Briefing: Budget 2017 - Insurtech, IPT and the Ogden NHS bombshell

When you’re accustomed to bad news, no news is good news. Chancellor Philip Hammond’s latest budget contained precious little of explicit insurance significance. What was left unsaid, however, could prove crucial. 

budget 2017: In Brief

• Government confirms IPT tax will rise to 12% in June; anti-forestalling measures introduced
• Ogden rate cut will cost the NHS – and taxpayer – £6bn
• £270m fund for disruptive industries including driverless cars
• Increased personal taxation could hit smaller businesses

IPT increase will go ahead
The only reference to Insurance Premium tax, or IPT, in the budget was under the title “Other indirect taxes”.

“The government will legislate to introduce anti-forestalling provisions and increase the standard rate of IPT to 12% from 1 June 2017, as announced at Autumn Statement 2016,” the Chancellor said.

The decision to proceed with the slated hike in Insurance Premium Tax to 12% on June 1st was met with disappointment from Trade bodies, including the CII, who warned the move could result in thousands opting against taking out insurance due to prohibitive costs.

“At a time when the public needs more access to insurance and protection, dis-incentivising insurance cannot be worse timed,” the CII said in a statement.

Other commentators were more sanguine. Biba described the absence of a further IPT hike as ‘good progress’ with the caveat it would continue to lobby the government to bring the rate down. Daniel Lyons, indirect tax partner at Deloitte, focused on temporary respite for punters. 

“Average motor insurance premiums increased by 16% in the last two years,” he said. “Coupled with last week’s Ogden discount rate change… motor insurance consumers could see an additional 10% in the short-term added on to their premiums. Keeping the status quo on IPT will bring some relief…”

Stephen Brown, Partner at Mazars, warned that further increases in IPT in the the future were likely. He added the anti-forestalling measures, designed to stop people avoiding the rise by renewing their policies early ”reinforces the Chancellors determination for IPT raises to be enforced, and most likely, in time to continue.

“Although the industry had been requesting clarity in how to implement in some circumstances, it will now be necessary to carefully consider this new legislation and its impacts.”

Ogden change will cost the NHS £6bn
The ABI, meanwhile, took the opportunity to twist the knife into the government after it revealed it had set aside £5.9bn to buffer the NHS from its discount rate reduction. The ABI termed the fund an “extraordinary bill” for taxpayers, and signalled its intent to maintain pressure for a revision of the minus 0.75% discount rate before the year is out.

“This extraordinary bill for taxpayers - bigger than any other in this budget - shows how absurd this avoidable decision was,” Huw Evans, director general of the ABI said.

“The OBR [office for budget responsibility] has also confirmed today that this will lead to higher inflation for years to come as the effects of such a massive increase in claims costs are felt by customers.”

The OBR said the government was allocating an extra £1.2bn a year to meet the expected public sector costs.

“This makes it even more urgent that the Government deliver a fair deal for consumers and claimants by bringing forward changes to the law this year,” Evans added.

Insurers were unsurprisingly scathing with their assessment of the NHS bombshell. The pick of the bunch came from Jon Dye, chief executive of Allianz: “I am pleased that the Chancellor set out in stark terms the financial impact of the decrease in the Discount Rate.

“Hopefully even more people will become aware of this deeply regrettable and ill-advised decision and support the insurance industry in its efforts to achieve a sensible way of calculating compensation for the seriously injured.”

In a curious twist of fate, the Treasury expects to recoup almost the same amount in IPT revenues this and next year (£5.7bn) as it will pay to ringfence the NHS against the Ogden fallout.

In an attempt to put a ceiling on spiraling claims costs, and premiums, Biba reiterated its call for the government to push forward legislation for FCA regulation of Claims Management Companies in order to curtail fraudulent whiplash claims.

270m reasons to embrace disruption
In what could prove a beneficial move for Insurtech and insurers with strategic stakes in driverless cars, the chancellor announced the launch of the Industrial Strategy Challenge Fund. Hammond said £270m would be made available to keep the UK “at the forefront of disruptive technologies such as biotech, robotic systems and autonomous vehicles.”

David Williams, technical director at AXA UK, who have invested significantly in driveless cars, described the move as ‘most welcome’, and that it would cement the UK’s position as a leader in the space.

“Driverless technology will revolutionise the way we drive,” he said. “AXA has been playing a central role in the three government-backed projects to make driverless cars a reality on our roads and we will continue to support the government to ensure any investment is channelled in the right way to get the most benefit.”

The chancellor added the government was preparing to launch a raft of measures designed to reduce the administrative burden on businesses, including on tax, to attract R&D funding.

“In a digital age, it is right that we develop a digital tax system,” he said, detailing plans to delay quarterly reporting by one year for businesses below the VAT threshold of £83,000k. The move will cost the Exchequer £280m.

Death and taxes
Other small details in the budget which could impact on UK Insurance plc included increased personal tax for the self-employed, which will impact on some smaller brokers, and a reduction in dividend allowance from £5k to £2k – a move described by Mazars’ Brown as “not insurance specific, but [it] will hit the pockets of those small insurers, brokers or start-ups who were relying on taking dividends out.”