Chancellor George Osborne has announced in his summer budget that from November 2015 Insurance Premium Tax (IPT) will be increased from 6% to 9.5%. This is a rise of nearly two-thirds, a jump that has received mixed responses from industry experts.
Why the increase?
The Chancellor justified the change by highlighting a recent drop in insurance premiums, with the cost of contents insurance alone falling 8% since 2014. He also pointed out that despite the increase Britain’s IPT, “is well below tax rates in many other countries”. The Chancellor ensured that the government would continue to make insurance better value for consumers, claiming that the recent drop in contents cover cost was down to previous alterations.
Who will this impact?
There is of course understandable concern that although insurers pay the tax, the extra cost will be passed on to the consumer. But some insurers are already declaring that they will absorb the increase in the initial period, reducing the impact on the consumer. The Chancellor is also keen to highlight that this increase will not be applied to life policies, PHI and all other long term insurance products.
Why is this a bad time for the industry?
Steve White, chief executive of the British Insurance Brokers’ Association, was “extremely disappointed” and pointed out that the increase was coming at a time when “the Government had been working with the industry to reduce the cost of insurance for consumers […] It therefore seems counter-intuitive to be taking measures which will add to the cost – effectively taxing protection“.
This has also come at a time when cheaper premiums and more comprehensive value from insurers has started to re-energise the industry. Unfortunately, this hard work may be undone if insurers do in fact pass on the increase to consumers. UK IPT may still be relatively low, but with so many under insured the need to incentive remains high.