Why are we taxing people for taking responsibility for their healthcare in the UK?
Last week the UK Chancellor of the Exchequer Philip Hammond announced that the Autumn Budget will take place on 29 October, and we’re hoping that our industry can persuade him not to increase Insurance Premium Tax (IPT).
This tax - now at 12% - is a disincentive to people acting responsibly. And this isn’t just anecdotal, research shows the tax is already pushing hundreds of thousands of people out of UK health insurance to rely solely on the National Health Service (NHS).
This week the Conservative Party held its annual conference in the UK. Our Public Affairs team attended the conference to talk to delegates about IPT, and we also placed an advertorial in The House magazine – which you can read below. The House magazine is Westminster’s weekly internal publication presenting a mix of news, profiles, interviews and policy analysis as well as commentary, and is delivered directly into the pigeon-holes of MPs and Peers.
We know that the struggling NHS needs more funding, and increasing this tax is exacerbating this situation, driving more people to cancel their health insurance cover and placing even greater demand on the NHS.
Here's what I wrote for The House magazine:
As the Chancellor finalises his plans for the Autumn Budget over the coming weeks, we would urge him to resist the temptation to raise Insurance Premium Tax (IPT). Given the increase in NHS funding announced in June we know that tax rises are possible but raising IPT simply drives consumers away from health insurance straight onto the NHS. By increasing IPT to fund the NHS the Government would, in effect, be giving to the NHS with one hand and taking away with the other.
IPT is essentially a tax on acting responsibly. As a society we should be encouraging people to take responsibility for making sure that their homes, cars and their health are insured.
When an individual chooses to take out a health insurance policy, or when a business decides to provide health insurance for their employees, they help to relieve pressure on the NHS. The public strongly recognises this: Bupa research shows nearly two-thirds (63 percent) of people say that health insurance allows others to access NHS treatment earlier and over half (55 percent) view it as important in relieving pressure on the NHS.
Yet IPT has been subject to repeated increases over recent years, with the standard rate having been doubled to 12% since 2015. These increases have hit families and businesses across the country. Research by the Social Market Foundation, commissioned by the ABI, shows recent increases mean IPT hits every British household at the cost of about £180 each year.
The recent increases in IPT mean the effective tax rates facing businesses that want to invest in their employees’ health are particularly punitive. When added to benefit in kind taxes and to National Insurance, the doubling in the rate of IPT means employers and employees can between them face an effective tax rate on health insurance premiums of between 49% (for those employees paying income tax at 20%) and 72% (for those employees paying income tax at 40%).
The increases in IPT are already having an impact. Research by independent economists the Centre for Economics and Business Research (Cebr) last November, commissioned by Bupa, showed that the increase in IPT from 6% to 12% has already seen nearly 200,000 individuals cancel their health policies.
When businesses or individuals stop or downgrade their health insurance policies, they become more reliant on the NHS for their healthcare needs, including costly care and treatment for conditions such as cancer, heart and joint surgery which their health insurance policy would have covered. Any further increase in IPT risks exacerbating this situation, driving more people to cancel their health insurance cover and placing even greater demand on the NHS.
The Government is right to increase funding for the NHS. However, the Government is robbing Peter to pay Paul if it uses IPT to fund the NHS.
With the knock-on repercussions for the NHS, and the wider impact of IPT on households and businesses across the UK, any increase in IPT is something that everyone should be concerned about.