The world of personal finance is littered with boring terminology and acronyms that, in truth, can bring down the shutters for the average Jane or Joe.
One that falls firmly into this category is IPT – Insurance Premium Tax.
And that is why former Chancellor George Osborne tinkered with it knowing full well that most people would have no idea what it was or how it could ever be relevant to them.
Boring, with a long pronunciation on the letter O. Research suggests only two in five of us have heard of it.
Rising costs: Car premiums are up 29% in a year – and IPT now makes up £60 of the annual bill
But it is likely that your household is now paying three figures as your share of IPT, with the average stealth bill of £264 – and the Treasury is raking in billions per year from it.
Hopefully that has captured your attention.
At last count, IPT – one of those classic stealth taxes – raked in £7.45billion for the Treasury in the 2022/23 financial year. This is likely to snowball even further thanks to compounding, as we see insurance costs soar this year.
Indeed, the Association of British Insurers says drivers now pay a record high for cover with costs up 29 per cent in a year.
In many cases, we’re hearing from readers saying their renewal quotes are FAR higher than this – we’re talking deep triple percentage point rises.
My own car cover quote was up 21 per cent this year, while our home insurance was up 77 per cent, despite diddly squat changing. We shopped around – but even still, we had no choice but pay more than last year.
IPT rise history
IPT was first introduced in 1994:
1 October 1994, a single rate of 2.5%
1 April 1997 increased to 4%
1 July 1999 – 5%
4 January 2011 – 6%
1 November 2015 – 9.5%
1 October 2016 – 10%
1 June 2017 – 12%
If you drive a car, go on holiday, own a pet and have a roof over your head IPT is hitting you harder in the wallet than ever before. If you tick all four of those boxes and insure all of these categories, your personal tax bill will be far higher.
Simply put, IPT is a tax on general insurance premiums and for most policies, it is charged at 12 per cent.
This tax is levied directly onto insurers, who then typically pass the bulk of the cost onto those taking out the product.
In comparison to the 2021/22 financial year, IPT raised an extra 9.8 per cent – or near £700million – when the total revenue take stood at £6.79billion.
Going back further, in 2018/19, the IPT take was £6.2billion – a difference of some 20 per cent, despite IPT being 12 per cent then too.
IPT has been nudged higher and higher in the past decade. Up to 2011, the rate was 5 per cent. From 2011 and 2015 it rose to 6 per cent.
For a year it went up to 9.5 per cent, then for another year 10 per cent, before settling at 12 per cent since June 2017.
Between 2002 and 2011, the total IPT bill sat between £2billion and £2.5billion. Even in the 2014/15 financial year, the total bill was under £3billion.
Raking it in
Here’s how much the Treasury has taken in IPT, since 1997:
1997/98 – 1.179bn
1998/99 – 1.248bn
1999/00 – 1.511bn
2000/01 – 1.751bn
2001/02 – 1.921bn
2002/03 – 2.189bn
2003/04 – 2.313bn
2004/05 – 2.353bn
2005/06 – 2.347bn
2006/07 – 2.304bn
2007/08 – 2.302bn
2008/09 – 2.271bn
2009/10 – 2.262bn
2010/11 – 2.509bn
2011/12 – 3.002bn
2012/13 – 3.033bn
2013/14 – 3.018bn
2014/15 – 2.973bn
2015/16 – 3.717bn
2016/17 – 4.907bn
2017/18 – 5.898bn
2018/19 – 6.306bn
2019/20 – 6.480bn
2020/21 – 6.306bn
2021/22 – 6.792bn
2022/23 – 7.455bn
It has become a more prominent beast this year because of rising premiums.
Taking car insurance as an example, the ABI – who I met with earlier in the year to bemoan a bulging mailbag of readers complaining about soaring insurance costs – say the typical annual cost is now £561.
Rises have been attributed to pricier repair costs as cars become more sophisticated, a shortage of skilled technicians and the price of energy.
But of that £561, £60 is now typically IPT. That’s a significant whack for drivers who already pay fuel duty and road tax.
At its latest reading, home and contents insurance was up 10 per cent, while pet insurance nudged slightly higher last year.
While difficult to predict if cover costs will continue to rise, they have been so far this year – and given the financial year starts in April, there is a very high chance the total IPT bill will rise for 2023/24.
The ABI, the trade body that represents insurers, is fighting back ahead of the Autumn Statement on 22 November.
It is calling on now Chancellor Jeremy Hunt to consider lowering the rate of IPT – ‘the Government could help drivers with an immediate reduction in costs by reducing IPT,’ says Mervyn Skeet, the director of general insurance policy at the ABI.
The ABI told me: ‘We’ve long said IPT is a raid on the responsible, penalising people who are protecting themselves from financial shocks.
‘The UK has one of the highest rates of IPT in Europe and it’s important that customers are aware of the impact it has on insurance costs.
‘As businesses and households across the country continue to face difficulties with the cost of living crisis, now is the time for government to relieve some of that pressure and consider cutting the tax.’
It’s hard to argue with that – the ball is in your court Mr Hunt.