2nd December 2016 by Steve Herbert
Steve Herbert suspects that yet another increase to Insurance Premium Tax (IPT) could be an own-goal for the UK
Budgets (and Autumn Statements) must be amongst the most stressful and challenging times for any Chancellor of the Exchequer. Even more so when the presiding government is in the early stages of negotiation to decide the very future of the UK as a trading nation.
So Philip Hammond can be forgiven for a series of announcements which were less than eye-catching. Indeed the new Chancellor’s style so far has been a welcome move from matador to bank manager, providing a much needed stabilising influence to both the economy and business alike.
Yet even this most calming of Autumn Statements poses new challenges to corporates and individuals. And of the changes proposed perhaps the most misunderstood and under-reported is yet another hike to Insurance Premium Tax (IPT).
IPT has been described as the VAT of insurance. It is an additional levy linked directly to the value of the insurance premium paid, and The Association of British Insurers website states that Insurance Premium Tax “affects all motor, home, travel and health insurance policies, whether personal or business.”, and goes on to say that “unlike VAT businesses can’t claim back IPT.”
Given that consumers often have to purchase insurance products simply to comply with legislation then this tax is, for many, completely unavoidable. Many others buy insurances for that most important of reasons, to provide protection from the uncertainties of life. They too have little choice but to fund this additional cost.
So changes to Insurance Premium Tax should perhaps receive much more media attention than they actually do. Yet the media still prefers to focus on those headline staples of alcohol and tobacco duty, or income and corporation tax. This is a pity as the rise and rise of IPT is of national importance and concern.
By the time of the next increase (June 2017) the rate of IPT will have more than doubled since the start of the global downturn. The new rate of 12% also represents the third increase in just 2 years. Such marked and unavoidable taxation increases can only deter hard pressed consumers from purchasing their important insurances come renewal date.
An increase in IPT will also impact the world of employee benefits. Healthcare policies will be directly impacted, adding yet another price-pressure in a market where containment of premiums is often a major concern for employers providing this valuable and much sought after benefit class.
Some employers may even opt to exit private healthcare provision altogether. This would obviously reduce IPT receipts for the Treasury, and would also leave many more UK workers entirely reliant on the NHS, and indeed less likely to return to the workplace quickly in the event of a major illness or injury. It’s genuinely difficult to see how these potential outcomes will any way help the UK economy or the nation’s productivity.
Of course the healthcare industry will respond to this new challenge, and it is likely that there will be a much greater emphasis on alternatives such as healthcare trusts or the use of higher policy excesses to limit the IPT liability. Should such options attract a significant proportion of the existing market, then the Chancellor’s IPT measures may prove much less successful as an income generator to the Treasury than is first expected.
The bottom line is that the IPT burden is becoming a major (if somewhat hidden) problem for the UK and its many business and personal insurance consumers. Mr Hammond would therefore be wise to avoid the temptation of adding any further increases in this area for some time to come.
Steve Herbert is Head of Benefits Strategy at Jelf Employee Benefits