Budget 2016: Insurers slam UK insurance premium tax hike
The insurance industry has warned that the further increase in insurance premium tax (IPT) in the UK, revealed today, will ultimately have to be passed onto customers.
UK chancellor George Osborne increased IPT by a further 0.5 percent to 10 percent in his Budget announcement this afternoon (Wednesday March 16). The increase was lower than some feared, however.
This is the second increase to IPT in less than nine months. He said the proceeds would be used to boost flood defences.
Osborne said: "I am going to increase the standard rate of Insurance Premium Tax by just half a percentage point - and commit all the extra money we raise to flood defence spending.
"That's a £700 million boost to our resilience and flood defences."
The rate of IPT increased from 6 percent to 9.5 percent on 1 November 2015 and was announced in the 2015 Summer Budget.
To explain the initial increase, the Chancellor said this increase would bring the UK in line with the rest of Europe.
The industry had speculated prior to the 2016 Budget that IPT would increase to 12.5 percent.
But Mark Holweger, managing director, partnerships, Legal & General, said the hike will impact the customer.
“Another increase in IPT so soon after the last rate hike will ultimately impact the customer. Whilst a highly competitive market has meant that insurance premiums have been relatively low recently, with IPT rates rising again insurers will have no choice but to pass this cost onto consumers,” Holweger said.
“Improving flood defences across the UK is certainly important, so we welcome extra revenues being diverted to that cause. As an industry we’ve benefited from several years’ worth of benign weather conditions, with the flooding we saw in 2015 more representative of a normal year. It is therefore vital that insurance companies are pricing for long term weather events.
“Whilst the increase in IPT is not as steep as many feared, it is paramount that the Government and the insurance industry work together to insure that people aren’t dissuaded from taking out policies, and the UK doesn’t become a nation at risk of being under-protected.”
Others agreed. Elliott Silk, head of employee benefits, Sanlam, added that companies should look at some of the other insurance options available to them to avoid these increasing costs.
“The worrying thing is that it is an easy win for the Government, as the general public are just not familiar with Insurance Premium Tax. We will have seen a 66 percetn increase in this tax in a very short period of time, if VAT were increased by this percentage there would be an outcry, yet IPT can go through without notice or at least until employers have to pay more for their PMI, Dental and Travel Insurance costs,” Silk said.
“With this in mind, employers urgently need to assess the options that are available to them. Self-insurance or setting up a Healthcare Trust to mitigate any price rise could be an option but they need to take advice before making alternative plans.”
