Briefing: A taxing time for the industry as the government looks to funding conundrum

By Jon Guy

As politicians enjoy the summer break until 2 September 2024, talk across the UK will still be dominated by the economy and how the new Labour government plans to fill what it has described as a multibillion pound black hole.

Chancellor of the exchequer Rachel Reeves will return in September ready to deliver a budget which she has promised will deliver economic growth.

Senior members of the new cabinet have made it clear that Labour’s election promise not to raise income tax, national insurance or VAT would “still hold” come this autumn’s budget – but there are additional voices that say there needs to be a way to generate income if the government is to achieve its aims.

One way the government has sought to cut costs was to announce in July 2024 that various infrastructure projects are to be mothballed.

However, figures from HM Revenue and Customs’ (HMRC) tax receipts – published in June 2024 – showed that insurance premium tax (IPT) put £69m into the Treasury over the course of that month.

This will only heighten the fear from some market participants that IPT may well be a tax that could be increased to generate revenue.

HMRC’s published numbers showed that in 2023, IPT raised £8.1bn, while total tax receipts for the first quarter of the 2024/25 tax year hit £2.1bn – this is £235m or 12.5% higher than the same reporting period in the previous year, marking an all-time high for the first quarter of a year.

Currently, the rate of IPT is set at 12% compared to the VAT rate of 20%. There might be those in Whitehall who believe a hike to 15% could be possible.

Speculation

However, before the insurance industry looks to draw up battle lines, there are a couple of points which may stay Reeves’ hand when it comes to IPT.

Firstly, the Labour party has been vocal about the prohibitive cost of motor cover and it has pledged to look at the costs. Therefore, it would seem to fly against those comments to then implement an increase in the costs of motor insurance via a hike in IPT.

Secondly, the National Health Service (NHS) remains a cause for concern and a huge issue for voters.

It is likely that Labour would be keen to see a rise in the use of private medical services, to ease the burden on the NHS. To do so, the party will require a rise in the number of people taking out private medical insurance, so again, an IPT increase would increase costs for a cover that the government will be keen to promote.

That said, there is rising chatter around the need for tax increases to fund the government’s spending pledges and while the three headline taxes are seemingly off the table, can the same be said for IPT?