Government profits from surging insurance costs as tax on policies soars

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Professional Services Editor

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HMRC tax receipts for the first two-thirds of the 2023-24 financial year showed that £6bn was collected in IPT.
HMRC tax receipts for the first two-thirds of the 2023-24 financial year showed that £6bn was collected in IPT.

As insurance premiums have surged to record levels over the last year, the total value of insurance premium tax (IPT) collected by the revenue has jumped by double-digits.

HMRC tax receipts for the first two-thirds of the 2023-24 financial year showed that £6bn was collected in IPT. This was an 11 per cent jump on the £5.5bn raised over the same period last year.

Commenting on the new data, Cara Spinks, head of insurance consulting at leading actuarial consultancy OAC said: “Rising insurance costs across most sectors have driven increased premiums which have hit households, adding to budget concerns amid the cost of living squeeze.”

This is on the back of insurance premiums hitting record highs this year as insurers have been battling rising claims and heightened costs.

For motor insurance, data in October showed that UK motorists paid £924 on average in the third quarter of 2023, the highest levels since WTW and Confused.com started tracking the data in 2006.

“We have also seen other drivers emerge such as growing demand for private health insurance as employers and individuals look for alternatives to the overburdened public health service,” Spinks added.

Back in October, the Association of British Insurers (ABI) called on Chancellor Jeremy Hunt to cut the tax levied on insurance premiums. The insurance industry’s trade body made the plea once again in November ahead of the Autumn Statement, highlighting a cut would “help millions of households and businesses manage their rising insurance costs.”

Spinks noted: “With the Treasury eyeing up tax cuts ahead of General Election in 2024, minimising IPT increases could create a two-pronged economic boost in both easing the pressure on household finances and reducing economic inactivity.”

Hunt confirmed British firms are set to benefit from “the largest business tax cut in modern British history” in his autumn statement. Last month, a Treasury minister failed to rule out further tax cuts ahead of the election.