Why bother about tax issues at the beginning of November? The next Budget is not until March. However, now is the time when work really gets underway in preparing next year's Budget statement. If you want something in the budget or want to prevent something happening, now is the time to influence officials and log points with the Chancellor.
ABI's main budget representations are about to be sent to the Chancellor with detailed papers going to officials. It will come as no surprise to learn that one of the important areas that will again feature is Insurance Premium Tax.
There is a very convincing case for dropping this tax altogether but, more realistically, the aim must be to prevent further rises. This is very important for intermediaries as they stand to lose commercially if the standard rate is raised from its current 5% to nearer the European average of 10%.
Higher tax rates will see insurance business seeping from the industry. This is very likely in commercial insurances where more businesses will opt for self-insurance and other risk management devices. The result could be a reduction in commercial insurance premiums and as 80% of this business is placed through intermediaries, areas of insurance may disappear as has happened with some extended warranty business. This has been reclassified as maintenance contracts in order to escape the tax. Particularly vulnerable is private medical insurance, written on a group basis. This could be reorganised on a managed health basis and so not attract IPT.
A tax hike on top of recent premium increases could see a reduction in the take-up of personal lines insurances. Already there is a major problem of people driving without insurance and this could increase.
These are very convincing reasons why IPT should not be increased. Very telling also must be the fact that insurance is designed to protect people from the unforeseen and unexpected and as such is not a luxury. It is a basic necessity for most people. Premium increases hit people on lower incomes proportionately harder and go against what the Government is trying to achieve through its policies on social and financial exclusion.
The Government likes to imply that insurance is under taxed because it is excluded from VAT. The truth is the reverse. If VAT of 17.5% was placed on insurance premiums and IPT was abolished, then policyholders would be over £1 billion better off. The insurance industry pays a vast amount of VAT and is unable to recover all of it. It is effectively being penalised for its VAT exempt status while at the same time being directly taxed through IPT.
This is too important an issue to ignore.
Everyone in the industry has an interest in kicking up a fuss and making it known to the Government that enough is enough with IPT. The rate should not be increased still further. We must also stress that no areas of insurance currently taxed at 5% are transferred to the penal 17.5% that applies to travel insurance and extended warranty business.
Intermediaries need to stand up and be counted now. The danger otherwise is that their customers will lose out and be disadvantaged and there could be a reduction in business.
