“The Government’s decision to raise the rate of Insurance Premium Tax yet again leaves the whole sector with the sinking feeling that rates will continue to rise, which could give way to a host of unintended consequences.
“Whilst it is no foregone conclusion that the Government will keep increasing the rate until IPT matches VAT at 20 percent, it certainly isn’t impossible. Twenty percent IPT could raise an attractive £9bn-£10bn a year for the Government.
“However, it would also have several unintended consequences. We are now beyond the average IPT rate across Europe which sits at just over 10 percent. In order to avoid the higher insurance premiums companies will look to alternatives. This could lead to simply not taking out insurance for ‘non-essential’ items or we could see the rise of alternative methods of cover. Neither of these options are in the consumers’ long-term interest.
“When we saw IPT rocket with the introduction of the higher rate back in 1997 we witnessed the birth of service and maintenance contracts which are now in everyday use across electrical and automotive retailers. However, service contracts do not offer customers the same level of protection as insurance. They are not as rigorously regulated and if a company goes under – so does the consumers’ protection.
“The Chancellor’s announcement shouldn’t have been wholly unexpected, although clearly it did come as a rude awakening to many. But the Treasury handed the sector an olive branch with its proposals to reduce whiplash claims and so this is no doubt seen as keeping the balance. However, it highlights the need for an open dialogue between the sector and the policy makers. Both sides need to do more to make sure the changes are in the best interest of customers, both as consumers and UK tax payers.”
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