What will the Autumn Budget hold for the insurance industry?

Tax increases are expected to be on the agenda when chancellor Rachel Reeves delivers the Labour Party’s first Budget statement in over 14 years at the end of October.

Reeves has claimed that the Conservatives left a £22bn blackhole in the UK’s finances, while Prime Minster Keir Starmer has warned of a ‘painful’ budget to come when the budget is announced the day before Halloween.

As well as looking to raise revenue, the chancellor will also be likely to announce a number of measures designed to stimulate economic growth, boost housebuilding and address skills shortages – which will undoubtedly have implications for the insurance industry.

Reeves needs to raise revenue but has pledged to leave personal taxes alone, meaning she must look elsewhere.

Insurance premium tax (IPT) has proved a tempting and easy target for past chancellors looking to raise some extra cash for the government.

IPT is a tax on the price of an insurance product and functions as an indirect tax on consumers and businesses that is collected by insurers and paid to HMRC. The rate currently sits at 12%.

Ant Middle, chief executive at personal lines insurer Ageas, said: “IPT is a hidden tax on insurance customers. Recently, the ABI estimated that for motor and home insurance alone, IPT now typically adds £98 a year [per consumer] to the cost of insurance.

“With the continued focus on insurance pricing, we would like the chancellor to recognise the financial burden that this tax has on households and consider all options to help firms make cover more affordable for customers.”

IPT to rise?

Middle is not alone in this thinking – and many others in the industry would also like to see IPT reduced.

In its submission to the Treasury ahead of the Autumn Budget, Biba called for the new government to cut the headline rate of IPT from 12% to 10% and implement exemptions for multioccupancy residential buildings requiring or undergoing cladding remediation, as well as for cyber insurance products to increase take-up from SMEs.

Shayne Halfpenny-Ray, Biba’s head of policy and public Affairs, commented: “As with every recent budget, Autumn statement or fiscal event, we continue to make the case for a cut in the rate of IPT from 12% to 10%.

”We believe that this is a tax on working people – a tax on the poor and vulnerable – and it’s a tax on businesses at a time when we want them investing more in risk management, so that they can take risks and grow.”

The Prime Minister has previously noted that he and his government would like to also bring down the cost of motor insurance, which is no simple task while insurers are facing claims inflation and an increase in fraud activity.

Mark Andrews, insurance director at Altus Consulting, said: “Looking at insurers’ financial results in recent weeks, it is looking to be a very successful year for the industry.

”In the very early days of this government, could the industry set a tone of profiteering and therefore put itself up for a potential profit levy, akin to the energy sector?

“This might seem like a wild suggestion 12 months on from seemingly average results across the industry, but the government is certainly setting this tone early on against the private sector.

”With the FCA fair value measures being pushed out further, the government would certainly be following a similar tone to the regulator by seemingly challenging insurers profits.”

Market interventions

According to the Institute of Directors, there are a mix of labour market interventions the government could opt for that will help improve the availability of workers in the UK, potentially returning millions of workers to employment.

But, according to the Health and Safety Executive (HSE), workers are as likely to have an accident in their first six months at work as during the whole of the rest of their working life, which raises the spectre of a spike in employers’ liability claims.

Labour has also pledged to meet ambitious housebuilding targets and it is likely that Reeves will announce measures to help it meet these targets. However, any watering down of the planning process will entail risks.

Biba has also reiterated its call for government to commit to long-term investment in flood defences at a higher level than 2020.

Halfpenny-Ray added: “The government has made clear its ambition to build 1.5m new houses and we believe this is a great opportunity to push for better resilience against flood and other climate related impacts as the default – and we will make this case through the government’s National Planning Policy Framework consultation.

“We still think more funding needs to be allocated to flood defences and that these should be treated as a national infrastructure investment and part of the growth agenda, because flood mitigation will reduce the adverse effects of flooding on people, businesses and communities.”

Stephen Linklater, claims director at Ageas, agreed.

He said: “We recognise the need to build more homes, but for the comfort and protection of the home owners of the future, government must ensure that sufficient measures are taken to make sure homes are safe, resilient and protected from flooding.

“This, of course, depends on developers including flood resilience measures like sustainable urban drainage systems (SuDS) and planning authorities identifying the ‘right areas’ for development , [that is] where there is not a high flood risk.”

The chancellor has not given too many clues as to which taxes she will hit hardest in the upcoming Autumn Budget, although she has ruled out income tax, VAT and employee National Insurance rises.

This has led to much speculation about which taxes and allowances will face increases and Capital Gains Tax (CGT) looks to be one of her options.

However, Andrews warned: “In the broker space, the threat of an increase in CGT could cause an exodus in small and medium sized brokerage firms looking to make an exit before changes come into play.

”If changes are made overnight, this will cause the opposite effect, and later retirement will stall acquisition opportunities for some of the larger brokerage firms.”