BIBA urge government to revise position on IPT

BIBA has again urged the Government to revise its position on Insurance Premium Tax (IPT) following the release of another record annual UK provisional tax receipt figure. 

BIBA previously called on the Government to intervene on IPT in its budget submission to the Treasury; Chief Executive Graeme Trudgill later remarked they had “missed an opportunity” by not including action on IPT in its Spring Budget.

IPT impacts 84% of UK households and applies to most general insurance policies, including home, pet, and motor. The standard rate has doubled to 12% since October 2015.

In response to the release of the £8.1billion provisional tax receipt figure by HMRC - a record annual total for the third year running- Trudgill reiterated via a LinkedIn post BIBA’s call on the Government to:

• Cut headline rate of IPT from 12% to 10%
• Exempt from IPT insurance premiums for multi-occupancy residential buildings that require, or are undergoing, remediation.
• Exempt from IPT cyber insurance premiums to increase uptake.
• Align IPT on travel insurance with standard rate, ending the anomaly whereby 20% is applied.

Trudgill also stated:

“IPT is a regressive tax that hits the poorest hardest and acts as a barrier to the take up of adequate insurance at a time when people are increasingly vulnerable because of the cost of living and businesses struggle to manage costs because of inflation.”

Despite the insurance sector having contributed record amounts to Government revenue due to inflation triggering a rise in premiums, Trudgill noted soaring costs have led businesses to cut or reduce key financial protections, thus “reducing consumers’ and businesses’ resilience, exposing the wider economy to greater potential shocks and reducing the level of economic growth we can achieve.”

The appetite of both consumers and businesses for change is reflected in recent polls. An August 2023 Consumer Intelligence poll revealed 35% of consumers believe it is unfair to impose IPT on compulsory classes of insurance, such as motor, and 55% feel it is unfair to impose IPT on any class of insurance. In November 2023, Opinium research amongst 500 UK SMEs revealed 42% had reduced the amount of insurance brought in the last 12 months for financial reasons.

In February 2024, ABI echoed BIBA’s stance on IPT, which is thought to affect around 84% of UK households. Director of General Insurance Policy at ABI, Mervyn Skeet, said:

“[T]his tax […] penalises people and businesses for being responsible […] [and] hits the poorest hardest because they typically spend more on insurance, such as home and motor cover, as a proportion of their income. There has never been a better time for the government to show its support to the millions of homeowners and businesses who do the right thing by buying insurance. We should cut IPT now.”

By January 2024 IPT had contributed £6.7billion to the Government, similar to the income earnt from ‘sin taxes’ on beer (£3.1bn), spirits (£3.7bn) tobacco (£7.3bn) and gambling (£2.3bn).

As evidenced by the recently published results of the FCA’s Financial Lives recontact Survey., consumers are increasingly struggling to afford insurance, alongside other bills and credit commitments, due to the cost of living. There is, therefore, a risk that more consumers will reduce or drop cover for financial reasons, failing to secure cover appropriate for their needs and risk and potentially exacerbating affordability issues should claims, repairs or thefts occur.

In addition, the growing cybersecurity threat faced by UK businesses paired with potential for businesses to drop or limit coverage in response to the rise in prices, could see many exposed to significant financial and operational risk, in turn negatively impacting resilience and capacity to support customers.

Firms should ensure vital that business protections, such as cybersecurity cover, remain intact and continue to advise customers according to their need and risk, as opposed to affordability, monitor, and support vulnerable customers, and ensure all products and services deliver fair value and support good customer outcomes.