The announcement in the Autumn Statement of another increase in Insurance Premium Tax (IPT), from 10% to 12%, has brought a furious response from all quarters of the insurance industry.
Director General of the Association of British Insurers Huw Evans said: “Yet another increase in Insurance Premium Tax is a hammer blow for the hard pressed. It will hit consumers and businesses alike, hurting those who buy business, motor, property, pet and health insurance. It marks a doubling of IPT since last year and to claim a consultation on whiplash reforms which hasn’t even gone before Parliament yet will offset this just won’t cut it.”
This increase in IPT is the third rise since the Summer Budget in 2015. Former Chancellor George Osborne announced an increase from 6% to 9.5% in the Summer Budget in July 2015 which came into effect in November of the same year. Yet another rise came in the Spring Budget this year, increasing the tax rate to 10% and coming into effect on October 1st.
The third increase to 12%, announced this month, means the tax has doubled in less than 18 months.
IPT affects more than 50 million policies and applies to policies purchased by businesses, charities and individuals. Unlike VAT, businesses can’t claim back IPT. Taken together, the three increases will raise over £13 billion for the Government over five years.
UK now has sixth highest IPT in Europe
The latest rise means that the UK now has the sixth highest rate in Europe, behind only Germany, Greece, Italy, the Netherlands and Finland, analysis from the Association of British Insurers (ABI) shows.
In Wednesday’s Autumn Statement, the Chancellor claimed that, ‘Insurance premium tax in this country is lower than in many other European countries’. However, based on latest European insurance industry data*, the UK had the 8th highest IPT standard rate in the EU prior to the Autumn Statement announcement, putting it in the top third.
Further analysis of the Autumn Statement shows that IPT is now due to raise more than Wine, Sprits, Beer and Air Passenger Duty, with the total raised from Insurance Premium Tax reaching £6 billion a year by 2018/19.
Director General of the ABI Huw Evans said: “UK consumers and businesses already pay relatively high levels of IPT, and the latest increase puts us even closer to the top of the table in Europe. It cannot be right that people are being forced to pay an increasingly high price for doing the responsible thing and buying insurance. Nor can it be fair that insurance customers are bearing the brunt of recent increases while the ‘sin taxes’ like wine, spirits and gambling are unaffected.
“Having now increased IPT three times in 18 months, it is time for Government to look elsewhere to help meet the formidable fiscal challenges it faces.”
BIBA speak out on the rise in IPT
A statement on the British Insurance Brokers’ Association (BIBA) also criticises the rise in Insurance Premium Tax.
“Over the past 15 months, policyholders have already seen an increase of 66% in the Insurance Premium Tax (IPT) they pay – this further increase to 12% in this regressive tax is outrageous and is a tax on protection which will hit everyone and especially those ‘just about managing’. We believe that this increase is contrary to the stated policy of HM Revenue and Customs “that IPT should make the required contribution to HM Government revenue while minimising the effect on the take up of insurance”. This increase comes at a time when both motor and home insurance premiums are rising and our fear is that many of those who most need it will avoid taking up insurance and be unable to afford the protection they need.”