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www.insuranceage.co.uk/tag/IPT

IPT hike: industry fears further rise

As IPT is raised to 12%, many commentators wonder if a VAT-matched rate of 20% is on the cards

BY JUDITH UGWUMADU

judith.ugwumadu@incisivemedia.com
@InsuranceJudith

The rate of insurance premium

tax (IPT) will rise again next June
to 12%, the third increase in the
space of 18 months (see box).
Brokers launched a scathing
attack on chancellor Philip
Hammond after the November
Autumn Statement, claiming IPT
is a stealth tax on consumers.
The government maintained in
an official statement that IPT is
a tax on insurers and it is up to
them whether and how to pass
on costs to customers.
But Brendan Dawson, group
managing director of insurance
services at Qdos, refused to
accept the official statement.

Cash cow
Dawson argued that the 2%
bump meant those who are
reluctant to buy insurance in
the first place might want to cut
corners by not paying as much as
they should do.
The industry is burdened
by regulation and tax, Dawson
continued. There is a constant
drip of milking the financial

services industry, its a cash cow

for the government.
The British Insurance Brokers
Association (Biba) was quick to
raise its concerns about the tax
increase with Hammond the day
after the announcement, and
slammed him for using it as a
smoke screen.
Also not agreeing that IPT is a
tax on insurers, Graeme Trudgill,
executive director of Biba asked:
Legally speaking they can say that,
but how can insurers accommodate
a couple of extra points on the
bottom line? Its not possible.
There could be an impact on
underinsurance and on reducing
the uptake of some add-ons.

Stealth tax
Like Dawson, Trudgill
highlighted that the rise came
at a time when insurance faced
a variety of challenges. It
makes us uncompetitive at a
time when were facing extra
costs from the apprentice levy
and issues with access to the
single market, he commented.
When we queried it with him
[Hammond] he said he was very
open that it was a revenue raiser.
Its just a stealth tax.
Experts also predicted that
the government could continue

to increase IPT to the VAT

figure of 20%.
According to Simon Rhoades,
underwriting manager at
Bollington, the government
justified the increased rate
because it views insurance as
another product when in fact its
not, its almost a savings stroke
risk product.
So to tax it as if its a normal
consumer product is the wrong way
of approaching it, he continued.

VAT worries
If they are going to push the
figure to the VAT rate there is an
argument to say just do it. But all
these increases will push people
to buy less cover, stripped down
cover, higher excesses, which
may not be in their interest.
Meanwhile, Trudgill noted that
Hammond and other insurance
experts in the Treasury said
this wouldnt be the case. The
government said they have no
plans to raise IPT to VAT levels,
he added, confirming that the
trade body would continue to
lobby about the issue and raise it
in its 2017 manifesto.
Despite this assurance,
brokers still feel they will get
grief because of rising costs and
constant system upgrades.

Timeline: IPT increases

From 1 October 1994, a single rate of 2.5% was charged.
Since then, the standard IPT rate has been increasing:

4%
1 Apr 1997

5%
1 Jul 1999

6%
4 Jan 2011

9.5%

1 Nov 2015

10%

1 Oct 2016

12%

1 Jun 2017

Dawson stated: My gut feeling

is that IPT is going to rise yearon-year until there is sort of an
equalisation process with VAT.
Brokers will have to keep
spending money to upgrade
systems, change policies,
possible terms and conditions,
which will add costs to the
industry across the insurance
world and the broking world.
Rhoades concluded that the
rate change had the unintended
consequence of making brokers
concentrate or look more at
applying fees rather than taking
commission. At least fees would
be IPT free, he stated.
MARKET SLAMS 2% HIKE
Steve Treloar, LV
general insurance
managing director,
said: Government
has incorrectly stated
that IPT is a tax on insurers its not,
its a tax that consumers have to pay
when they purchase insurance.
Tim Ryan,
executive chairman
at UNA, said: This
is a significant blow.
As a result this will
significantly hit the pockets of
families throughout the country
with significant figures being
added to the average buildings
and contents policies.
Conor Brennan,
head of UK general
insurance at
Zurich, said: Its
only really a slight
surprise that the chancellor has
announced a further increase in
the rate of insurance premium tax
as its still a long way short of VAT,
which we may have to assume is
a level where the Treasury sees
this going in the future.

4 | www.insuranceage.co.uk | December 2016

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