Friday 18 March 2016
Tax rises earmarked to help with flood defences despite government pledging last year that there were no plans for a further rate rise. The standard rate of IPT will be increased from 9.5% to 10% with effect from 1 October 2016, according to Budget 2016 documents. The Chancellor of the Exchequer, George Osborne, announced the 0.5% increase in his Budget today. This is despite The Treasury telling the Association of British Insurers last July that there were “no current plans for another IPT rate rise”.
The comments were made at a meeting on 30 July 2015 to discuss how the 9.5% rate, introduced last year, should be implemented. The Treasury said there would be no further comment beyond what the Chancellor stated in his Budget statement.
According to the government the tax has been increased again in order to “fund increased investment in flood defence and resilience”. The 2016 Budget document stated: “This ensures that the impact of the rate increase is spread broadly across the entire general insurance industry. IPT is a tax on insurers.
“However, if they do pass the cost of this rate increase on to their business and household customers, the average combined home and contents insurance would only increase by £1, and the average motor insurance premium by £2 per year.”
The government expects the IPT increase to raise an additional £700m by 2020-21. Money which will be used to improve flood defences on top of the £2.3bn capital programme. The document stated: “The government will increase maintenance expenditure in England by £40m per year, and deliver even more flood defence schemes – including investing over £150m in Leeds, York, Calder Valley, Carlisle and wider Cumbria.” The insurance sector has reacted with disappointment to the IPT announcement.
In addition the Budget also showed that the government is reinforcing its clampdown on claims management companies (CMCs). It stated: “The government is clamping down on the rogue claims management companies (CMCs) that provide bad service and bombard customers with nuisance calls. Alongside action to cap the amount that CMCs charge, Budget 2016 announces that the government accepts the recommendations of the independent review into the regulation of CMCs.
“The new regime will be tougher and will ensure CMC managers can be held personally accountable for the actions of their businesses. In order to ensure that the new regulatory regime is implemented effectively, the government intends to transfer responsibility for regulating CMCs to the Financial Conduct Authority.”
The British Insurance Brokers’ Association welcomed the decision after calling for CMCs to be regulated by the FCA in its 2016 Manifesto. .
Graeme Trudgill, Biba executive director said; “We are delighted with the Chancellor’s decision to bring in a new tougher regime for CMCs and that the FCA will take responsibility for their regulation. For too long some rogue companies have been able to hassle customers, possibly generating fraudulent claims that ultimately are paid for by innocent customers. This is a wise move by government and one that will be welcomed by the insurance industry and consumers alike.”
Trudgill concluded; “This decision is a giant step forward in reducing fraud and creating a fair approach to regulation and we look forward to seeing the publication of the detailed plans.”