Why the Government’s Spring Statement missed a chance to boost insurance take up
Reducing Insurance Premium Tax offers a simple way to help out insurance customers as they deal with rising costs of living and the economic fall out from COVID-19.
For insurers, there was at least one glaring omission from Chancellor Rishi Sunak’s Spring Statement. Many in the industry have been hoping for a significant change in the rate of Insurance Premium Tax (IPT), which they see as discouraging people from taking out adequate insurance.
Yet despite long standing pressure from the British Insurance Brokers’ Association (BIBA) and others, the rate of IPT has remained the same.
What is Insurance Premium Tax?
IPT is essentially a tax on insurers. There are a couple of rates – one of 12% for home, car or pet insurance, and one of 20% which is paid for certain vehicles, as well as travel insurance and even domestic appliances. One of these rates of IPT will be applied to most of the UK insurance premiums you are likely to pay as an insurance customer. The money is taken from the premium payer by the insurance provider and then paid to the Government.
The tax has been around for a while now, having been first introduced in 1994. The rates have risen steadily since then, with the increasing costs for insurers typically passed on to their customers. In many cases, insurers will try to cushion the blow of any Insurance Premium Tax rise by lowering premiums temporarily. Despite this, there has been growing concern from many in the UK insurance industry that IPT is acting as a dampener on the sector.
What changes have the industry been specifically asking for?
The BIBA recently stated that they believe that a cut in IPT will encourage more people to take out the correct insurance protection.
In particular, they asked the Government to look at providing targeted relief from Insurance Premium Tax on certain classes of insurance. These include vehicle telematics policies (where your insurance company monitors your driving and adjusts the price of your insurance accordingly), as well as travel insurance and cyber insurance, particularly for small businesses.
With the cost of living spiralling, we agree that the Government needs to do more to make the right insurance more affordable for more people. BIBA are arguing for a reduction of the 12% rate back to 10%, and we believe that this would provide an important boost to insurance customers at a difficult time. And while they have missed this latest opportunity, we hope that we will see a reduction in IPT in the very near future.
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