The Autumn Statement announcement of an increase in the standard rate of insurance premium tax from 10% to 12% means the UK now has the sixth highest rate in Europe, behind only Germany, Greece, Italy, the Netherlands and Finland, according to the Association of British Insurers.
IPT is now due to raise more than wine, spirits, beer and air passenger duty, with the total raised from IPT reaching £6bn a year by 2018/19.
Director general of the ABI, Huw Evans, said: ‘Increasing IPT from 6% to 12% raises around £13bn over five years, making it one of the biggest revenue raising measures in recent fiscal events.’
Giving evidence to the House of Commons Treasury select committee, Paul Johnson, director of the Institute for Fiscal Studies, noted that IPT ‘is an inefficient tax from an economic point of view’, which has a distorting effect as a means of raising revenue, given the constraints that exist on the government putting VAT on insurance.
Johnson said: ‘The value added from insurance is the difference between what you pay for insurance and the premiums that are paid out. The value added is nowhere near great enough to justify an IPT rate of 12%. It simply should be set at a lower rate.’ Johnson added: ‘In the long run, it will reduce the amount of business that is highly dependent on buying insurance because it is a non-reclaimable tax.’
The Autumn Statement announcement of an increase in the standard rate of insurance premium tax from 10% to 12% means the UK now has the sixth highest rate in Europe, behind only Germany, Greece, Italy, the Netherlands and Finland, according to the Association of British Insurers.
IPT is now due to raise more than wine, spirits, beer and air passenger duty, with the total raised from IPT reaching £6bn a year by 2018/19.
Director general of the ABI, Huw Evans, said: ‘Increasing IPT from 6% to 12% raises around £13bn over five years, making it one of the biggest revenue raising measures in recent fiscal events.’
Giving evidence to the House of Commons Treasury select committee, Paul Johnson, director of the Institute for Fiscal Studies, noted that IPT ‘is an inefficient tax from an economic point of view’, which has a distorting effect as a means of raising revenue, given the constraints that exist on the government putting VAT on insurance.
Johnson said: ‘The value added from insurance is the difference between what you pay for insurance and the premiums that are paid out. The value added is nowhere near great enough to justify an IPT rate of 12%. It simply should be set at a lower rate.’ Johnson added: ‘In the long run, it will reduce the amount of business that is highly dependent on buying insurance because it is a non-reclaimable tax.’
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