The Social Market Foundation has published a report highlighting the impact of Insurance Premium Tax (IPT) and its gradual increase since its inception in 1994 – when it stood at 2.5 per cent – to 12 per cent as of June 2017.
The report’s key findings include, that:
- the amount of revenue raised from IPT in 2016-17 was equal to £179 for every British household, with forecasts suggesting this will rise above £200 from 2018
- about half of this was paid directly by households on insurance products, with the remainder paid by businesses. Business costs associated with IPT are likely, at least in part, to be passed on to UK households
- if the standard rate of IPT had remained at 5 per cent then households would be paying between £50 to £100 less every year than currently. This could, for example, offset the financial benefits of the April 2017 increase in the personal tax allowance
IPT now raises more revenue than beer & cider, wine and spirits duties, and it is set to raise more revenue than inheritance tax over the next three years, according to Office for Budget Responsibility projections. The Institute for Fiscal Studies has also noted that recent increases in IPT have been made without deep consideration of what the economically optimal rate of the tax should be, suggesting that a low, single-digit rate for consumers would be more appropriate.
For more information about Insurance Premium Tax, click here.