Officials probe comparison between UK rates and the rest of the EU

The Treasury is investigating how the level of British insurance premium tax (IPT) compares with other European countries, fuelling concerns that the government will raise the general rate in 22 June’s emergency Budget.

Insurance Times has learnt that Treasury officials have asked accountants TMF to supply information on IPT rates across the EU.

VAT and IPT services managing director for TMF, Richard Asquith, said that the firm’s analysis showed that the UK’s general IPT rate of 5% is the lowest in the EU, behind Ireland and Luxemburg.

This figure compares with IPT rates of 19% in Germany, 21.25% in Italy and 9% in France. The UK’s higher 17.5% IPT rate chiefly applies to travel insurance. The insurance levy currently raises £2.3bn for the Treasury.

Asquith said: “There is a huge difference between us and our most direct trading competitors, which means it’s an obvious candidate.”

He said that indirect taxes, like IPT and VAT, were attractive revenue-raising options for the Treasury because they could be hiked immediately and with relatively little adverse political fall-out.

“The Treasury is looking at all taxes and seeing which will be easy to increase,” Asquith said. “In terms of IPT, it won’t raise alarm bells with the general public because they don’t understand where it appears. Politically, it will fall off the radar.”

He added that any increased tax would be likely to feed straight through into increased premiums, although he suggested if rates increased significantly, insurance companies might start flagging up the element accounted for by tax.

Industry bodies have urged the government not to raise the general IPT rate. Biba chief executive Eric Galbraith said: “Biba would like the government to recognise in its Budget that a healthy insurance sector helps drive a healthy economy. Avoiding further increases to IPT is a key way to ensure stability and assist the UK’s economic recovery.

“We are concerned that increases to insurance premiums as a result of IPT could lead to even further underinsurance or even a lack of insurance protection.”

An ABI spokesman said: “Increasing IPT will lead to reduced levels of insurance for those that need it most: the less well-off individual consumers and small businesses, who are least likely to have other financial resources to fall back on in the case of loss.”

The Treasury refused to comment.

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