What yesterday's announcement means for the insurance industry
“Not ideal” is how one senior executive put it, referring to the Budget announcement by Chancellor of the Exchequer George Osborne.
That comment reflected the industry’s disappointment about the 1% rise in the lower rate of IPT (insurance premium tax), the first such change since 1999.
Understandably, the industry’s main trade bodies are disappointed about the increase.
They worry that in such a soft rate environment, persuading customers to pay for the increase will be a tough ask.
The ABI worries that the hike risks putting into reverse recent welcome progress on cutting the uninsured rate amongst motorists.
But as Bluefin chief executive Stuart Reid has pointed out many will be breathing a ‘big sigh of relief’ that the increase wasn’t any bigger, as had been widely anticipated. He believes that the relatively modest scale of the increase means that insurers can still hope to introduce much needed increases to premiums.
And the industry has won a promise of legislation next year on the taxation of UK companies’ foreign branches, the vexed issue which has spurred UK insurers to up sticks for more favourable climes.
The IPT increase has to be seen in the much wider context of a massive adjustment to the UK’s fiscal position. Most teachers, police officers and nurses face a two year pay freeze and hundreds of thousands of public servants face redundancy. Meanwhile, VAT has been increased to 20%.
As British Retail Consortium chief executive Stephen Robertson, whose members will be most acutely affected by the VAT hike, points out, the government had “no easy options” this time around.