The Government should resist the temptation of increasing rates on Insurance Premium Tax (IPT) at the upcoming budget, according to leading independent consultancy Broadstone.
The Chancellor, Rachel Reeves, is currently considering options to fill an £18 billion fiscal black hole but rumours around pension reforms and measures on private equity investors and non-UK domiciled individuals suggest the Treasury may need to widen its net to raise more revenues.
IPT – a levy on products such as car, contents and health insurance – is a lucrative source of taxation for the Government. In 2023/24 it raised a record £8.1 billion, up by 11% on the £7.3 billion generated in 2022/23 as insurance premiums experienced high inflation. Many employers who fund healthcare benefits for employees are experiencing healthcare cost increases of between 15 to 25% on policies renewing this year, with some facing hikes of more than 50%.
On top of premium inflation, the ongoing NHS crisis has led to a record number of individuals accessing private healthcare through Private Medical Insurance (PMI), with NHS waiting lists consistently exceeding 7.6 million cases. In fact, the latest data from PHIN shows that treatments funded through PMI have registered their second consecutive record quarter with Q4 2023 and Q1 2024 reaching 161,000 and 168,000 admissions respectively.
Moreover, the rate of IPT has more than doubled over the past decade with the standard rate increasing from 6% to 9.5% in November 2015. It was further increased to 10% in October 2016 and then to 12% in June 2017 as the previous Government sought to balance the books.
Brett Hill, Head of Health & Protection at leading independent consultancy Broadstone, said: “An increase in IPT, on top of the significant premium hikes we have seen this year, could force employers to cut back on PMI coverage for their employees, forcing their employees back on to waiting lists and adding yet more strain to an already over-stretched NHS.
“At a time when there is zero capacity within the NHS to pick up this additional patient demand, any increase to IPT could exacerbate current pressures in the system and could prove to be entirely counter-productive for the Government. “It risks fuelling the treatment backlog even further and worsening the current, record levels of economic inactivity caused by ill health, damaging the new administration’s mission to drive long-term, sustainable economic growth.”
“The books may be difficult to balance for the new Chancellor, but the tempting option to raise IPT risks adding more pressure to the UK’s healthcare system and economy, negating the benefits of any short-term increase in tax revenue. Any such move would in our view be entirely counter-productive.”
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