Relief

Part of Orders of the Day — Finance Bill – in the House of Commons at 3:42 pm on 9th May 1989.

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Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury) 3:42 pm, 9th May 1989

The amendments address themselves to the issue of tax relief for private health insurance, one of the most widely trailed features of the Bill, which the Government expected to be greeted with widespread enthusiasm. I see no sign of that enthusiasm but I see it adding even more to the depression among many people working in the National Health Service about the Government's attitude to the entire service. I see it as a further demonstration that the National Health Service is far from being safe in the hands of the Prime Minister.

The amendments are designed to test the purpose of the new tax relief and to discover whether it is intended to open the door to an ever widening opt-out system in which more and more people are encouraged to believe that the only way to get reliable health provision is to buy their way out of the Health Service. In their reply to the amendments, perhaps Ministers will clarify the position.

At a time of such anxiety about the financing of the National Health Service, who but this Government would have chosen to devote at least £40 million immediately this year to tax relief for private health insurance? When the National Health Service is in such crisis, who but this Government would have diverted funds immediately to the private sector?

The crisis in the Health Service is partly but not entirely of the Government's making. Some of it relates to demographic change; to the increasing number of elderly people with which the Health Service must cope and the widening range of treatments now available for the illnesses and conditions from which those elderly people suffer. That crisis demands greater public funding, as successive reports of House of Commons Select Committees, including the Social Services Select Committee and the Treasury Select Committee, emphasised. Even the Government's most ardent supporters in the Health Service—it is quite hard nowadays to find Government supporters anywhere in the Health Service—remain as anxious as ever, despite the new funds to which the Chief Secretary to the Treasury will no doubt refer, because those funds have not kept pace with the growing need that the Health Service faces and the higher rate of inflation from which it suffers through the commodities that it has to buy.

3.45 pm

Where did the proposal for such substantial expenditure on private health insurance originate? It did not come from within the National Health Service, where it is hard to find anyone who welcomes or is enthusiastic about the idea. Nor did it come from the House of Commons Social Services Select Committee which said in its fifth report: In our judgment, the creation of new tax subsidy on all private health insurance cannot be demonstrated to extend total availability of health care. It would reduce the total public expenditure from which Health Service resources are drawn while at the same time narrowing the tax base still further. That is a clear recċognition of the force of the arguments against such a proposal.

The proposal did not come from the National Health Service and it did not come from those Members of Parliament who take the closest and most careful interest in the National Health Service. It did not come from the Treasury Ministers who have to defend these clauses today. All the smoke signals from the Treasury were that Treasury Ministers were strongly opposed to the use of tax relief to encourage private health insurance and would regard it as a departure from their stated policy of broadening the tax base and reducing the rate of tax. The Government's declared policy on income tax is surely that the base for that should be as wide as possible and that the rate of tax should be as low as possible. Yet in this measure they are specifically narrowing the tax base and departing from their crusade against all tax breaks and tax incentives. It would be interesting to hear today whether they intend to abandon their crusade and return to an era of widespread tax relief and a narrower tax base or whether they have had to swallow one single inconsistent policy because the Prime Minister insisted on it.

The basis of the proposal is the Dulwich factor, the Prime Minister's view of retirement and old age, which is that the best way to health care is to opt out and therefore that should be subsidised and encouraged.

That leads one to question the purpose of the provisions in the minds of the Treasury Ministers. The amendments test the proposals by arguing that tax relief should not be granted to existing holders of private health insurance. It is necessary that we establish whether the measure is intended to be a growing provision for a widening number of people encouraged to opt out of the National Health Service, or whether it is what Treasury Ministers have recently said it is. I listened with some fascination to the Chief Secretary when he answered questions last Thursday. When he was pressed to give his view of the proposals he replied: In a ringfence way it will help many elderly people who wish to continue medical insurance cover on retirement but who are unable to do so because they have lost the benefit of the employer scheme. At the moment of retirement their income tends to fall and their premium tends to rise. We are seeking to retain the capacity for these people to sustain and retain the medical insurance they have previously had. That is entirely fair and reasonable, and I support it thoroughly." —[Official Report, 4 May 1989; Vol. 152, c. 351.] I have heard of proposals being damned with faint praise, but that takes the prize for the faintest praise I have heard in a long time. The Chief Secretary was saying that the Government's proposal was nothing that the Prime Minister had in mind and that it was not an attempt to encourage large numbers of people to take up private health insurance, but was for those who had already found themselves in employer-based, employer-funded schemes and who, when they retired, had to decide whether to stay in the scheme. Such schemes become expensive, because at retirement age, people have to pay their own premiums and they are in the age bracket at which premiums are higher. For such people alone, the Chief Secretary seemed to imply, the Government were making special provisions. That is not what clause 51 says and it appears to be intended to be much wider. The Chief Secretary's view seemed to be attempting to find something in the Government's proposals that he could support with a modicum of enthusiasm. He will have to go much further tonight, unless his promotion chances are to be restricted, because he will have to say that he welcomes the proposal in its entirety and not only that small part he singled out when answering questions.

The proposal goes wider. It is part of the route to a two-tier Health Service, in which the better-off do not depend on the public provision. It will undermine the essential principles of the National Health Service, which one of my predecessors as Member of Parliament for Berwick-upon-Tweed, William Beveridge, laid down and which were implemented by the Labour Government in the years immediately after the war. There was the principle of a universal service, available free to all at the point of delivery and which should not require people to take out private insurance to provide for their essential health needs. There is no reason why people should not make provision for whatever they wish, whether health, leisure or a more comfortable retirement, out of their own taxed income. However, there is no reason why the generality of taxpayers, many of whom are struggling hard to make ends meet, should subsidise those who make the choice to have health provision outside the National Health Service. Those who have been called on to subsidise such provision are often those in the greatest need. That is an argument that Ministers are fond of using themselves against many aspects of public expenditure, but they seem unwilling to use it when it comes to the hard-pressed taxpayers at low levels of income subsidising those who are well-off enough to engage in private health insurance.

The provision will bring into the Health Service a further degree of inequity and it will benefit the richer pensioners because it will apply not only to the standard rate of tax, but to those on higher rates, who can claim relief at a higher level at the expense of the ordinary taxpayer. The cost of the provision is open-ended, but is likely to become expensive. I do not know how the Government made an estimate, but they have estimated that in the first year, the cost will be £40 million. That is the basic cost of giving relief to those already insured, who without any incentive have seen fit to take out private health insurance. They have made a free choice to do so as they are entitled to do. The Government propose to reward those people with a subsidy of £40 million, although the money could better have been used in the Health Service itself.

Amendment No. 18 seeks to take away that element of cost by not providing tax relief for those who are already insured. As the number of pensioners with private medical insurance plans increases, both because of the increasing number of elderly people and because of the increasing proportion of those retiring who have been in company schemes, the cost could escalate considerably, which I presume is the Government's intention. What incentive will there be for private medical insurance firms to control costs when tax relief will make the premiums cheaper? As relief becomes more expensive and more widely enjoyed, Treasury Ministers know that it will become progressively more difficult to restrict and even more difficult to remove.

The Government's argument is that the provision will relieve pressure on the National Health Service. That argument is not even supported by those most closely involved in the health insurance industry. The Investors Chronicle analysed the benefits to be obtained from taking advantage of the tax relief and concluded: private medical insurance should not be regarded as a substitute for the NHS, since it does not provide an emergency ambulance service or cover long-term hospital care. The article goes on to say: BUPA, the leading medical insurer with about 60 per cent. of the market, defines treatment as 'surgical or medical procedures the sole purpose of which is the cure or relief of … illness or injury'. This excludes chronic illnesses such as cancer and on-going treatment such as renal dialysis. Most insurers do not cover alcoholism or psychiatric problems". The publication then lists a number of other problems not covered by private health insurance.

Private health cover is likely to take up those parts of the National Health Service that can be made profitable rather than those which cannot, by their very nature, be made profitable, such as after-care, community care, preventive medicine and the long-term treatment of conditions such as senile dementia, which is now a great problem for many elderly people. For all those things, most people will continue to depend on the National Health Service and the Health Service will pick up many of the after-care costs associated with treatments covered by private health insurance.

Even though the private sector may succeed in adding to the total of treatment carried out—one can only welcome any additional treatment that it secures—all health experience suggests that it will still give rise to more dependence on the National Health Service. There is no escaping the fact that any diversion of money into the private sector will not help the NHS with its problems but instead will make them infinitely worse. I simply do not understand how Treasury and Health Ministers can blind themselves to that fact—unless it is simply that the Prime Minister has power to override all reasoned argument in her Government.

There are 12 million people over 60, and the number is growing. Of those, 600,000 have so far chosen to invest in private health cover. It is costing £40 million to subsidise that 5 per cent. and it will cost perhaps £200 million to subsidise 25 per cent. of eligible pensioners. That constitutes a large and growing diversion of funds from the NHS, which it is in no position to afford. All over the country, hospitals are crying out for staff—the continuity of resources that will enable them to staff facilities that already exist. As Ministers go round opening glossy new hospitals, they should be aware that such hospitals do not add up to much if they cannot be staffed and cannot provide the services that they are designed to provide. The funds that are to be diverted in this way could have helped to keep existing facilities going and to improve them.

The amendment would remove that first year burden. I have tabled it as someone who is wholly opposed to the principle of a public subsidy going to private health insurers. In seeking the support of the Committee for the amendment, I also seek its support in opposing the principle of money that is desperately needed in the Health Service being channelled into private health insurance, when those who wish to choose that insurance can already do so freely and need no public subsidy to encourage them.