The trade body has also called for ’an exemption on premiums for impaired high rise multi-occupancy buildings’ awaiting remediation

Broker trade body Biba has called for “no further increases” to insurance premium tax (IPT) rates as new figures revealed record Treasury revenues of £7.89bn for 2022/23.

The latest figures, published yesterday (5 September 2023), came from actuarial consultancy OAC’s analysis of HMRC data and revealed that IPT receipts have risen by more than a quarter over the previous five years.

It found that IPT up by 10% year-on-year when compared to 2021/22, when total tax take collected stood at £7.16bn.

OAC’s analysis also found that the first four months of the 2023/24 tax year looked set to pass the Office of Budget Responsibility’s expectations for the period, with £2.7bn total tax take across the period – a 7% year-on-year increase from the same period. 

IPT is an indirect tax on general insurance (GI) premiums levied by the government. It is a tax on the price of an insurance product and functions as an indirect tax on consumers and businesses that is collected by insurers and paid to HMRC.

Insurers pass on the cost of the tax to consumers and have long contested that a heightened rate would make insurance policies less attractive to consumers during the ongoing cost of living crisis. 

Conversely, the insurance sector has explained that any reduction or freeze in the rate of IPT could be passed on to customers as a windfall, in the form of reduced premiums. 

Commenting on the figures, Alastair Blundell, Biba head of general insurance, told Insurance Times: “We have called for no further increases in the rate and an IPT exemption on the premiums for impaired high-rise, multi-occupancy buildings that are undergoing or awaiting remediation.

“In our 2023 Biba Manifesto, we highlighted that government has, in effect, benefited from an IPT windfall because of pressures on premiums from global events.”

The broker body’s manifesto called for IPT to be frozen for the remainder of this parliament’s term to help mitigate the risk of underinsurance in the current economic climate. 

Significant headwinds

Were IPT receipts to continue at the velocity of the first four months of the tax year, total receipts for the 2023/24 year would reach £9.32bn.

Blundell continued: “IPT is an indirect and regressive tax on consumers and businesses and exacerbates the issue of them cutting back on cover at a time of financial pressure.”  

Cara Spinks, head of insurance consulting at OAC, noted that there appeared to be two main drivers for the growth in IPT receipts – inflation in premiums due to increased healthcare costs and an increase in the demand for private health insurance, which was pushing employers and individuals to arrange additional cover.

Spinks added: “Long-term sickness in the UK is increasing and the industry is calling for a reduction in the rate of IPT to make premiums more affordable.

“Economic inactivity is a significant headwind on the UK economy and, whilst the Treasury might take a short-term hit on IPT receipts, over the longer-term minimising IPT could, conversely, pay for itself through increased productivity from an able and healthy workforce and economic growth.”

Speaking to Insurance Times, an ABI spokesperson added: ”With many families and businesses continuing to face some tough financial decisions, IPT remains a raid on the responsible, who have taken out insurance and we would like to see this tax reduced.”