Insurance Premium Tax in the UK
In the last three years the rate of Insurance Premium Tax (IPT) in the UK has risen from 6% to 12%, with the total tax collected from insurers now exceeding that from the bank levy. The tax was primarily increased to raise revenue from quasi-compulsory insurances, such as motor or home insurance, but affected other general insurances such as healthcare. Compared to the rest of the EU, the UK is now the second highest regime for IPT (to Germany) and is one of only five countries that extends IPT to healthcare.
Industry calls to exempt health cash plans
In March 2018, following two years of discussion with HM Treasury, the Association of Financial Mutuals (AFM) wrote to the Economic Secretary, setting out a proposal to exempt mutual health cash plans from IPT. Health cash plans allow an individual to claim money back, up to set limits, towards the cost of their and their family’s essential healthcare, as well as providing access to valuable health and wellbeing services. Premiums can start from as little as £5 a month, and they are popular with individuals and with small employers. They are policies designed for people who are happy to continue using the NHS, along with some complementary health treatments.
Our letter to the Economic Secretary included evidence of the value of cash plans in supporting the NHS, employers and policyholders. It also set out the consequences of increasing rates of IPT, including higher premiums for customers and smaller businesses, as well as higher lapse rates on products, and less funds available for our members to pay claims and to support local community initiatives.
The All-Party Group’s view
AFM and a number of its members came to parliament in June 2018 to talk to members of the group about their campaign, and to explore how it might help take the argument further.
The group heard that levying IPT on these products has had a significant impact on their popularity amongst consumers. This means that customers who lapse a policy could translate into patients that defer or forego dental appointments or eye tests, or who avoid counselling for depression. They may not even pick up a medicine prescription due to its cost. We know that preventing illness is key to a healthy population, is the focus of the modern NHS, and in turn keeps NHS costs down.
Working alongside the NHS, mutual health cash plans enable people to live healthier lives and take responsibility for themselves. Mutual providers of health cash plans do this very cost effectively, and by returning any surpluses to their customers and/ or the communities they operate in.
By exempting mutual health cash plans from IPT, the government will provide an important signal to individuals that it values people taking action at relatively low cost to improve their own health and wellbeing. The government would also be signalling that improving the financial position of the NHS is everyone’s responsibility, and as AFM has shown, every penny of the £30 million tax that Treasury foregoes, goes into tangible benefits to the NHS.
Members of the All-party Group have written to the Chancellor, and raised questions for Treasury. They plan to follow up after the summer recess.