As the General Election approaches, funding of the NHS remains firmly in the political spotlight. ...
As the General Election approaches, funding of the NHS remains firmly in the political spotlight.
Both the main parties are wedded to increased NHS funding, but it is in the detail they differ. Labour sees a lesser role for the private sector than the Conservatives and, ideologically, is less able to restore some of the tax incentives for private medical insurance (PMI) introduced by the last Conservative administration.
In contrast, the Conservatives see a greater role for the private sector in healthcare provision and would remove the 'benefit in kind' treatment of employer contributions to PMI schemes and the National Insurance (NI) charge on those contributions.
It is difficult to judge whether these incentives would increase coverage. If there is little change, then from a government point of view, there is no point in having an incentive. At best, it might simply mean that existing customers get a better deal. Tax rules for employer-sponsored business are generally complex and differ between all product lines, so why tinker with just one product?
For example, an employer is entitled to tax relief on premiums paid to an approved group life scheme. But while this is a valuable benefit for some scheme members, others who have no dependants prefer critical illness cover to provide them with a personal benefit should they contract a serious disease. Group critical illness cover, though, attracts a benefit in kind charge on the employee a considerable disincentive.
The rules for group income protection differ again. Here, the employer is insuring their liability to continue salary or wages during a period of incapacity, so contributions are generally tax deductible. Benefits are taxed as a trading receipt unless passed on to the sick employee, where they are taxed through the PAYE system.
The time is now right to review the whole area of employer-sponsored insurance provision and update the rules to both incentivise take up and reflect the needs of the modern employee.
Critical illness is a socially responsible benefit which addresses a real need and sales could be boosted by their inclusion within the rules covering group life.
Employer contributions to PMI should no longer be liable to NI it is somewhat perverse that a product which ultimately benefits the NHS is subject to NI whereas no NI is paid on employer contributions to a group critical illness scheme.
The rules covering unapproved group life schemes should also be reviewed. Since the introduction of the pensions cap, a tax charge is created on a second death occurring within the same scheme. This was never the intention behind the legislation a simple change to the qualifying rules would remove this unnecessary product complication, at no real cost to the Exchequer.
With increasing focus on the cost of providing products through non-traditional sales channels, employer-sponsored benefits will have an important role to play in the future.
Consumers, whether purchasing as individuals or through the workplace, want flexibility to choose the products that meet their own needs. It is time for the tax system to assist and not restrict that flexibility.
