Chancellor George Osborne’s Budget announcement of a 0.5% rise in Insurance Premium Tax (IPT) to pay for flood defences has met with a mixture of disappointment and relief from brokers and insurers.
Some termed it bad as they argued that any increase is bad because of its impact on consumers whereas others are relieved as they were expecting a much steeper rise.
After Osborne announced last summer that the tax was to increase from 6% to 9.5% in November 2015, brokers fear a steady increase in IPT, possibly up to 20%.
Managing director of Seventeen Group, Paul Anscombe pointed out that many commentators feared worse than the 0.5% rise in what they regard as a stealth tax.
He commented: “I would resist any increase in IPT simply because it’s a real deterrent for people to insure adequately.
“I think in the SME market and for personal insurances people might start to insure for incorrect values or not insure because of the impact of increased tax.”
“We’ve had two increases in quick succession so what are the odds on a further increase at the next Budget. Is this a trend until it gets up to the full 20%?” Anscombe said.
Similar views were echoed by Ben Flockton, insurance tax partner at PwC, “This will undoubtedly fuel further speculation about the rate heading towards 20% to be aligned with the VAT rate as is already the case in some other countries such as Germany and the Netherlands.”
Anscombe noted that the increase on flood-defence spending is positive but raised concern that IPT will come under review at every Budget.
The Treasury had told the Association of British Insurers (ABI) last July that there were “no current plans for another IPT rate rise”.
Graeme Trudgill, executive director, British Insurance Brokers’ Association said, “Our view is that he already increased it since November so why not use some of that new income to pay for flood defences?
“Why come and hit the insurance customers once again? Our CEO Steve White has worked this out as a 66% year-on-year increase. Our view is that it’s not a tax on luxury, it’s actually a tax on necessity, so it’s just unnecessary.”
“I think the floods are just an excuse. He has got an extra £1.5bn coming in this year from the previous IPT rise. Why would you increase it from 9.5% to 10% after it already went up from 6.5%? Why didn’t he use some of that? We’re not particularly pleased with this”, added Trudgill.
Executive chairman at Aston Scott Group, Peter Blanc said he was relieved to hear suggestions that IPT was going to up 12.5% or 15%.
He however said that at the time of introduction, IPT was 2.5%. So the industry shouldn’t lose sight of the fact that it’s still a large increase.
“The trouble is, for the majority of people just buying car and house insurance it’s not going to have an enormous impact”, Blanc noted.
“But we deal with companies and they have lots of clients on their books who pay £1m a year. This is now £100,000 a year on top of their premiums just in a stealth tax. I think lots of businesses will be kicking up a fuss about it.”
On the insurer side, managing director of LV, John O’Roarke noted that while any increase in tax on general insurance is unwelcome, a small rise in IPT to improve flood defences should be viewed as a positive step, adding that it will be a relief to thousands of households and businesses who have been affected by flooding in recent years.
O’Roarke said, “However we urge the Treasury to confirm that this move will not set a precedent – i.e. that any future essential infrastructure spending on flood defences will not be paid for by further tax increases on responsible consumers.”
UKGI CEO at Zurich, Vibhu Sharma also acknowledged a smaller than anticipated increase and steps to enhance flood defences as a “terrific step”.
Sharma noted, “After two rises in less than 12 months, I now think we need a period of stability. Further increases to the cost of insurance will start to undermine some of the savings which reforms set out in the Autumn Statement around whiplash and credit hire agreements could bring.”
Amanda Blanc, Axa CEO UK and Ireland, said an IPT increase was “never welcome” but noted that the rise “was not as extreme as some feared”.
“The increasingly volatile weather that we face in this country cannot be resisted anymore and we must learn to live with it. Investment in flood defences is welcome but defences alone are not the answer”, she added.
“I believe we need to have a much greater focus on the implementation of resilient measures in the building and repair of homes and businesses. We must continue to invest in flood defences and accept that flooding is going to happen more often having a greater impact but I hope this investment is not going to be dependent upon taxing consumers through their insurance.
“On a more positive note, the suite of measures announced in this Budget to reduce SMEs’ tax burden should help businesses exposed to flooding risks invest in much needed defence measures”.
“A further increase in IPT is disappointing news, commented ABI director general Huw Evans.
“Increased investment in flood defences is vital but should be part of core government expenditure, not an afterthought paid for by raising taxes on people and businesses who do the responsible thing in protecting themselves through insurance.
“We will be examining the detail closely to ensure the revenue raised is actually spent on new flood defence schemes.”Risk Warning:
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