Relief

Part of Orders of the Day — Finance Bill – in the House of Commons at 8:30 pm on 9 May 1989.

Alert me about debates like this

Photo of Nick Brown Nick Brown Shadow Spokesperson (Treasury) 8:30, 9 May 1989

Unlike many of those who have spoken in this debate, I have been able to attend the entirety of it, as indeed has the Government Front Bench. That is the way things work in this place, and quite right too. It is only fair that I confide to the Committee that the purpose of our amendment, although it only implies a delay in the implementation of clause 51 until 1993, is, of course, to do the clause in altogether. We anticipate winning the next general election, and the Labour party is certainly winning the by-elections.

The Committee has had a good trawl through the claims which the Government have made for the measure contained in clause 51, and essentially the Government's case has come down to two separate propositions. The Government claim that the scheme will help people who have had private health care cover during their working lifetime to continue with private medical insurance into retirement, when, as the Government have acknowledged, incomes fall and private medical insurance premiums rise.

The second, separate proposition which the Government have advanced for clause 51 is that it will reduce pressure on the National Health Service. As far as this side of the House is concerned—certainly as far as the Labour party is concerned—neither of those propositions has stood up to the scrutiny of today's debate. We regard the scheme contained in clause 51 as unfair, expensive and socially divisive, about which even those who genuinely support the Government have reservations. We were not surprised to learn from what I think are described as "the usually informed sources" among journalists, that initially the Secretary of State for Health and, indeed, the Chancellor strongly opposed the measure, and I find the denials that have been offered wholly unconvincing.

Many Conservative Members consider the proposal the first step towards more significant and far-reaching changes, seeing it as the starting point for a two-tier Health Service in which better-off citizens enjoy private medical care and separate, diminished provision is made for the rest of us. The hon. Member for Horsham (Sir P. Hordern), indeed, saw it as a starting point for other tax reliefs—applying, for instance, to private education—and said that he would never support that.

The Chancellor would have reasonable and understandable grounds for less than wholehearted enthusiasm about the scheme. My hon. Friend the Member for Clydebank and Milngavie (Mr. Worthington) pointed out that the right hon. Gentleman is trying to thin out the range of tax allowances available to be offset against income. Now, however, he is being forced by the Prime Minister to acquiesce in the introduction of a whole new range of income tax reliefs. The scope for tax avoidance is clear, and it makes nonsense of the Government's efforts to thin out some reliefs and cap others.

Much tax avoidance relies on a detailed knowledge of taxation regulations and an ability to fit the different bits together in such a way that losses can be offset against what would otherwise be taxable real earnings. Those who seek to reduce the scope for avoidance by cutting the number of reliefs available are fighting a losing battle against those who exercise real power in the Conservative party.

That should come as no surprise to anyone. The Conservative party is prepared to tolerate the abuse of the business expansion scheme and to allow the potential, indeed actual, avoidance in personal equity plans. It is willing to countenance a tax regime under which somebody earning £1 million a year could theoretically, if he made use of all the available allowances, pay no tax at all. In those circumstances, is it surprising that the Government are willing to acquiesce in this whole new territory for abuse—tax relief for private medical insurance?

I understand that even their own supporters have asked the Government to narrow the regulations as far as possible and to restrict the scope of the scheme. The political implications are obvious: tax concessions for the rich and a two-tier Health Service for the rest of us. The offer of tax relief is clearly of particular advantage to the better off. As my hon. Friend the Member for Renfrew, West and Inverclyde (Mr. Graham) has pointed out, it is they who need further financial concessions the least.

There was a rather ungainly scrap at the beginning of the debate: the Chief Secretary seemed astonishingly reluctant to confirm the facts contained in a parliamentary answer given by his right hon. Friend the Financial Secretary. I think it would be helpful if I read out that answer, in which the right hon. Gentleman told my hon. Friend the Member for Dunfermline, East (Mr. Brown): Tax relief on private medical insurance for the over-60s will not be available until 1990–91, when about 330,000 tax units (single people and married couples) aged 60 or above are expected to qualify for tax relief on medical insurance. The average subscription per tax unit is estimated to be about £400. Around one half of the cost of relief is expected to be received by higher rate taxpayers."—[Official Report, 22 March 1989; Vol. 149, c. 588.] I am surprised that the Chief Secretary found it difficult to stand up and say, "Yes, that is correct." Perhaps, however, his difficulty was understandable, as the social divisiveness of the proposal is something that the Government are trying to minimise.

According to the Government, about 90 per cent. of the cost of the scheme will be attributable to those who already have private medical insurance. In other words, it is a straight concession to people who have already decided to make such provision without the incentive of tax relief. The implication is that only 10 per cent. of the estimated cost is to be laid at the door of those who find the new tax allowances attractive. That is the "year one" position, and that is the key to the Government's thinking. Why on earth make all the elaborate arrangements for deduction at source for the person making the payment, along the lines of the MIRAS scheme? Why ensure that higher-rate taxpayers obtain their rebates through adjustments of their PAYE codes if the measure is to have only marginal consequences? Why put such arrangements in train if the long-term implications are not extensive or important?

These are the kind of arrangements that would be introduced for a scheme that was intended to be used widely and to become commonplace in the British income tax system. That is incompatible with the claim made by the hon. Members for Fulham (Mr. Carrington) and for Gedling (Mr. Mitchell) that this was not to be treated as any great event. I hope, incidentally, that the wife of the hon. Member for Gedling remonstrates with him when he gets home and she finds out what he has said tonight.

The Financial Secretary has told the Committee that the average subscription per tax unit is estimated to be about £400. That figure assumes the take-up set out in the parliamentary answer that I read out earlier. BUPA tells us, however, that the full cost for a pensioner couple can be as much as £2,160 a year, out of which the public will now have to finance payments of up to £860. It is not all as high as that, of course. BUPA claims that the cost of comprehensive cover when the older partner is over 70 will be £1,102 a year, cut to £827 by standard-rate tax relief.