IPT hike – industry fears further rise

The rate of insurance premium tax (IPT) will rise again next June to 12%, the third increase in the space of 18 months (see graph below).

Brokers launched a scathing attack on chancellor Philip Hammond after the November Autumn Statement, claiming IPT is a stealth tax on consumers.

The government maintained in an official statement that IPT is a “tax on insurers and it is up to them whether and how to pass on costs to customers”.

But Brendan Dawson, group managing director of insurance services at Qdos, refused to accept the official statement.

Cash cow

Dawson argued that the 2% bump meant those “who are reluctant to buy insurance in the first place might want to cut corners by not paying as much as they should do”.

“The industry is burdened by regulation and tax,” Dawson continued. “There is a constant drip of milking the financial services industry, it’s a cash cow for the government.”

The British Insurance Brokers’ Association (Biba) was quick to raise its concerns about the tax increase with Hammond the day after the announcement, and slammed him for using it as a “smoke screen”.

Also not agreeing that IPT is a tax on insurers, Graeme Trudgill, executive director of Biba asked: “Legally speaking they can say that, but how can insurers accommodate a couple of extra points on the bottom line? It’s not possible.

“There could be an impact on underinsurance and on reducing the uptake of some add-ons.”

Stealth tax

Like Dawson, Trudgill highlighted that the rise came at a time when insurance faced a variety of challenges. “It makes us uncompetitive at a time when we’re facing extra costs from the apprentice levy and issues with access to the single market,” he commented.

“When we queried it with him [Hammond] he said he was ‘very open that it was a revenue raiser’.  It’s just a stealth tax.”

Experts also predicted that the government could continue to increase IPT to the VAT figure of 20%.

According to Simon Rhoades, underwriting manager at Bollington, the government justified the increased rate because it views insurance as “another product when in fact it’s not, it’s almost a savings stroke risk product”.

“So to tax it as if it’s a normal consumer product is the wrong way of approaching it,” he continued.

VAT worries

“If they are going to push the figure to the VAT rate there is an argument to say just do it. But all these increases will push people to buy less cover, stripped down cover, higher excesses, which may not be in their interest.”

Meanwhile, Trudgill noted that Hammond and other insurance experts in the Treasury said this wouldn’t be the case. “The government said they have no plans to raise IPT to VAT levels,” he added, confirming that the trade body would continue to lobby about the issue and raise it in its 2017 manifesto.

Despite this assurance, brokers still feel they will get grief because of rising costs and constant system upgrades.

Dawson stated: “My gut feeling is that IPT is going to rise year-on-year until there is sort of an equalisation process with VAT.

“Brokers will have to keep spending money to upgrade systems, change policies, possible terms and conditions, which will add costs to the industry across the insurance world and the broking world.”

Rhoades concluded that the rate change had the unintended consequence of making brokers concentrate or look more at applying fees rather than taking commission. “At least fees would be IPT free,” he stated.

Market slams 2% hike


Steve Treloar, LV general insurance managing director, said:“Government has incorrectly stated that IPT is a tax on insurers – it’s not, it’s a tax that consumers have to pay when they purchase insurance.”


Tim Ryan, executive chairman at UNA, said: “This is a significant blow. As a result this will significantly hit the pockets of families throughout the country with significant figures being added to the average buildings and contents policies.”


Conor Brennan, head of UK general insurance at Zurich, said: “It’s only really a slight surprise that the chancellor has announced a further increase in the rate of insurance premium tax as it’s still a long way short of VAT, which we may have to assume is a level where the Treasury sees this going in the future.”

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Source: Judith Ugwumadu, News Analysis: Insurance Age


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