Yemisi Izuora/Agency Report
Serious criticism is trailing decision by the UK government to raise Insurance Premium Tax, IPT to 12 percent, doubling the rate in less than two years.
The country’s Insurance buyers and their risk transfer partners have criticised the decision just as experts raised serious concern that IPT will continue to rise and will eventually reach parity with VAT on 20 percent.
Julia Graham Airmic, the UK buyers’ association, said the latest rise will challenge its members and runs counter to government policy of encouraging business to use insurance to help fight cyber risk.
Other experts noted that the rise was the biggest tax increase announced in the UK government’s Autumn Statement, and warned of further rises ahead. They called on government to act in a measured fashion.
The UK’s Chancellor of the Exchequer Philip Hammond said his government will increase IPT from 10 percent to 12 percent, from next June.
The latest rise will mean IPT has doubled from 6 percent in October 2015.
Airmic said it is disappointed by “yet another rise” in IPT.
The Association’s deputy CEO, Julia Graham, said the latest rise adds another increase to the overall cost of insurance and further challenges UK business and its insurance industry.
She said that, as with the previous IPT increase, the timing is especially difficult because many companies will have already set their budgets for the next renewal season.
Ms Graham warned that doubling IPT in a short space of time will start to impact businesses. She called on her government to allow things to settle before thinking about further rises.
“Airmic urges the Chancellor to consider the net impact of the incremental increases in IPT, and allow a period of adjustment and stability before considering any further increases,” said Ms Graham.
She warned that the latest rise in IPT risks insurance becoming a price-driven decision. This would be bad for UK business, she added.
“Insurance is a strategic purchase and cutting corners in cover to save premium could lead to some customers being disappointed when a claim is made and the cover purchased is not up to the job,” explained Ms Graham.
Airmic also made clear that higher insurance costs run counter-productive to the UK government’s policy of helping UK businesses fight cyber crime, partly through insurance.
“This increase comes at a time when businesses and the insurance industry are grasping cyber insurance covers more effectively, and it would be disappointing to see businesses deterred from taking on additional relevant covers by this increase.
This scenario goes against other government policies designed to encourage UK businesses to get cyber-fit,” Ms Graham said.
The UK risk transfer industry also moved to criticise the rise in UK IPT.
The Association of British Insurers’ Huw Evans said yet another increase is a “hammer blow”.
“It will hit consumers and businesses alike, hurting those who buy business, motor, property, pet and health insurance. It marks a doubling of Insurance Premium Tax since last year,” he added.
The British Insurance Brokers’ Association (BIBA) said the “aggressive” tax increase is “outrageous”. BIBA said it is a tax on protection and runs counter to HM Revenue and Customs’ stated policy that IPT should make the required contribution to government revenue while “minimising the effect on the take-up of insurance”.
There is also a fear that IPT will continue to rise and potential reach parity with VAT of 20%.
Michelle Quest, head of tax at KPMG in the UK, noted that the IPT rise was the single largest tax increase announced in yesterday’s Autumn Statement. There were also hints that it could rise further in future years, he said.
Mike Stalley, CEO of FiscalReps, the international IPT specialists, said: “The increase in IPT follows a continuation of government policy over the last few years, suggesting a longer-term trend towards standard rate parity with VAT, which is the case in a number of other European countries. We may see further incremental increases as the UK raises IPT closer to the standard rate of VAT.”
Benjamin Flockton, PwC insurance tax partner, said the unwelcome announcement was not wholly unexpected.
The insurance industry has been vocal in lobbying against further IPT rises for some time, he said.
“Nonetheless, insurers have been predicting a trend of IPT ultimately aligning with the UK’s 20% VAT rate,” he added.