IPT remains unchanged in the Spring Budget 2021, although the insurance industry largely welcomed this, some have raised concerns that costs are being passed on to policyholders
In the Spring Budget 2021 speech yesterday (3 March), chancellor of the exchequer Rishi Sunak confirmed that insurance premium tax (IPT) would remain unchanged - although this has been largely welcomed by the insurance industry, some within the sector have concerns.
IPT is calculated based on the annual insurance cost - this means that those who have higher premiums pay higher taxes.
This tax regime is especially challenging to the insurtech sector. This is because these firms are technology intensive businesses, therefore they are liable to pay a larger proportion of these costs, which in turn acts as a disincentive to investors. Leading up to the Budget announcement, the sector’s trade body Insurtech UK called for an end to IPT.
In his second Budget speech, Sunak, said: “Our economy has shrunk by 10% - the largest fall in over 300 years.
”Our borrowing is the highest it has been outside of wartime. It’s going to take this country – and the whole world – a long time to recover from this extraordinary economic situation. But we will recover.”
Sunak added that the rate of corporation tax, also known as company tax, paid on company profits was due to increase to 25% in 2023.
Biba met with HM Treasury shortly after the Budget was delivered to run through points relevant to its members - it received confirmation that insurance brokers are eligible to apply for support in the Help to Grow Management and Help to Grow Digital initiatives, as well as the Recovery Loan Scheme.
“We are seeking confirmation of brokers’ eligibility for other support, including the restart and discretionary grants being made available to businesses,” Steve White, Biba’s chef executive, added.
Vulnerable customers
As part of Biba’s recently published manifesto, which is themed around resilience, Biba’s chief executive told Insurance Times that IPT remaining unchanged will help businesses to buy the insurance they need to be resilient.
Others in the industry, however, have voiced their disappointment at insurance premium tax not being reduced.
Dan Hutson, head of motor insurance at Comparethemarket, agreed that it was “disappointing” that the chancellor did not take action to reduce the cost burden of IPT, as this could have accelerated the UK’s recovery post-Covid-19.
Hutson explained: “At a time when so many are struggling financially, the current rate of IPT significantly impacts the cost of driving and could price some people out of car ownership entirely.
”If you live in a city, you may be able to get by without a car, but for those in more rural areas, cars are essential to get to work, take children to school, or see friends and family.
“While the government claims IPT targets insurers, the reality is that it punishes drivers, especially young people who shoulder the largest burden when it comes to this tax increase, but can afford it the least. IPT is calculated based on the annual cost of insurance, which means that those who have higher premiums pay higher tax.
“This unfairly penalises young people who pay an average of £135 in IPT every year, compared to £67 for the rest of the UK. When household finances are stretched, the high cost of running a car, particularly for younger people, is making driving a luxury for many who see it as a necessity once lockdown lifts.”
Meanwhile, Keith Richards, chief membership officer of the Chartered Insurance Institute (CII), said: “While the tax may have once been seen as a necessary component of HM Treasury’s tax strategy, the rate has unreasonably risen over time from 2.5% to 12% since it was introduced in 2015, increasing the true cost of insurance and hitting hard working people the hardest.”
The CII has repeatedly asked Sunak to reform insurance premium tax. It believes IPT is a stealth tax on responsible and vulnerable customers, which should be cut.
“Covid-19 has shown how important it is to have the safety net of insurance in place. The government should consider the benefits for consumers of reducing the cost of premiums by cutting this tax and the knock-on positive effect this will have across the country in making insurance more affordable for people to protect against the risks in life, which may otherwise be catastrophic,” Richards added.
Resilience
Meanwhile, Sunak vowed to help businesses out of the pandemic. The Budget aims to use several business support measures and skills development schemes to achieve this.
During the last 12 months, Biba has worked closely with the government in respect of several specific sectors that were most affected by Covid-19.
White said: “We are delighted to see the solutions we helped form continue to provide support as the Film and TV Restart Scheme is extended to the end of December 2021 and government intends to continue to monitor the Trade Credit Reinsurance Scheme to check whether further intervention is needed beyond 30 June 2021.
“Up to £190bn of cover on businesses has been provided under the scheme so far, preventing disaster for an estimated 155,000 businesses which would have been at risk. We have also asked to be kept informed if and when the current intervention on care homes and designated settings is reviewed.”
Perennial problem
The chancellor also confirmed that the £5.2bn flood and coastal defence programme for England, originally announced in 2020, will begin in April this year.
White continued: “Serious flooding has become a perennial problem and we have worked with government and other stakeholders to try and deliver insurance solutions alongside enhanced flood resilience.
“Schemes will be created in several at risk areas around the country and construction is expected to begin in 2021 to 2022.
”These schemes plan to better protect over 3,700 homes from flooding. Good news for homeowners and insurance providers.”
No comments yet