Leading figures in the insurance industry have described the increase to Insurance Premium Tax (IPT) set out in today's Budget as ‘disappointing news.'
Insurance Premium Tax had been increased from 6% to 9.5% in the Summer Budget and is now to be increased to 10%.
Huw Evans, director general of the Association of British Insurers said: "A further increase in IPT is disappointing news.
"Increased investment in flood defences is vital but should be part of core Government expenditure, not an afterthought paid for by raising taxes on people and businesses who do the responsible thing in protecting themselves through insurance. We will be examining the detail closely to ensure the revenue raised is actually spent on new flood defence schemes."
The British Insurance Brokers Association (BIBA) said it was "astonished" that the revenue raised by previous IPT increases was needed to strengthen flood defences.
Private medical insurace impact
Richard Bowden, managing director of Bupa UK said: "Even a small increase adds to the unfair penalty on those individuals and employers who pay extra towards their healthcare, on top of the tax they already pay to fund the state system.
"It makes no sense to tax a service that reduces the burden on an increasingly strained NHS.
"Health Insurance should be zero-rated like it is in many other countries, and like Life or Critical Illness insurance in the UK.
"The UK now has one of the highest rates of tax on Health Insurance out of 28 European countries."
Isaac Lam, business development director at APRIL UK said: "APRIL UK is disappointed by the rise in IPT announced today by George Osborne, as it will affect all those trying to insure against accident, sickness and unemployment costs.
"This is ironic, as these are areas of cost the government would like to see decrease and private insurance can help in this regard. A rise in IPT is unlikely to encourage private individual take up of such insurance, though."
Jonathan Burton, CEO of Health Shield said: "We welcome the Chancellor's efforts to improve flood defences, however when combined with the previous increase in Insurance Premium Tax policyholders could be looking at a 66% combined increase in less than a year for policies that help families pay for day to day healthcare costs, such as dental care.
"The combination of 10% IPT and a 5% increase in NHS dental scale charges for 2016 and 2017 will be factors affecting the cost and usage of cash plans for both employers and voluntary members alike.
"Health Shield absorbed the impact of the previous IPT increase for all members until the end of 2016 and we will do so again with this increase but the market will need to consider whether regular IPT increases are likely to become the norm."
AMII view
Stuart Scullion, chairman of the Association of Medical Insurers and Intermediaries (AMII), said: "Although insurance premium tax (IPT) will only increase by 0.5 per cent, we are disappointed to note how this tax will impact on private medical insurance as well as cash plans, and subsequently the National Health Service (NHS).
"We do believe more support is needed to improve flood defences in the UK, and we express great sympathy for those who have been affected by the flooding. However, it does not make sense to fund this through penalising those people who are choosing to prioritise their health through private medical insurance and health cash plans.
"As the second increase in six months, in a market where premiums are on the increase already, this new change could be the difference between someone maintaining their health insurance or leaving the market and going back into the NHS.
"Furthermore, this results in a double hit for employees in companies with health insurance or health cash plan benefits. These employees will effectively be taxed twice and, rather than incentivising employers to offer health benefits to staff, this will further discourage this type of support and increase the burden on the NHS.
"Quite simply, blanket increases in IPT like this will continue to have a significant impact on the NHS and we strongly believe health related insurance should be exempt from the tax.
"AMII will be making representations to Government to express our views and the likely impact of this announcement."
Impact for employer healthcare
Elliott Silk, head of employee benefits at Sanlam said: "The worrying thing is that it is an easy win for the government, as the general public are just not familiar with IPT.
"We will have seen a 66% increase in this tax in a very short period of time, if VAT were increased by this percentage there would be an outcry, yet IPT can go through without notice or at least until employers have to pay more for their PMI, Dental and Travel Insurance costs.
"With this in mind, employers urgently need to assess the options that are available to them. Self-insurance or setting up a Healthcare Trust to mitigate any price rise could be an option but they need to take advice before making alternative plans."
More industry comment to follow
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