Profits and stock prices of the country’s top insurance companies are booming as they impose ever-higher premiums on customers.
But it is not only the insurers who are reaping the fruits of this premium bonanza: the Government is also rubbing its hands with joy.
Figures published by the Office for Budget Responsibility (OBR) – in response to the Chancellor of the Exchequer’s Budget – show that the taxes the Government is generating from insurance premiums are currently higher than those from the much-despised income tax. inheritance.
Current revenue from the Insurance Premium Tax (IPT) levied on sales of most types of insurance cover amounts to a staggering £8.2 billion a year : £0.6 billion more than the tax incursion on family inheritances, and not far behind the tax earned on tobacco. sales (£8.8 billion).
In very simple terms, the higher premiums insurers charge their customers, the greater the government’s tax revenue.
Stealthy appropriation: the taxes that the Government generates from insurance premiums are currently higher than those of the much despised inheritance tax
In the financial year ending April 2023, IPT revenue was £7.5bn, while ten years ago, in the financial year ending April 2014, it was just over £3bn. sterling.
Additionally, according to the OBR, annual IPT tax revenue will continue to rise over the next five years to reach £8.8 billion in the financial year ending April 2029.
It’s a win-win for insurers and the Treasury’s purse-setters, and it’s one that is starting to anger lobby groups representing the elderly and those in financial difficulty.
EVERYONE believes that the regressive tax is unfair to those with low incomes and stretched family finances.
Some also passionately argue that the Government has deliberately turned a blind eye to rampant insurance premiums because higher prices mean higher tax collections.
IPT is currently charged at 12 per cent on core policies such as home cover, car cover, private medical cover and pet cover. Some coverage, such as travel insurance, carries a 20 percent surcharge.
Instead of absorbing the tax themselves, insurers automatically add it to customers’ bills.
Insurance that is exempt from the tax includes health policies like life cover, critical illness cover and also income protection.
Although more than four in five households pay the tax, two-thirds of people have little or no knowledge about it, even though it is detailed in the documents they receive when they purchase or renew coverage.
The Association of British Insurers (ABI) has called it the country’s “hidden in plain sight” tax.
The ABI expected Chancellor Jeremy Hunt to cut the IPT in last week’s Budget, arguing the tax “penalizes people and businesses for being responsible”.
He even designed his own campaign ‘mascot’, Snippy (a pair of scissors with eyes) to press to make the cut. But Snippy failed to win over Mr. Hunt.
However, following the Chancellor’s Budget, this has not stopped a glut of financial experts continuing to call for the tax to be reviewed or reduced, sooner rather than later.
Exchequer: Current revenue from the insurance premium tax on sales of most types of insurance cover amounts to a staggering £8.2 billion a year.
James Daley, director of currency campaign group Fairer Finance, says now is the “right time” for the Government to consider changes to the IPT.
He told Money Mail yesterday: ‘An increasing number of people are struggling to afford insurance cover, particularly car insurance, which is compulsory.
‘People depend on cars to get to work, shop and take their children to school. I believe it is up to the Government to take action to support struggling families and pensioners, and cuts to the IPT are an easy way to do this.’
The latest data from comparison website Confused.com shows the average cost of car insurance is now £995, up 58 per cent on a year ago.
Prices, the company says, are at their highest level since it began collecting data 18 years ago. Both the young and the elderly are the most affected by this increase in premiums.
Ian Hughes, of insurance consultancy Consumer Intelligence, shares Mr Daley’s view. “The IPT is a tax that taxes some of the most vulnerable members of society: those who are young or who have had insurance claims and now pay more for coverage,” he says.
“There must be a more equitable way for the Government to raise cash.” Dennis Reed is director of Silver Voices, a campaign group representing older people. He doesn’t mince words.
“It is shocking that the taxman is reaping the financial benefits of the rapacious profits currently made by insurers,” he told Money Mail.
“Instead of smugly pocketing these tax revenues, the Government should clamp down on the unjustifiable premium increases being imposed on many seniors, especially those driving into their 70s.”
He added: ‘The costs of all forms of insurance are becoming prohibitive and leaving vulnerable people financially exposed. This issue needs to be addressed, even if it means less revenue for the Treasury.’
Just over two years ago, the Financial Conduct Authority (FCA) launched a regulatory crackdown on home and car insurance pricing.
The goal was to ensure that loyal customers no longer paid more for their policy at renewal than someone purchasing identical coverage from the same insurer for the first time.
Driving costs: The latest data from comparison website Confused.com shows the average cost of car insurance is now £995, up 58% on a year ago.
Although he said the move would save policyholders £4.2 billion over the next ten years, all the evidence so far suggests otherwise.
Over the past year, average home and auto insurance premiums have risen 41 percent (according to Consumer Intelligence) and 58 percent respectively, resulting in record amounts of IPT flowing into Treasury coffers.
As Money Mail has repeatedly highlighted since the FCA rules came into effect in early 2022, the only way most policyholders have been able to keep insurance costs even vaguely under control is by shopping around or cutting back on the breadth of their coverage. coverage.
The poor financial health of the insurance industry was highlighted six days ago when Admiral Group reported profits of £443m in 2023, an increase of 22 per cent on the previous year. Admiral’s brands in the UK include Diamond, Elephant and Veygo.
The figures prompted investment bank Berenberg to paint a bright future for the insurer, forecasting profits to rise over the next two years to around £760m.
Shares in Admiral, a FTSE100-listed company, have risen 43 per cent over the past year.
Rival Direct Line, a group comprising insurance brands Churchill and Privilege, has also attracted interest from Belgian rival Ageas.
The IPT was introduced 30 years ago by John Major’s Conservative government. The initial tax was only 2.5 per cent, so an annual premium of £100 would result in a tax charge of £2.50 and a total bill of £102.50.
But successive Chancellors of the Exchequer since 1994 have increased the cost. The current standard rate of 12 percent was introduced in January 2017, while the 20 percent higher rate band came into effect in January 2011.
It applies to travel insurance, electrical appliance coverage and car insurance purchased through a dealer.
Although all experts contacted by Money Mail support a reduction in the IPT for fairness reasons, some believe it will be a difficult task to achieve.
As one said: “I want to support consumers who pay less for insurance by abolishing the IPT, but I can’t hear anyone suggesting how this Government (or, indeed, the next one) finds the £8 billion a year it would cost.’
The Treasury said it was keeping all taxes under review but that a reform leading to any loss of tax revenue would have to be fiscally balanced to maintain economic stability.
It added: ‘Insurance premium tax, which contributes £8 billion a year to vital public services, makes up only part of the total cost of insurance and the extent to which it is passed on to customers is a decision for the authorities. insurers.
Other factors that affect the price of insurance include the level of competition in the market.
- Do you think the insurance premium tax should be eliminated? Email: jeff.prestridge@dailymail.co.uk
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