Tuesday, 21 July 2015 GMT
Author: Staveley Head
Potentially unwelcome news for the insurance industry at July’s budget as IPT (Insurance Premium Tax) is raised up to 9.5%. This according to Insurance Times is the second largest revenue raising measure in this year’s budget.
What is the IPT increase?
Between all of the abbreviations and jargon it is difficult to make sense of how the rise in IPT (Insurance Premium Tax) will affect consumers, or if it will? We get that, that’s why we’re here to explain.
IPT is a tax on the majority of all general insurance premiums such as motor, home buildings and contents insurance.
How it will affect consumers
According to the AA the average cost of each quoted policy will increase by £17.50. This means higher costs for insurance. And with the cost of living rising and the minimum wage increase not coming into effect until 2020, it is no wonder the industry nor it’s consumers welcomed the change.
It will affect many people living in Britain with BIBA CEO, Steve White stating “...Those hit by this stealth tax will include the 20.1 million households with contents insurance; 19.6 million with motor insurance and 17 million with buildings insurance.”
There was instant backlash from the insurance industry who had been working with the government to lower the cost of insurance for consumers. Graeme Trudgill, Executive Director of BIBA turned to social media to voice his opinion;
Steve White, BIBA CEO said: "We are extremely disappointed in this rise in Insurance Premium Tax and will mean insurance will become more expensive for the public as a result.”
With all of this animosity surrounding the rise in IPT you would think George Osborne would have a flawless reason for the decision! Osborne argued Britain’s IPT was below that of other countries, such as Germany.
Or perhaps it has something to do with the £1.6 billion in revenue per year that Insurance Times predict the treasury will net!
A positive view
Since its announcement the increase has received a lot of negative press, but what are the positives or are there any?
We should look at how the actual cost of home contents cover has dropped by 8% since 2014, and the cost of comprehensive motor insurance by 10% over three years. Also, insurance premium tax will remain lower than in many other EU states - including Germany, which levies it at a 19%.
There is more good news... as the government wants to introduce more crackdowns on the claims management industry, and build on the success of previous measures such as action to address fraudulent whiplash claims.