Insurance Premium Tax on the rise again
It was only a few months ago we reported here that insurance premium tax (IPT) was set to rise.
As announced in the 2015 Summer Budget, on 1 November 2015 IPT increased from 6% to 9.5% in a move intended to put in place an approach for taxing banks and insurers that was "sustainable, stable and fair".
However, the Chancellor's decision was widely criticised due to the almost inevitable consequence that additional charges to insurers would be passed on to policyholders.
On 15 March 2016 another IPT increase was announced, taking IPT to 10% with effect from 1 October 2016. Whilst this was less than the 3% rise speculated prior to the Budget, another increase to what has already been labelled a "stealth tax" has not been well-received by the Industry. Prior to the announcement, insurance broker Towergate warned that rises on premiums would damage small businesses and create more work for the industry.
The effect of the rise on consumer motor and buildings/contents policies has been widely reported but it is not just consumers that are affected. Businesses are increasingly finding themselves squeezed by premiums on company policies, such as D&O, EL, PI and PL.
The additional tax is set to be ring-fenced to pay for improved flood defences across the North of England. Steve White, chief executive of the British Insurance Brokers' Association (Biba) said that, while Biba support additional spending on flood defences, he felt that the hike "puts an increased burden on policyholders, many of whom are suffering from ongoing flood damage". Using increased premiums from flood-affected policyholders to pay for flood defences has been described by AA president Edmund Kind as simply "robbing Peter to pay Paul".
The 0.5% rise doesn’t come into effect until October but for insurance firms still reeling from the November changes, it means another 6 months of working out how they can adapt to the new rate.