Insurance Premium Tax Hike
Andy Jenkins, Operations Director at Russell Scanlan, has been taking a look at the industry’s response to the Chancellors announcement that Insurance Premium Tax is facing a significant rise (from 6% to 9.5% from November) and what that will mean to businesses and individuals. It would be fair to say that announcement came as a huge shock to the insurance industry.
It was definitely unexpected, most certainly unwanted and the full impact of this decision has yet to be fully contemplated. But the calculators have been out and the cynics amongst us were quick to count the additional £1.75bn a year for the Treasury that the rise will generate. Still, I’ve canvassed other brokers and insurers locally and nationally and the feeling is that while we can hope that the Government may review the rise and correct it in future budgets, we have to deal with the harsh reality of the situation as it stands today. It will undoubtedly be a step too far for some brokers and we could see some firms have to make some tough decisions as to reducing their income as they feel that they are unable to pass on the full increase to their clients. This may ultimately impact on broker numbers, reducing customer choice, and inevitably competition, in the market can only have a long term detrimental impact.
Another concern is that IPT is seen as a “soft target” and a relatively easy way for the Government to increase their taxation income. I predict further increases in the coming years.
This new premium tax rate will impact on policies across the board. Businesses will be hit alongside consumers, as the hike will apply equally to corporate insurance premiums. We will have to talk our clients through the process and good communication will be crucial.
Personally I agree with those that consider this a stealth tax and those hit will include the 20.1 million households with contents insurance; 19.6 million with motor insurance and 17 million with buildings insurance.I hope that the debate will continue across the industry and a more positive way be secured. But in the meantime our message to our clients is talk to us, share your concerns and let’s plan a way forward together. We have some time before November to consider cost effective options to bring into play before the cut-off date and renewals could be secured before the cut-off date. We will certainly be talking to our clients about how we can help.
The @BritishInsurers estimates new IPT rate will add £9.48 to the average annual household insurance policy. Huw Evans, Director of the Association of British Insurers: “Insurance Premium Tax is a tax on people and businesses at the point at which they buy a general insurance product. So it’s very disappointing to see a more than 50% tax increase being imposed on consumers, especially when the insurance industry and government has worked so hard in recent years to bring down the cost of essential insurance.” IPT was first introduced in October 1994 and while it is a tax on insurers, they add it to the cost of policies. It last rose in January 2011 when it increased from 5% to the current 6%.