A proposed increase in insurance premium tax (IPT) would place additional pressure on households and businesses, according to a report by WPI Economics commissioned by the British Insurance Brokers’ Association (BIBA).
While the Government has not formally announced a change, speculation around a potential rise in the standard rate of IPT has emerged in the context of upcoming fiscal decisions. The current rate stands at 12%, but industry stakeholders have raised concerns that it could increase further as part of wider efforts to raise tax revenue.
IPT was introduced in the UK in 1994 at a rate of 2.5%, aimed at bringing the insurance sector into the tax system due to its exemption from VAT.
The rate has been adjusted several times over the years, rising to 4% in 1997, then to 5% in 1999. A further increase in 2011 brought the rate to 6%, followed by a rise to 9.5% in 2015. The rate was raised again in 2016 to 10%, and then to 12% in 2017, where it has remained.
Since its introduction, IPT has grown into a significant revenue stream. In 2015–16, it brought in approximately £3.7 billion. This figure has more than doubled over the past decade, with current receipts nearing £9 billion.
The report found that 64% of surveyed individuals view IPT as a tax on working people. BIBA has pointed to this finding in urging the Labour Party to uphold its manifesto pledge not to raise such taxes.
For businesses, the report suggests a higher IPT rate could affect operations. Just over half (54%) of business respondents said rising IPT would make insurance premiums more difficult to afford, while nearly 30% said it would lead to reduced investment. IPT currently generates £8.9 billion in revenue for HM Treasury.
Households are estimated to pay an average of £146 annually in IPT, while businesses contribute approximately £4.7 billion. One in four survey respondents said they would consider cutting back on heating during winter to manage the impact of a potential IPT rise.
“The survey results demonstrate how reactive people and businesses would be to an increase in IPT, leading them to cut other spending or investment and reduce insurance cover,” said Joe Ahern, director of policy at WPI Economics. “Insurance is essential for many, and people should not have to choose between heating their homes or having the financial protection that insurance provides.”
The research also indicates that 64% of businesses view an IPT increase as a sign that the Government is not prioritising economic growth. A large majority, or 81%, said insurance should not be subject to additional tax, while 68% said they would extend or expand cover if premiums were lower. Most, or 82%, said insurance was essential.
BIBA’s 2025 Manifesto has called for a reduction in IPT from 12% to 10% to lower the cost of insurance across the market. The association argues that a further rise would conflict with broader economic policy goals and put additional strain on households and businesses.
“The survey highlights the serious consequences that any future IPT increase would have, including a negative impact on household incomes, business growth and investment,” said Graeme Trudgill, BIBA chief executive. “This would go against the Government’s growth agenda and leave businesses and consumers in the difficult position of choosing between insurance protection and other essentials.”
