Relief should be given on tax that affects insurance costs say industry bodies
Relief on a tax which affects the cost of insurance should be granted to some sectors, a body representing brokers is urging.
This relief could, for example, support people living in impaired high-rise cladded buildings and help businesses to have cover for emerging cyber risks, the British Insurance Brokers’ Association (Biba) suggested.
Biba said that, while it recognises that economic challenges do not allow currently for a general cut in insurance premium tax (IPT), it would like to see a commitment for the tax to be frozen for the remainder of the current parliamentary term.
IPT is a tax on general insurance premiums and the standard rate has been increased several times over the years, with the last rise taking place in 2017.
The tax is levied on insurers and feeds into the costs that insurance firms consider when pricing customers’ policies.
IPT receipts from these higher premiums provides a “windfall to government” that exacerbates the cost impact to consumers, which could be eased, Biba argued.
It pointed to HM Revenue & Customs (HMRC) figures showing that standard rate IPT liabilities for the financial year 2021/22 were £6.746 billion. This was £426 million (7%) higher than the previous financial year.
Total provisional IPT receipts for the 2022-23 financial year to date (April to December) were £5.471 billion, which was £432 million (9%) higher than the same period in the previous financial year, according to figures published in January 2023.
Biba executive director Graeme Trudgill said: “Insurance premium tax receipts to government have more than doubled in the last seven years, to a record £6.627 billion.
“Not only that, government receipts from IPT are up 9%, according to Government’s provisional figures for (2022-23) April to December, compared to the same period in the previous financial year.
“So there is no justification for an increase and every reason to give some tax relief for certain sectors, including leaseholders in cladded multi-occupancy buildings.”
Biba is calling for IPT relief to be granted when insuring people living in impaired high-rise cladded buildings that await or are undergoing remediation.
It also wants to see targeted relief from IPT on cyber insurance, to help build resilience across the wider economy.
In the UK, the vast majority of businesses, in particular SMEs (small and medium enterprises), do not have a standalone policy in place, and only some have some cyber cover as part of a wider policy, Biba said.
The organisation has made the call in a submission to the Treasury, along with several other requests, including calling for targeted tax relief for employees using private medical insurance, to help relieve pressures on the NHS and improve employee protection.
The body wants Flood Re – a scheme which helps people in flood-prone areas to find affordable cover – to be allowed to discount insurance premiums where recognised flood resilience measures are installed.
The Spring Budget will be delivered on March 15.
On Thursday, the boss of insurer Aviva warned of further increases to the price of cover this year after double-digit rises in 2022, amid surging costs for repair bills.
The company increased insurance new business premiums on average by 20% for motor cover and 13% for home insurance as it saw the cost of claims rise by between 9% and 11% last year.
Group chief executive Amanda Blanc told the PA news agency that the group has already had to increase prices by 5% in the first quarter of 2023, with further price rises to come as inflation remains intense.
Ms Blanc added: “But we’re optimistic that prices will come down. New car prices are reducing and hopefully the supply chains will open up.”
Insurers generally have been hit by surging motor repair, parts and labour prices, which have sent claims costs rocketing.
The industry has also been under pressure amid regulatory scrutiny on renewal rates and car damage valuations, while freezing weather and winter storms have also added to claims bills.
The Association of British Insurers (ABI) has also called for the IPT rate to be cut on health insurance.
The ABI suggested that reducing the standard 12% IPT rate levied on premiums would encourage more employers and individuals to buy the product and could support more people back into the workplace.
Yvonne Braun, director of health and protection policy at the ABI, said earlier this week: “Insurers have a significant part to play in preventing ill health, supporting a healthy workforce and reducing pressure on the NHS.
“The independent sector’s strengths in early intervention and speedy diagnosis and treatment can also help keep people in the workplace, which is vital for boosting the economy.”
The ABI is also calling for the rate of IPT to be cut on buildings insurance for high-rise, high-risk cladded buildings while the property is awaiting remediation.
A Government spokesperson said: “Developers have received legally-binding contracts that will commit them to pay an estimated £2 billion or more for repairs to buildings they developed or refurbished over the past 30 years.
“This means that together with the building safety levy, the industry is directly paying an estimated £5 billion to make their buildings safe.”