The government's insistence on taxing private healthcare is stopping the take-up of "back to work" medical cover, according to actuarial consultants Lane Clark & Peacock.

The cover pays for treatment only where the condition prevents an employee from doing their job and there is a waiting list for NHS treatment. Premiums tend to be a third of the cost for typical private medical cover.

Under current rules, employees are taxed on any premiums paid by their employer. The employer will also be liable for national insurance and insurance premium tax.

LCP claims that employees, who have to agree to the cover, may decide not to have the insurance when they realise the tax implications.

John Webber, senior manager at LCP's risk benefit unit said: "We believe it would be universally beneficial to remove the tax penalties on 'back to work' healthcare.

"This tax anomaly is penalising an encouraging initiative and is counterproductive for the economy as a whole."