Briefing: Industry and government debating old issues shows not much has changed

By Jon Guy 

Biba’s announcement yesterday (6 February 2024) that it had called on the UK government to implement a range of changes in March’s Spring Budget will be viewed as a timely highlighting of the issues that are impacting the market and its clients.

The broker body’s requests to the government included issues such reducing Insurance Premium Tax (IPT) and reforming the apprenticeship levy. 

However, for those who have been in this market for two decades or more, the core issues remain those that the industry and Whitehall have been locking horns over since at least the 1990s.

In the late 1990s, for example, the ABI were having to play hardball with the government over a lack of investment in flood defences.

At the time, the association highlighted that, while there was money allocated to local councils to build or repair flood defences, that figure was not ringfenced to be spent on flood mitigation and flood mitigation only.

As a result, the ABI highlighted cases in which the funding was simply being allocated to other local authority expenditure – including, in one case, a flower arrangement on a roundabout!

The ABI’s calls came with a plea for new rules that prohibited planning permission to be given for homes or businesses to be constructed on flood plains.

And, eventually, the ABI had to come to an agreement that, were investment in flood defences not maintained, it would implement a system in which flood insurance would be withdrawn.

Present day

Judging by Biba’s comments yesterday, the same problem from all those years ago remains and, given the impact of climate change on the threat of natural perils in the UK, is becoming ever more desperate.

As the economy continues to struggle, it is little surprise that there are fears homeowners and businesses are increasingly seeing insurance as something they cannot afford, leaving them open to significant losses and leaving the industry looking down the barrel of a widening protection gap.

It is therefore understandable that Biba has called for a cut in insurance premium tax (IPT) from 12% to 10% – and for a certain portion of IPT to be ringfenced for flood defence spending.

As the rate of VAT stands at 20%, in years and decades gone past budget time saw insurance boardrooms across the country crossing their fingers that the Chancellor would not see IPT as a way of raising money.

At the time, the thought process was that, were it raised by two or three percent, the Chancellor could say it was still below the current VAT rate and thus sell it as acceptable to the public

Biba chief executive Graeme Trudgill said the government needs “to consider the realities people are experiencing”.

Quite so, but in an election year, in which it is likely that headline tax cuts will be high on the agenda, we can expect the debates over more flood defence funding and a cut in IPT to be unresolved into April – and well beyond.