Freeze or reduce IPT in budget, says UK insurance industry

Insurers and brokers in the UK have renewed their calls for the UK government to reduce or freeze the rate of insurance premium tax (IPT) in the upcoming Budget. The current rate is 12% – among the higher rates in Europe – and the insurance industry has been calling for a reduction, or a freeze, for a number of years. IPT in the UK doubled between 2015 and 2017 to 12%, and some fear that there may be moves to bring it more in line with VAT (20%). The Association of British Insurers (ABI) is urging the government to cut the rate, calling it the “mother of all stealth taxes”. The British Insurance Brokers’ Association (BIBA) is calling on the Chancellor to freeze IPT. It noted that IPT provides government with additional revenues from consumers and businesses of £6.2bn, and said this is resulting, particularly in the public and voluntary sectors, in compromises in the amount of protection sought and a reduction in resilience. BIBA pointed to research carried out by Zurich UK to back its demand for the rate of IPT to remain frozen for the duration of this parliament. Tulsi Naidu, chief executive of Zurich UK, explained: “There is a string of unintended consequences when there is an increase in IPT: it affects charities, public authorities, businesses and individuals, disproportionately affecting those with higher insurance risks. Our research into the public and voluntary sectors showed that nine out of ten respondents felt that any increase would negatively impact them financially, forcing them to make job cuts or cut budgets elsewhere, while nearly half said it would affect their organisation’s ability to adequately insure itself against the risks they face.” BIBA noted that take-up among businesses, especially smaller businesses, of suitable cyber insurance is low. It said that as well as a low perception of the extent of the risks such organisations face, there is a fear that the cost of cyber cover is an expense too far for many hard-pressed businesses. BIBA said it wants the Chancellor to make a bold statement in his Budget and grant relief on IPT for cyber insurance, as well as for telematics-based motor insurance policies to help young drivers and improve road safety. It also pointed out that in 2016 when IPT was increased from 9.5% to 10%, the government indicated that the annual revenues raised would be ringfenced to fund increased investment in flood defence and resilience. Steve White, BIBA chief executive, said: “The country is currently facing significant climatic threats that are affecting businesses and many peoples’ lives. We demand that the Chancellor, Rishi Sunak, in his first Budget, formally continues to ringfence this ongoing contribution from IPT to prevent flood damage to many more homes and businesses.” Graeme Trudgill, BIBA executive director, concluded: “Our calls on the chancellor are not disproportionate. Evidence from our sector shows that the regressive nature of IPT hinders self-protection. For a government that wants the UK to seize opportunities, taking these small measures and freezing IPT to help businesses and people access the cover they need and operate free from threat of flood will build confidence in the economy and would be a bold move by the Chancellor.” The ABI has highlighted a new report by the Social Market Foundation (SMF), which shows that IPT is costing households, on average, £223 per year, with the lowest-income families being hit hardest – they spend 4.1% of their post-tax income on insurance, compared to 1.6% for the highest-income households. The report states that unlike VAT, businesses cannot claim back IPT so a higher rate of IPT translates in to lower net profits for businesses and in turn, lower incomes and dividend payments for households. About half of what households spend on IPT is what businesses pass on to the consumer – this is the only way businesses can cope with this steep tax on their products, said the ABI. Huw Evans, director general of the ABI said: “This new report clearly shows how regressive and unfair insurance premium tax is. IPT costs hardworking families £223 a year, just for doing the right thing and buying insurance to protect themselves. Businesses and public bodies are also losing out as this tax damages their bottom lines. We urge the government to cut this stealth tax in the March Budget.” Scott Corfe of the SMF said: “The data we have collected shows there has been no detailed analysis from the government on what rate IPT should be set at. It has gone up exponentially and our figures are clear: families with lower incomes are paying more every year.” The UK Budget is due to be delivered on 11 March, but given that the Chancellor, Mr Sunak, has only been in place for a matter of weeks following the resignation of Sajid Javid, it is not yet clear if this date will be kept to.

Freeze or reduce IPT in budget, says UK insurance industry

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