Insurance Premium Tax: Why the Chancellor must end the raid on the responsible

In two weeks’ time, Philip Hammond will deliver this year’s Autumn Budget. As we approach the date, I’m feeling a strong sense of déjà vu because exactly this time last year, the insurance industry called on the Chancellor to freeze Insurance Premium Tax (IPT).

Despite the concerns of the insurance industry, IPT was raised to 12% in the 2016 Budget --—the third increase in just 18 months. In fact, today’s rate of IPT is double what it was in 2015, and contributes ￡4.8bn to the Government’s coffers annually. When the tax was introduced in 1994, the rate was just 2.5%.

On the surface, taxing insurers might seem like a golden opportunity for a cash strapped government to raise money, but IPT has the greatest impact on the poorest in our society and punishes those who protect their homes, health and businesses. A tax on insurance is like fining someone for locking their own door – for being responsible and doing the right thing.

Take health insurance as an example, for which raising IPT may have an important if unintended consequence. Unlike motor insurance, which is compulsory, a rise in health premiums might cause people to abandon their cover, which could leave the Chancellor with the unwelcome headache of increasing pressure on and an even higher cost of funding the NHS.

Contrasting IPT with other taxes highlights just how out of touch government action has been in recent years. A report released last month by the Social Market Foundation The impact of Insurance Premium Tax on UK households revealed that IPT raises more revenue than duties on alcohol and has risen faster than tax on tobacco since its introduction less than 25 years ago.

The efforts of the insurance industry to reduce premiums by tackling fraud and getting to the root of the UK’s compensation culture is counteracted by the increase in IPT. Let’s be honest – the government has given with one hand, and taken with the other, and it is businesses and families that will bear the cost. For example, Insurers hope to deliver savings of ￡40 on motor insurance premiums from the proposed Civil Liability Bill reforms. However, as the Social Market Foundation found that IPT costs UK households ￡89 per year, this defeats the intention of the reforms to save people money.

As I said after last year’s Autumn Budget, increasing IPT to 12% was an “unwarranted attack on millions of people simply looking to protect themselves”. I hope that the Chancellor and the Government have listened to our warnings and commit to no further increases in this Parliament.