Benjamin Franklin was many things: a writer, inventor, scientist and one of the so-called ‘Founding Fathers’ of the United States.
To some individuals, however, he is best known as the man who coined the phrase that “in this world nothing can be said to be certain, except death and taxes”.
More than two centuries after it was first used, it is a truism which still has the capacity to frustrate.
Just as we haven’t found a formula for immortality, taxation continues to have considerable impact and not just in terms of claiming a share of company profits as well as our personal earnings and inflating the price of goods which we buy.
Few would doubt that insurance is an essential purchase. We can’t drive without it and we take out policies in case any unforeseen problem afflicts our homes, businesses or ourselves.
Yet the cost of cover includes something called Insurance Premium Tax (IPT).
It was introduced in 1994 because the then Conservative government felt that insurance – which isn’t subject to VAT – was “under-taxed”.
New figures released by HMRC not only show just how much IPT is now worth to the Treasury but how the sums involved have increased dramatically in recent years.
During the last financial year, IPT generated £8.146 billion – up 10.9 per cent on the year before and 170 per cent more than in 2014.
By comparison, the Revenue’s overall tax take rose by a rather more modest 67.9 per cent in the last decade.
I reckon that is partly because the rates at which IPT is levied have not been altered since June 2017.
The standard rate for most types of policies is charged at 12 per cent, while a higher rate of 20 per cent is imposed on travel cover as well as on things such as motor breakdown insurance and policies for the repair of household electrical appliances.
Whilst that may seem bearable – an equivalent to VAT, say – I think that it’s important to bear in mind the developments which we have seen since the last change to the IPT rates happened.
The Covid pandemic refocused attention on the importance of having effective business interruption policies, while companies are becoming ever more aware of the value of having cyber cover.
On the personal side of the market, we have started to see the impact of climate change on home policies, a pronounced increase in private medical cover and considerable rises in the cost of car insurance – up 34 per cent in the 12 months to the end of last year, according to the Association of British Insurers (ABI).
The latter has been fuelled, in part, by the greater adoption of electric vehicles – the cover for which can be much more expensive than for petrol or diesel models.
All that has been compounded, of course, by a rise in the cost of living and doing business.
As a result, some individuals and companies are sadly having to make difficult decisions about whether to have insurance at all.
That is particularly true in a corporate context for small and medium-sized enterprises (SMEs) who make up 99 per cent of all 5.5 million businesses in the UK, but don’t necessarily have the deep pockets of larger organisations.
I would argue that carries its own grave risks because a single major loss, such as the bills associated with a ransomware attack – having their operations taken offline, the remedial costs and potential legal liabilities – could be terminal for an SME.
Such an episode, multiplied many times, would lead to smaller receipts of IPT, business and employee taxes too.
On a personal scale, not having cover could mean individuals deciding not to have a car, on the one hand, or – if worst comes to worst – even losing their homes.
I firmly agree with my colleagues in the British Insurance Broking Association (BIBA) that the Government should consider reforming IPT rates to take account of circumstances since they were last amended.
After all, in the seven years since the IPT last moved, five different ministers have had responsibility for the insurance industry, something which certainly doesn’t provide the kind of consistency that allows for a thorough understanding of the needs of the sector and its customers.
I don’t think that anyone is looking for drastic changes or even abolition but a reasonable, common-sense dialogue to avoid the business of risk management becoming even more risky for current or prospective policyholders.