Insurance tax raises more revenue than duty from alcohol and tobacco
Insurance Premium Tax (IPT) is a tax levied by the government, which is generally passed on to consumers via higher premiums. It applies to most general insurance policies including car, home, pet, private medical, individual cash plans and commercial cover taken out by businesses.
In just two years, IPT has been hiked three times, doubling the amount from 6% in November 2015 to 12% in June 2017.
As such, research from non-partisan think tank, the Social Market Foundation (SMF) found that IPT now raises £4.8bn a year.
In fact, the SMF said IPT now raises more revenue than many ‘sin taxes’ such as beer, cider, wine and spirits. Its ‘The impact of Insurance Premium Tax on UK households’ report found this tax has risen faster than tax on tobacco since its inception in 1994.
According to the Office for Budget Responsibility (OBR) projections, it is set to raise more revenue than inheritance tax in the next three years.
The SMF estimates that IPT adds £179 for each UK household with around half, £89, paid directly by households on insurance products while the remainder is paid by businesses.
It argues these business costs are “likely, at least in part, to feed through into the finances of UK households”. This is through higher consumer prices, lower dividends and reduced profits for business owners.
Forecasts also suggest revenue from IPT is set to increase and rise to the equivalent of over £200 a year for each UK household in 2018.
The SMF said IPT is a “regressive form of taxation whereby lower income households spend a greater proportion of their disposable income on insurance (excluding IPT-exempt life insurance) than the richest households.
And there’s also a significant lack of awareness about the existence of this tax. A survey of 2,000 adults showed 48% weren’t aware of IPT.
The report’s author, SMF chief economist, Scott Corfe, said: “In recent years, IPT has climbed rapidly as policymakers have sought additional revenue to reduce the deficit. These hikes have taken place despite a lack of published evidence around its impact on consumer behaviour and household finances, especially with respect to the distributional consequences.”
Huw Evans, director general of the Association of British Insurers (ABI), said: “This report lays bare how unfair IPT is for individuals and businesses who have acted responsibly and taken out insurance.
“The report exposes that this tax impacts hardest on the poorest as well as penalising the responsible who insure their homes, businesses and health. Having doubled this tax in two years, it is time for the government to stop raiding the responsible and commit to no further increases in this Parliament.”