The new insurance protection tax (IPT) increase is a joke. A farcical, nonsensical and overtly harsh measure that will adversely affect consumers, insurers and the market as a whole.
When the new 12% rate takes effect on June 1st next year, that will mean a doubling of the rate in just 18 months. As the AA’s chief Edmund King noted:
“No other tax has increased by that much.”
And the Treasury’s response to an overwhelmingly negative response from the industry?
To declare that this is a tax aimed at insurers, who will have to decide whether and how the hike is passed on to their customer base.
Are they being serious?
Yes, the tax is levied against insurers, but the repercussions are more far reaching than that. It puts a squeeze on the margins of insurers and brokers in an already harshly competitive environment, and will lead to unavoidable increases in cost to the consumer.
It’s a classic Lose-Lose scenario.
The simple truth of this tax hike – the third since November 2015, let’s not forget – is that those people who are taking out cover on their vehicles, businesses, pets, property or even their own health, will be paying more for it over the coming 12 months.
Who is this helping?
When Theresa May moved into Number 10 in July she promised to deliver a country that works for everyone. Focusing particularly on those in society who are:
Well, insurance is a necessity of modern life, and your Government have just applied additional pressure. Because those very people who are likely to be struggling with modern life, are exactly the people now at risk of finding insurance cover unaffordable.
Insurance is not an optional extra which you can do without. Your property needs to be insured, your business needs to be insured, your vehicle needs to be insured.
The country is already faced with an underinsurance problem, how on earth will a tax increase do anything other than exacerbate this problem? Adding to the tax burden, again, could put cover out of affordable reach.
We live in an era when young adults are the first generation to be earning less than their parents. They are a generation with very real pressures placed upon them, not helped by continually higher insurance costs. Motor insurance, a legal requirement, is typically higher among young drivers. At what point does the cost become so high that people just don’t bother with it?
The problem for insurers
With IPT about to be raised to 100% what it was a little over a year ago, there will be pressure on insurers to take some, if not all, of that burden; delivering level terms to the consumer. After all, the policy hasn’t changed – why should it now be 6% higher?
Consumers are going to shop around for the best deal, of course they are. If that means companies having to take the tax hit, then it’s the bottom line that suffers. And once the margins tighten, you are jeopardising business.
The reality is that insurers may be forced to fall between the two stools. Take some of the hit on their margin, passing some of it off in the form of price rises.
Again, it’s lose-lose.
And, again, we ask: who does this benefit?
Yes, of course tax increases will always be criticised by those to whom it will most effect. The stupidity of this increase, however, is that it threatens to have an on effect everyone. With no discernible return.
Oh, the Treasury might well find additional funds in the coffers. But at what cost? Higher levels of underinsured members of the public? Insurance businesses that have to strip back to maintain margins – or worse, go under?
This is the Government who wants to promote UK business growth and support those in society who are ‘barely managing’?
They’ve got a funny way of showing it.