, which proves incontrovertibly that the relief enabled more people over the age of 60 to take out private medical insurance.
Let us deal now with the issue of cost. The hon. Member for Dudley, North (Mr. Cranston) claimed that Age Concern is more interested in improvements in the health service than in giving tax relief to the mere 5 per cent. of the population who have private medical insurance, but how will abolishing the relief have any positive effect on resourcing the NHS? If anything, it will have a devastatingly negative effect on resourcing the NHS as the Government push more people into dependency on the NHS.
According to the Red Book, abolition of this tax relief will raise £115 million. Grossed up, that figure corresponds to premiums of £500 million. If one assumes a claims-to-premium ratio of 80, as the industry does, it corresponds to £400 million of treatment costs. If one assumes, again as the industry does—and this is a conservative assumption—that if only one in three people give up their health insurance as a result of clause 17, that corresponds to £133 million-worth of medical treatment. Some people put the figure much higher, as my hon. Friend the Member for Guildford does on the basis of information that he has received.
94 Even if we take out of those figures the hotel costs that private medical insurance covers—they are not regarded by the industry as particularly significant—there is at best only a break-even position between what the Government will save and what they will have to spend in providing health treatment for the people who have given up their private medical insurance.
It is worse than that, however, because there is also a domino effect. As prices are increased generally for health insurance for the over-60s, more people will abandon that insurance, which in turn means that there will be fewer people to carry the burden of the risk, shoulder the costs and cross-subsidise one another. Even without the tax relief, prices will have to rise, which again means that even more people will have to leave their private medical insurance schemes.
That tallies with letters that I have received from my constituents. In my constituency, 36.6 per cent. of the population are retired and a large proportion of them have private medical insurance. They have written to me in great numbers expressing concern about the proposed abolition of private medical insurance relief. It is absurd that the Government should be introducing such a measure at a time when we are concerned about an ever-aging population and when there are increasing demands on the NHS. It is a cruel and vindictive policy.

§ Liz Blackman
Can the hon. Gentleman explain why the proposal is so vindictive when the majority of taxpayers are paying twice—once for the NHS care that the majority receive and again for a relief that benefits the few?

§ Mr. Gibb
It is a tax break. It is the people who take out this insurance who are paying twice—once through their own taxes, although they rarely take up any benefit from that through the NHS, and again through their private medical insurance, which is what will cover their health care as and when they need it. The figures show that the proposal is vindictive. The Government are focusing the policy on a minority who have taken the trouble to pay twice.
Let us consider the figures: 28 per cent. of all hip operations take place in the private sector, 20 per cent. of all heart conditions are treated in the private sector and 20 per cent. of all acute conditions are dealt with in the private sector. Yet the Government want to damage the private sector. That is what I mean when I say that the proposal is vindictive. It will mean that fewer people have the opportunity to have hip operations or to have their heart conditions and acute conditions treated.

§ Liz Blackman
The hon. Gentleman's notion of choice and opportunity is a little skewed. The majority of taxpayers pay once to avail themselves of NHS treatment, and again through their tax contributions, part of which go towards private medical insurance relief. The point is that the majority of people do not have that choice: only the few who can afford private medical insurance—which is topped up by the many—have that choice.

§ Mr. Gibb
The hon. Lady needs a lesson in mathematics, because tax relief on those premiums is worth only 20 per cent., whereas the claims-to-premium ratio is 80. Tax relief is therefore a fraction of the health care costs spent on people with private insurance who make claims to cover their treatment.
95 All that will happen if the relief is abolished and people leave the private sector and use the health service is that an enormous deficit will be created. The only reason why the NHS will break even rather than have a huge deficit under the policy is that two out of three people will grin and bear it and pay more. But for that fact, the policy would have a devastating impact on the NHS. The policy will not do the health service any good, however, and it will lead to a further stretching of resources. The policy is vindictive.
Only 10 per cent. of the population have taken out health insurance; yet the figures show that 28 per cent. of all hip operations and 20 per cent. of all heart operations are conducted in the private sector. As our population is growing ever older, why have the Government decided now to abolish the relief? The hon. Member for Erewash (Liz Blackman) spoke of extending choice and opportunity, but how have the Government extended choice and opportunity for people to take out private health insurance by making it more expensive?
The previous Labour Government abolished grant-aided schools, and how did their action increase choice and opportunity for people on low incomes to send their children to public and private schools? The policy resulted in more exclusive education and provided fewer opportunities for middle and lower-income people. Abolition of private health insurance relief will have the same effect. The policy demonstrates the same old vindictive Labour politics of envy and will achieve nothing, saving no money and placing a bigger and unsustainable burden on the NHS.
If relief were left in place, ever more pensioners would take out private medical insurance. There is no reason to believe that the trend from 1989 to 1996 of those taking out private medical insurance would not have continued, helping more people to receive more treatments in the private sector and relieving more of the burden on the NHS. That would allow more people who are dependent on the NHS to enjoy shorter waiting lists and to receive more treatments.
The Government should accept our amendment, because it would mitigate at least some of the problems caused by the policy. The Government should also take a less high-handed and arrogant stance. Most importantly, the Government should stop reverting to their old-Labour type by abolishing a greatly needed tax relief.

§ Jacqui Smith
The hon. Member for Daventry (Mr. Boswell) described himself as "modest and diffident" in discussing amendment No. 1. To be fair, he attempted to discuss the minutiae of the amendment. The gaff was blown, however, by the hon. Members for Guildford (Mr. St. Aubyn) and for Bognor Regis and Littlehampton (Mr. Gibb), who made it quite clear that the intention of their group of amendments is not to deal with small anomalies but to have another go at the principle of removing relief on private medical insurance.
Today, we have debated the principle of removing relief in greater detail than we did in the debate on Second Reading, in which I and several other hon. Members in the Chamber spoke. In this debate, Conservative Members have gone so far as to suggest 96 that people who take out private health insurance are not so much exercising freedom of choice in the market as performing an altruistic function—helping the rest of us to get more out of the health service by spending their money on what they think is better service in the private sector. Such an assertion is ridiculous. Moreover, as I said in the previous debate, for Opposition Members to believe that the NHS can operate effectively only if people are bribed to leave it and to take out private medical insurance is an indictment of their views.

§ Mr. Flight
If 600,000 people simply left the private sector and received treatment in the state health sector, a massive increase in NHS funding would be necessary and taxes would have to be raised. The very crude point is that people, to the extent that they take out private insurance, are saving the NHS a major bill.

§ Jacqui Smith
The hon. Gentleman's point is extremely crude, and it was dealt with on Second Reading when we said that, despite the introduction of relief on private medical insurance, there was no significant increase in the number of people over 60 taking out private medical insurance. Conversely, therefore, removing the relief—in order to use that money for something much more worthy—will not result in a flood of people returning to the NHS. The hon. Gentleman not only made a crude point: he was inaccurate in the facts.
Conservative Members have made it clear that they are concerned only about the principle of relief on private medical insurance. As we said in the previous debate, trying to persuade people to take out private health insurance is not the way in which to defend the NHS—if that is what Conservative Members are interested in, although I doubt whether it is. Even if that were the best way of defending the NHS, the relief that we are debating has not proved to be particularly effective. As I said before, even William Waldegrave, the Chief Secretary to the Treasury in 1991, admitted that the relief was not especially effective. As Labour Members have said, and as the previous Government admitted, the relief was not effective because the Conservative Government removed it at the higher rate. The relief, therefore, is not only unjust but it does not work.
Conservative Members should be honest. They are not concerned about the minutiae of the amendment.

§ Mr. Damian Green (Ashford)
The hon. Lady persists in mentioning that William Waldegrave was Chief Secretary to the Treasury in 1991. He was not Chief Secretary in 1991. That throws some doubt on her argument, which she is basing on something that is not true.

§ Jacqui Smith
If he was not Chief Secretary, I apologise. Nevertheless, the Conservative Government's reduction at the top rate gives credence to the belief that they did not think that the relief was working.
The basic point is that the group of amendments are not about the minutiae that the hon. Member for Daventry—but no other Conservative Members— 97 mentioned. To be fair, in Committee Conservative Members often raised very boring, but legitimate, points on the minutiae of the Bill.

§ Mr. Woodward
I am struck by the hon. Lady's comments. I should like to ask her to clarify one matter for Conservative Members. Is she saying that she is against private medicine in principle—yes or no?

§ Jacqui Smith
At no point have I said that I am against private medicine. I said—I will repeat it for the hon. Gentleman, almost word for word—that if people choose to go into the private market to buy private medical insurance for themselves, that would be fine by me, but I do not believe that it is right—

§ Mr. Woodward
Will the hon. Lady give way?

§ Jacqui Smith
No.
It is not right that the vast majority of taxpayers should fund the private decisions of a few people to buy private medical insurance, because the money could be used in better ways. The money saved could be used in a progressive, not regressive, manner by funding the reduction in VAT on fuel—which, as my hon. Friend the Member for Dudley, North (Mr. Cranston) pointed out, the hon. Member for Guildford said is not regressive.
As we said on Second Reading, we have a clear choice: we can allow the many to subsidise the few in their private decision on private medical insurance, or we can use that money to reduce VAT bills for the many. The Government have made the choice, and Opposition Members will not get very far by haggling over the minutiae of the Bill as a cover for disagreeing with its principle.

§ Mr. Clifton-Brown
I am delighted to follow the hon. Member for Redditch (Jacqui Smith) who made a speech from good old Labour, which opposes choice in the health service or any of our other great public services. Old Labour would really like to abolish all private medical facilities.
I would chastise my hon. Friend the Member for Guildford (Mr. St. Aubyn) as his amendment does not go nearly far enough. I would have tabled an amendment to extend tax relief for at least another 10 years—then we would have been getting somewhere. The acid test is whether the clause benefits the national health service. Patently, the national health service will suffer as a result of its implementation.
I wonder whether Labour Members remember that one of the pledges on which they fought the general election was that to reduce NHS waiting lists by 100,000 people. Does the clause do anything to meet that pledge? No; it almost certainly makes it much more difficult to achieve.

§ Mr. Bennett
Will the hon. Gentleman give us an assurance that, this time, he will stay to listen to the answers to his questions? Some of us were a bit shocked that in an earlier debate he made a strong point but did not bother to remain in the Chamber to hear the answer.

§ Mr. Clifton-Brown
That is a petty point from the hon. Gentleman, who has attended hardly any of 98 the Budget debates. He pops in to make silly interventions and then pops out again. That cannot be a sensible way to proceed.

§ Mr. Woodward
Had my hon. Friend remained in the Chamber, he would have discovered that a number of questions that had been put to the Financial Secretary, not least about whether the Government intend to scrap MIRAS next May—although that is now absolutely clear—were not answered. Had my hon. Friend been able to stay in the Chamber, he would have had rather an unsatisfactory time.

§ Mr. Clifton-Brown
I thank my hon. Friend for enlightening me. Perhaps that was a good reason not to remain in the Chamber—I did not expect to get any answers—but I should be most grateful if the Financial Secretary would give me one positive answer this evening. We know how much money the measure will raise, as the figure is in the Red Book. I should like to know what the net costs to the health service will be.
We know that 13p in every pound paid out by PPP goes to the national health service. That amounts to about £220,000 a day or some £55 million a year. According to my local NHS trust, when private patients are treated in the national health service the marginal cost to the trust is about 20 per cent. That means that PPP alone is giving the national health service a profit of £11 million a year. Taking into account BUPA and all the other private health care providers, I suspect that the figure will equal, if not exceed, the £135 million that the measure will raise.
What on earth is the point of introducing a Budget measure that will cost the country and the national health service money? It is political dogma and hypocrisy at its absolute worst. It is absolute nonsense.
We have already heard from my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) that 80 per cent. of medical insurance premiums are paid out in treatment costs. The private sector now treats 28 per cent. of all hip operations, 20 per cent. of all heart conditions and 20 per cent. of all acute conditions. It also treats a huge and increasing range of other ailments and conditions.
As people are living longer and are more affluent, perhaps we should give them a little more encouragement to use the private sector. The people who will be affected by the changes are those at the margins; it will not be right hon. and hon. Members who will retire on a parliamentary pension, but those who, throughout their lives, have saved a little bit of occupational or personal pension who will either trade down their policies and buy less expensive and less extensive cover so that when something serious goes wrong such as a heart condition they will be forced back to the national health service, or cease taking out a policy. That is much more serious for the country as, come what may, those people will be forced back to the national health service. When people are living longer and the previous Government introduced measures to encourage people to take out private pensions, it seems perverse to proceed with this policy.
There will be another serious effect on all private medical policies. As the numbers involved drop, the administration costs for those who are left will rise. When premiums rise because of the withdrawal of tax relief and 99 the increased administrative costs, even more people will drop out of the private sector and the national health service will be further disadvantaged.
I urge the Government to think carefully about the policy. It will hit a number of people at the margin, as has the reduction in MIRAS and the measures that affect savings accounts. All those measures will affect the middle classes—precisely the people who elected Labour to office. If the Government have any listening ear—which I doubt—I urge them to consider the measure very carefully.

§ Mr. Geraint Davies
We have heard a lot of hot air about the aims and objectives of the amendments in terms of clarity, fairness and helping the national health service. In my view, they represent a cynical attempt to frustrate the Government's efforts to bring about a fairer and more equitable system through the Budget measures relating to the health service and VAT on fuel.
The facts are clear and simple. We are all aware of the distorted industry views that the Opposition have obtained from various lobbyists with vested interests. The Inland Revenue has published figures that the Opposition have failed to read or to recognise. Between 1990 and 1997, the number of private medical contracts increased from 350,000 to 375,000—an increase of less than 10 per cent.—and the number of people involved rose from 500,000 to 550,000. At the time, the Opposition, then in government, were doing everything they could to make the distribution of power and wealth less equitable, so it is surprising that the number of people using the private sector increased by only 10 per cent. It is clear from the statistics that the demand for private medicine is not elastic at the margins and that the saving that the Government make as a result of the Budget measures will not result in a mass exodus from the private sector. That is rubbish.

§ Mr. Gibb
If the hon. Gentleman insists on quoting those figures, should he not also quote the overall figures for people of all ages who had private health insurance in the period he mentioned? I suspect that those figures would show a fall in the overall number taking out health insurance, demonstrating that the relief has encouraged those over 60 to take out private health insurance.

§ Mr. Davies
I think that the overall figure has grown. The relief pays public money to people to do something that they would do anyway. They are quite capable of paying for the services and will continue to do so. It is a regressive relief, in sharp contrast to our stance on VAT on fuel. The reduction in VAT on fuel will help health, because fewer old people will die of hypothermia and cold-related diseases. That is a good investment in public health.
I suspect that the Opposition really want a two-tier NHS in which some people are drained out to the private sector by bribing them with public money. That would undermine the universal stakeholding of the NHS and result in the atomised society that Lady Thatcher often spoke about. It would create an American-style system that costs more overall and leaves a large section of society with no health cover. That is their real agenda, 100 but the British people saw through it. That is why we have a Labour Government and why we shall make these changes.

§ Mr. Woodward
We have heard much from the hon. Members for Redditch (Jacqui Smith) and for Croydon, Central (Mr. Davies) about principles. Principles matter a great deal. The hon. Member for Croydon, Central has made much of the importance of vested interests. He referred to the possible vested interests of my hon. Friends. I do not know what their vested interests may be, but my view is straightforward. When debating a health policy, we should always ask whether it will help the patient.
We are all aware that the national health service will consume as much money as can be put its way. There is nothing wrong with that. When resources allow, we should make more money available to the NHS to make more patients better. I am sure that nobody disagrees with that.
Labour Members have not addressed whether the clause will help patients. The NHS still has lengthy waiting lists. We hope to reduce waiting times, but the reality is that waiting lists exist. I do not approach these issues ideologically. In all cases, I apply the acid test. Will the clause help more patients to be treated more effectively and more quickly?
The clause is the application of old-fashioned Labour ideology. We heard from the hon. Member for Redditch a gross dislike of the principle of private medicine. She suggested that the measure was a way of clearing up tax distortions to create a fairer medical system. Is it fair if the measure leads to an individual having to wait even an hour longer?
Labour Members pooh-poohed private medical companies' suggestions that the measure will lead to people withdrawing from private medical insurance policies. It almost certainly will. Labour Members have made much of the suggestion that the changes in relief led to an increase of only 10 per cent. in take-up. Even if we apply the same standard and assume a decline of only 10 per cent. in the number taking up private medical policies, the money will still have to be found to fund those people.
Where will the money come from? We all accept that NHS waiting lists are too long. In their manifesto and in election speeches throughout the country, Labour Members made much of the importance of reducing waiting lists yet, as sure as the sun will rise tomorrow morning, their policy will mean that waiting lists have to increase. They will increase because some people will decide that this measure is the straw that breaks the camel's back—the moment when, due to the loss of relief, they can no longer afford to continue the policy.

§ Liz Blackman
Several of my hon. Friends have made the point that the amendments are merely a smokescreen—and not a very good one—to hide Opposition Members' total opposition to the Government's policy. The hon. Gentleman is merely illustrating that point. I do not think that he has once touched on the amendments.

§ Mr. Woodward
The hon. Lady—if she would be kind enough to listen to the answer that she sought—is much concerned suddenly with not discussing the principle. She has suddenly been faced with the reality. She must realise that the statement is effectively, "No, we shall not in any 101 way encourage private medicine." In the name of distortion removing, it is possible to remove tax relief from those who would seek to spend their money—and exercise their choice and freedom—on enhancing their medical coverage.
Elsewhere in the Budget, however, the Government will provide as many tax reliefs as they like, such as in the film business. There is an obvious contradiction in the Government's policy. When it comes to pleasing their own particular sector, they are more than happy to provide any tax relief that is requested, but when it comes to looking after patients, due to their ideological principles, bang: down comes the scythe and they will not help people who wish to help themselves.
The kernel is that the Labour party still believes in good old-fashioned Labour envy. It wants to remove the opportunities of those who have saved and remove the opportunities that come from freedom and choice. We see that in the way the Government will sponsor tax relief on films but remove it from those who wish to make proper provision for themselves in their old age.

§ Mr. Swayne
May I point out to Labour Members that it is precisely because we are so wholly opposed to the principle of the measure that we are attempting to secure, on the basis of the amendments, some narrow relief for the categories that have been described?
I draw to the House's attention the extraordinary topsy-turvy world in which Labour Members appear to live. It has been suggested by a number of them that those who benefit from the relief are somehow getting something unfairly in comparison with other taxpayers. The word "subsidised" was used. The reality is the opposite. It is very simple, but I shall explain it for the benefit of Labour Members.
Someone who is over 60 years old and therefore benefiting from this relief would, having paid their taxes throughout their life, be entitled to NHS health care. Indeed, even if they had not paid those taxes they would still be entitled to NHS health care. Should they find that they need, for example, a hip replacement operation, they would be entitled to apply to the NHS for the operation.
However, this person applies instead to their insurance company and has a private health care operation. The Exchequer and the NHS therefore benefit from the fact that, although a person was entitled to make a claim and therefore incur a charge against the NHS, they have not done so, preferring to take advantage of payments that they have made throughout their life—certainly in the latter part of their life. Far from being smitten by a bill, the taxpayer has enjoyed a relief. In fact, with tax relief at 20 per cent., the general taxpayer has had something of a bargain.

§ Dawn Primarolo
Follow that! I decided, before today's debate, to consult the book written by Nigel Lawson, now Lord Lawson, called "The View from No. 11", because I thought that he might have something to say about the introduction of relief for private medical insurance. He does, and very interesting reading it makes. On pages 616 to 617, he describes his opposition to the implementation of private medical insurance relief for the over-60s. He says that he was forced to introduce it by the then Prime Minister and that I duly introduced it, trying to conceal my embarrassment, in my 1989 Budget. 102 Clearly, that embarrassment continues this evening as Conservative Members seek to defend a relief which, even when it was introduced, their own party seriously questioned—Conservatives questioned whether it was right to give a subsidy to people who had already decided to take out private medical insurance.

§ Mr. Clifton-Brown
rose—

§ Dawn Primarolo
Perhaps the hon. Gentleman can tell me why taxpayers' money should be used to subsidise activities in which individuals had already decided to engage.

§ Mr. Clifton-Brown
As the Financial Secretary has read the excellent book by Lord Lawson so carefully, can she tell the House of any other lessons that she has learnt from it, which she intends to implement in future Budgets?

§ Dawn Primarolo
None of that relates to this clause. To put the record straight, when the relief was introduced in 1990 by the Conservative Government, there were 350,000 contracts for private medical insurance in this category, covering some 500,000 people. There are now only 375,000 contracts, covering at most 550,000 people, and that clearly shows that the relief has subsidised action that people had already decided to take. Clause 17 has nothing to do with choice or forcing people to use the national health service. It is a question of how taxpayers' money is used to benefit the majority, not a tiny minority. This Government have already given £1.2 billion extra to the national health service, so we will take no lessons from Opposition Members about investment in it.
The hon. Member for Guildford (Mr. St. Aubyn) first raised the question of contracts during our debate in the Committee of the whole House. I am not a lawyer, but I understand that a contract arises when an offer is made and accepted. Had the notes on clauses meant written contracts only, they would have said so. I did not seek to mislead the hon. Gentleman about verbal contracts. He raised the fear that companies that operate through telephone sales will lose out. I think—I shall say this very delicately, in case I affront the hon. Gentleman—that that fear springs from a fundamental misunderstanding of the terms of clause 17. The clause is silent on verbal contracts. If an eligible medical insurance contract has been entered into before 2 July, it will attract relief until it expires. That is verbal and written.
I had no intention of misleading the hon. Gentleman; I simply assumed that he interpreted "contracts" in the same way as I do. This is not a matter for the Inland Revenue, but a matter of contract law. I cannot debate the niceties of contract law with the hon. Gentleman, because, as I said, I am not a lawyer, but that is the advice that I was given by the Revenue, and that was my understanding when I gave the hon. Gentleman the answer that I gave him in the previous debate.

§ Mr. Boswell
rose—

§ Dawn Primarolo
Does the hon. Gentleman wish to intervene?

§ Mr. Boswell
I was only going to say, "So far, so good."

§ Dawn Primarolo
That is a relief, although not one that costs a great deal of money.
103 9.15 pm
The next issue that was raised related to contracts made before 2 July, but commencing after that date. An insurance contract can be written so that the period covered does not commence on the date on which the contract is legally entered into, but commences at some date in the future. Opposition Members referred to that. Clause 17 would not stop such contracts attracting tax relief, unless an insurance company tried to be too clever by half and entered into a contract before that date. The contract would then cover a period longer than a year, but it would not qualify for relief.

§ Mr. St. Aubyn
The Financial Secretary is being very helpful. Will she make it absolutely clear, however, that if a contract renewal was agreed before that cut-off date of 2 July, but the natural period for renewal was a 12-month period beginning shortly after 2 July, the renewal would nevertheless attract relief for the full period?

§ Dawn Primarolo
No, it would not attract relief for the whole period, because it would now be for a longer period than the 12 months. There would have been a false start, in that there would have been an attempt to sign a contract before 2 July, when the starting period was well after that date.

§ Mr. St. Aubyn
I beg to differ in regard to the interpretation that can be put on the hon. Lady's letter to me. In the normal course of business, some insurance companies—including one in my constituency, which told me about this—send out renewal contracts before the renewal date, and receive confirmation of renewal before that date. Those companies will, therefore, have received confirmation of renewal before 2 July, for a regular 12-month period that starts shortly after 2 July. I should have thought that, given that a genuine contract had been made for a regular 12-month period, it would be reasonable to expect such a contract to be given the normal relief.

§ Dawn Primarolo
No, because the contract period starts after that date. The relief—and, following that, the transition—relates to contracts made before 2 July.
May I now deal with what the hon. Gentleman said about monthly contracts?

§ Mr. St. Aubyn
rose—

§ Dawn Primarolo
May I just make this point?
The hon. Gentleman asked when a contract was a monthly contract and when it was not, and how the Inland Revenue interpreted the position. The Revenue has had discussions with a number of insurance companies, and with the Association of British Insurers. They have made it clear that they consider the overwhelming majority of these so-called monthly contracts to be annual and, therefore, caught within the relief as it is proposed. It is possible, however, that there are 3,000 or 4,000 truly monthly contracts. The relief applies only for the period of the contract—the month—because that is the trigger.
The point that the hon. Member for Guildford raised in connection with the company in his constituency is now well understood. This is not a concession from the Inland 104 Revenue. It is how normal business is done with regard to those contracts. That information about the present situation has been made clear to the ABI and a number of other organisations.

§ Mr. St. Aubyn
The hon. Lady said in her letter to me: the relief is withdrawn … in respect of all contracts made on or after Budget day. Contracts made before then are not affected. It seems from that statement and from my careful reading of it in conjunction with the Bill that, if a contract is genuinely entered into before 2 July, but the start date—for normal commercial reasons—is slightly after, it will be recognised. After all, it was made before the critical date of the Budget, without any cognisance of what the Budget might contain. It would seem unfair for people who have committed themselves to making payments with the benefit of the tax relief to find on Budget day that the contract was suddenly superseded.
In the debate on 16 July, the hon. Lady may recall that I made an analogy with contracts for the exchange of property, in which case if the contract is exchanged before Budget day but completion happens afterwards, the old rate of duty applies. That is accepted on all sides. This is an analogous case. Perhaps the hon. Lady would like to answer that point.

§ Dawn Primarolo
The renewal itself does not necessarily make a contract. This a grey area. If the policyholder agrees, that is okay, but it is not the normal course of events. A renewal is sent out and then the person concerned agrees it. That is not covered, and I think that that is the point the hon. Gentleman is making.

§ Mr. Boswell
I am grateful to the hon. Lady and I realise that she is doing her best and attending to these matters in detail. May I check on that last point? If she is saying that the renewal is not by itself a contract because the contract does not come into force until after the operative date, can the policyholder—the person who has taken out the new policy or the renewal—rescind that policy, given the change in circumstances? This is a critical issue. If people are trapped in contracts on one assumption and cannot fulfil them because of a change in the tax relief, it is particularly inequitable.

§ Dawn Primarolo
That is the concept of a binding contract—an offer made and an acceptance. If a contract is made before, even if it starts after, 2 July, that is covered by clause 17. I was genuinely trying to explain that that is not an absolute, blanket rule. If the period of one year, which is the maximum for which relief is provided under the clause, is exceeded, all cases will not be covered. It is a combination—the contract and the 12-month period.
I genuinely believe that the Government have been extremely generous in providing for transitional relief and the fair phasing out of the relief for those people, the overwhelming majority of whom have, until now, been receiving a relief—a subsidy—for action that they would otherwise still have taken. All the forecasts and the predictions about the likely impact—how many people will give up their insurance—are exactly that: predictions from the very industry that is seeking the preserve the 105 relief, or subsidy, to the few. The Armageddon painted by Conservative Members simply does not bear scrutiny. The hon. Member for St. Albans—

§ Mr. St. Aubyn
Guildford.

§ Dawn Primarolo
I beg the hon. Gentleman's pardon—it has been a long day. The hon. Member for Guildford made his opening remarks on the basis, first, that I misled the House about contracts, and I have demonstrated to him that I did not; and secondly, that I said about the impact of the removal that there was no indication at the present time that people would cancel their insurance, and I stand by that claim. Already insurance companies are doing their best to ensure that they keep the business that they had before the relief and during the relief, and I have no doubt that they will maintain it after the relief is removed.
The measure is fair, removing a privileged position from the few and ensuring that the resources are spent for the benefit of the many. I sincerely hope that the House will accept—

§ Mr. Loughton
Will the Financial Secretary give way?

§ Dawn Primarolo
I have already taken lots of interventions.
I sincerely hope that the House will now accept that the proposals in the clause are fair, equitable and just to those who currently have a benefit that they should not have; and that they will enable those people to adjust to changes made to ensure that resources can be used instead for the benefit of the many and of the national health service.

§ Mr. St. Aubyn
I am grateful to you, Mr. Deputy Speaker, for having allowed, in the debate on amendment No. 1, a much wider debate on clause 17. As a result of that wider debate, it must have been realised by hon. Members on both sides of the House that there is a real difference of opinion about the effect of the clause, not only on those who take out health insurance, but on the availability of the health service to all members of our society.
The numbers involved have been a matter of dispute. Indeed, the hon. Member for Dudley, North (Mr. Cranston) questioned my competence when I was merely quoting an authoritative study from the Economists Advisory Group. The study clearly showed that where a tax relief is costed by the Revenue at £120 million rising to £140 million over the next few years, the amount of tax relief is 23p in the pound and the typical insurance cost is less than £700, it is easy to see how nearly 1 million people will be affected, either directly or indirectly, by the abolition of the relief. Those are the advisory group's figures, not mine; I know that other industry estimates quote smaller numbers.

§ Mr. Cranston
Will the hon. Gentleman give way?

§ Mr. St. Aubyn
No—there is so little time.
There is a wide range of estimates, but they all come up with big figures for those affected—upwards of half a million people and perhaps as many as 1 million. We can 106 also be quite sure that there will therefore be a knock-on cost, which will be measured in tens of thousands, if not more, as a result of the withdrawal of the relief.

§ Mr. Gibb
Will my hon. Friend give way?

§ Mr. St. Aubyn
Yes, I will give way to my hon. Friend.

Hon. Members
There is no time to give way.

§ Mr. Gibb
I just want to make an important point about the figures that the Inland Revenue has supplied to the Financial Secretary. Given that this is a relief applied at source, is it not the case that there tend to be inaccuracies in the Inland Revenue figures, because there is no necessity for such figures to be reported to it? The figures relating to MIRAS from the Inland Revenue are similarly inaccurate.

§ Mr. St. Aubyn
That point is well made. The figures involved are speculative. The most speculative part of the project is the theory that there will be no cancellations of policies and no oncost to the health service.

§ Mr. Geraint Davies
rose—

§ Mr. St. Aubyn
I will deal with the points made by the hon. Member for Croydon, Central (Mr. Davies) later.
The hon. Member for Dudley, North has said that this is a matter of general law, which need not trouble the House. The whole point of our argument has been summed up in the words of the Financial Secretary, who said that there are grey areas in the law. That is why we sought clarification. When we found that there was no such clarification in the clause or in the explanatory notes from the Inland Revenue, we felt let down, at the very least.
9.30 pm
The hon. Member for Redditch (Jacqui Smith) said that we regard the effect of the clause and the lifting of VAT on fuel as regressive, while she tried to argue that it was progressive. They say progressive, we say regressive, let's call the whole thing off. If they will not call the whole thing off, they should at least implement it fairly and squarely.
In that respect, I thank the Financial Secretary for offering clarification on the matters about which we have diligently sought it. We have done so, not because we feel that we should instantly understand such matters—and if we do not, no one else will—but because major companies in the industry, including one that happens to be in my constituency, were genuinely concerned. They felt, according to the hon. Lady's words, that there were genuinely grey areas in the law. They were concerned that they could promote health insurance policies to their customers with the benefit of tax relief, only for those customers to find later in the year, when their tax inspector looked at their returns, that that relief was to be disallowed.
What the Financial Secretary has said has clarified the issue greatly, but I am still concerned about her approach to monthly contracts. The information from the insurance provider in my constituency reveals that if the rules on monthly contracts are not interpreted in the most 107 favourable way, upwards of 20,000-odd contracts which it has outstanding will be immediately affected. I note that the Financial Secretary shakes her head. I listened carefully to what she said about monthly contracts; she has assured us that no more than a few thousand at the very most might be inadvertently affected by the way in which the relief is phased out.
The hon. Lady quoted Lord Lawson. It is always a pleasure to hear Labour Members quoting eminent Conservatives, but it is always disappointing that they are so selective in their quotations. I remember from the same book that one of its clarion calls was for clarity in tax legislation. That is what is lacking from clause 17. I fear that the hon. Lady has not read the entire book, but she appears to have gained the spirit from Lord Lawson that such clarity is needed in the clause.
As a result of the process, we are grateful for achieving a measure of clarity. On that basis, I do not believe that it is necessary to put the amendment to a formal vote.