Leaders are urging ministers to cut Insurance Premium Tax (IPT), warning that rising rates are deterring firms from investing in employee health cover and pushing more pressure onto the already-strained NHS.
The latest Growth Through People report from the British Chambers of Commerce highlights the growing reliance of employers on private health provision as they struggle with record sickness levels and prolonged NHS waiting lists. Yet the 12 per cent tax on most insurance products, including medical cover, is being described as a “tax on health” at a time when government policy purports to encourage workplace wellbeing.
HM Revenue & Customs data show the Treasury collected £1.03 billion in IPT in July alone, £68 million more than in the same month last year. Over the first four months of the financial year, receipts climbed to £3.2 billion, setting the pace for another record total after £8.88 billion was raised in 2023/24. The Office for Budget Responsibility forecasts IPT revenues will rise to £9.9 billion by the end of the decade.
Cara Spinks, head of life and health at consultancy Broadstone, described the figures as further evidence that IPT has become a dependable revenue stream for the government. But she warned: “Even as demand for health insurance grows, inflationary pressures on costs in the industry mean that premiums are increasing, and the added burden of IPT risks putting cover out of reach for many.”
The BCC report underlines that many employers are now expanding private health benefits in order to tackle staff absence and retain talent. Private medical insurance, health cash plans and wellbeing programmes are increasingly seen as essential, not optional. However, with premiums rising and IPT layered on top, some firms are questioning the affordability of long-term provision.
The report stresses that the government could encourage productivity and ease NHS demand by adjusting the tax system to support health cover. Targeted IPT relief, particularly for small and medium-sized employers, is presented as a practical step that would boost uptake, widen access to treatment, and reduce reliance on public services.
As the Autumn Budget approaches, insurers and brokers are expected to intensify lobbying for reform. The insurance industry argues that a modest reduction or targeted exemption for health policies would not only support employers but also generate wider economic gains by cutting sickness absence and raising productivity.
With the OBR projecting that IPT will generate £45.9 billion over the five years from 2024/25 to 2028/29, the fiscal cost of targeted relief could be offset by gains in workforce participation. Insurers point out that private medical cover often provides early diagnosis and treatment, preventing minor conditions escalating into long-term absences that weigh heavily on the state.
For the Treasury, IPT remains a lucrative and steadily rising source of income. But the clamour from business, health specialists and the insurance sector is becoming harder to ignore. Unless addressed, there is a risk that higher costs will deter uptake of private health cover, undermining employer efforts to protect their workforces and exacerbating the very pressures on the NHS that private provision is meant to relieve.
The question is whether the Chancellor is prepared to sacrifice short-term tax receipts for longer-term economic resilience.
