Finance Bill

Debate between Peter Bone and Liam Byrne

Thursday 15th July 2010 Commons Chamber

[Mr Byrne]

My hon. Friend raises an extremely significant point. I am sorry that his amendment was not selected. The insurance industry will almost certainly pass on the increased taxes directly to consumers. That has been the history of increases in this kind of tax. So there is a strong case for advertising the increase more widely. I am sure that all of us as politicians will do our level best to make the news known in our constituencies.

[Mr Bone]

Is the shadow Minister saying now that he would support the private Member’s Transparent Taxation (Receipts) Bill—something in which the First Deputy Chairman of Ways and Means had a slight interest in a previous life—which required that receipts showed how much tax and duty had been paid so that they were better advertised?

[Mr Byrne]

I have not studied the Bill, so I am grateful to the hon. Gentleman for drawing it to my attention. We have had good debates over the past two or three weeks about the need for greater transparency both in economic policy making and in tax policy. The Bill certainly sounds as though it would contribute to that agenda.

The hon. Member for Christchurch raised a number of public policy points. He did not dwell much on the impact of the new charges on low income groups, and I should like to touch on that different policy question. It is important that we debate it this afternoon. The Association of British Insurers has argued for a long time that the tax is regressive. IPT has been raised in the past by Conservative and Labour Governments, and the ABI has been consistent:

“IPT is a regressive tax. It imposes a disproportionate burden on the less well off individuals and the smallest businesses. These are most likely to need the protection of insurance.”

Given those arguments, we deserve a full and thorough explanation of the public policy rationale for introducing such taxes.

We have heard about the impact that the tax will have on consumers. The hon. Member for Christchurch did not remind us of his distinguished career as a Transport Minister, but he understands well the impact of higher rates on, for example, car insurance. In the days shortly after the Budget, The Guardian told us that the average car insurance buyer would pay about £18 a year more in tax. The AA said that the bill would be slightly higher—at least another 35 quid on an average insurance policy. The right hon. Member for Wokingham spoke eloquently about the impact that the increase will have on young drivers. Some press reports estimated that the bill would rise by only £15, but the intimation in the right hon. Gentleman’s remarks, and those of the hon. Member for Christchurch, was that it might be a little higher. Of course the increase comes at a time when car insurance premiums have been rising consistently for the last 12 months.

There will be an impact on travel insurance, to which Members have alluded, but many Opposition Members are particularly worried about increases in the cost of general household insurance. Many of us serve constituencies with high rates of poverty and worklessness and many areas, including some in my constituency, are also troubled by relatively high rates of crime, with drug use fuelling burglary. Over the short number of years that I have served in the House, I have seen many constituents who did not have insurance and lost everything in burglaries and had to rebuild their lives, sometimes from scratch. The ABI has told us that for the average household a 1% increase in IPT will put at least another £8 a year on the general cost of household insurance, taking it up to £850. For many of my constituents, £850 is unaffordable, particularly if they live in areas that attract premiums.

For those reasons, the director general of the ABI has described the move announced by the Chancellor as “regrettable”. Kerrie Kelly, in remarks to which the hon. Member for Dundee East alluded, was clear, saying that the change

“is a direct tax increase for the vast majority of people who sensibly protect themselves.”

The hon. Member for Dundee East also mentioned Eric Galbraith, who said bluntly:

“This is a tax on protection.”

That is a public policy concern which we need to hear more about.

We do not have a theoretical objection to insurance premium tax and, subject to a decent explanation from Treasury Ministers, I do not plan to put our amendment to a vote. The history of IPT is one of consensus. It was introduced by the right hon. and learned Member for Rushcliffe—now the Lord Chancellor—and increased in 1999 by my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown). None the less, there are some important questions that it is important for the Government to answer this afternoon.

What assessment has been made of the increase in insurance premium tax? I should be grateful if the Exchequer Secretary would set out his assessment of the impact of that hike on Britain’s pensioners? What will be the impact of the increase on the availability of general household insurance for people on low wages? Why is he raising the rate from 17.5% to 20%? Is it to preclude the value shifting that was the inspiration for the rate change in 1996? Most important, why is he raising the standard rate from 5% to 10%? Can he confirm that it is not the Government’s policy to harmonise the standard rate with levels across Europe?

In 1999, when Labour raised the IPT rate, my right hon. Friend the Member for Bristol South (Dawn Primarolo), then the Paymaster General, was clear on the matter. She said:

“Rates vary tremendously across Europe, but they are significantly higher than in the UK, which has one of the lowest rates.”

It was put to her that the rise was part of a wider, hidden plan to increase the rate successively to levels in Europe, but my right hon. Friend was clear:

“The increase does not signal a future change.”—[Official Report, Standing Committee B, 15 June 1999; c. 642.]

I should like the same assurance from Ministers on the Treasury Bench this afternoon. Can the Exchequer Secretary confirm that the change is not part of a plan successively to increase rates of insurance premium tax to levels across Europe, which amount to 11% at the low end of the range in countries such as Austria and 22% at the higher end in countries such as Italy.

It is important that we have some assurances this afternoon that there will be no further rises in IPT in this Parliament. Subject to satisfactory assurances and explanations of the points I have raised, I would see no need to put the amendment to a vote. I very much look forward to hearing what the Minister has to say in reply.