The Director General of the Association of British Insurers (ABI) has urged the Government to cut the rate of Insurance Premium Tax (IPT).
As the government prepares to deliver its first budget this month, Huw Evans (pic) has described IPT as “regressive and unfair”.
His comments came as a report by the independent Social Market Foundation (SMF) shows that IPT, which has doubled since 2015 to 12%, is costing households, on average, £223 per year.
The figure is an increase from £87 per year in 2009/10. The study found lowest income families are being hit hardest, they spend 4.1% of their post-tax income on insurance, compared to 1.6% for the highest income households.
In 2017/18 the 12% standard rate of IPT cost the poorest 50% of households an extra half a billion pounds in extra spending, compared to if the rate had stayed at 5%, the report added. There has been no detailed economic analysis from the Government on what the optimal rate of IPT should be. This is stopping the UK from levelling up.
“This new report clearly shows how regressive and unfair insurance premium tax is,” said Mr Evans. “IPT costs hard-working families £223 a year, just for doing the right thing and buying insurance to protect themselves. Businesses and public bodies are also losing out as this tax damages their bottom lines. We urge the Government to cut this stealth tax in the March budget.”
Businesses are also losing out. The report found that unlike VAT, businesses cannot claim back IPT so a higher rate of IPT translates in to lower net profits for businesses and in turn, lower incomes and dividend payments for households. Around half of what households spend on IPT is what businesses pass on to the consumer, this is the only way businesses can cope with this steep tax on their products.
Scott Corfe of the Social Market Foundation said: “The data we have collected shows there has been no detailed analysis from the Government on what rate IPT should be set at. It has gone up exponentially and our figures are clear: families with lower incomes are paying more every year.”