Bupa reveals that a third of UK businesses turned down health cover because of Insurance Premium Tax
Insurance Premium Tax (IPT) is putting health insurance ‘out of reach' for an estimated 400,000 companies in the UK, a study supported by the British Insurance Brokers Association (BIBA) and the Association of Medical Insurers & Intermediaries (AMII) has suggested.
The report by Bupa comes as industry bodies call for a cut to IPT in the Chancellor's next Budget (spring 2020). Last month the Association of British Insurers (ABI) reported a 10% health insurance decline in line with the rising tax.
The increased cost of the tax, which has doubled in the past five years, was found to be the key factor in three in 10 businesses cancelling or deciding against covering staff - a figure which equates to more than 3.5 million UK employees.
The study also found that most businesses (82%) would consider cancelling their health benefits if IPT increased much further, while 44% said they would consider health insurance if it was cheaper.
The UK now has the second highest rate of IPT on health insurance in Europe, second only to Greece, and if considered in conjunction with National Insurance and Benefit in Kind taxes can amount up to 50% and 72% (depending on earnings) for those investing in employee health.
With the government announcing ‘preventative' health strategies and the Prime Minister stating employers protecting their workforce should we rewarded with tax breaks, the research has found that many SMEs regard the current IPT costs as "hypocritical".
In addition, the Centre for Economic and Business Research (CEBR) found in 2018 that rising IPT rates was costing the NHS £126m a year in order to look after the extra 200,000 patients driven back to the NHS since 2015.
Alex Perry, CEO of Bupa UK Insurance said: "Businesses should not be heavily punished for doing the responsible thing and looking after their employees' health. They are doing good when they fund health insurance for their people - and also taking huge pressure off the NHS. It makes no sense and is unfair to hit them with punitive rates of tax."
For most insurance policies, the rate of IPT on most insurance policies sits at 12% of premiums.
Graeme Trudgill BIBA executive director added: "IPT revenues are at a record high of £6.2 billion per annum. This unfair tax burden falls on both consumers and businesses alike and acts as a huge disincentive in the purchase of adequate insurance protection. SMEs are also faced with an administrative burden in managing the P11Ds and the financial burden of employees' national insurance payments. This tax is leaving people unprotected and is affecting productivity which is why we demand at least a freeze in IPT and for an income tax break on health insurance employee benefits."
Stuart Scullion, executive chairman at the AMII said: "We can't ignore the very real impacts resulting from increased levels of this ‘health tax' - not only is it adding millions to the financial burden faced by the NHS but it's also punishing businesses who choose to support the health of their workforce."
The Chartered Insurance Institute (CII) has also called for the Chancellor to cut IPT in the next Budget, suggesting that the "stealth tax" should be reduced for vulnerable customers.
Keith Richards, managing director of engagement for the CII, said: "We are asking the government to consider the benefits for consumers of reducing the cost of premiums by cutting this tax, and the knock-on positive effect this will have across the country in making insurance more affordable for people to protect against the risks in life which may otherwise be catastrophic."
The CII asked that also all pure protection life assurance policies - for example, those which can only pay a claim on death or disability and which have no cash value otherwise - are exempted from entry, periodic and exit charges applied to discretionary trusts under the discretionary trust tax rules (contained in IHTA 1984).
Richards said: "These charges appear to have been introduced to curtail the inappropriate use of trusts as a vehicle for investments.
"However, the unintended cost of administration exceeds the potential revenue generated and presents a burden to individuals asked, often as a friend or family member, to ensure the proceeds are paid promptly on death.
"At a time when survivors can be financially and emotionally vulnerable, it serves only to punish them at their lowest, and must change."
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