The health and protection industry needs to make a “really, really” clear case that long-called for tax breaks will deliver increased take-up of cover and will not hurt the exchequer.
This is according to Joe Ahern, head of policy consulting at WPI Economics, who led WPA’s latest webinar yesterday.
Ahern told the online audience that there are a range of options often put forward to use the tax system to improve take-up of health and protection insurance products including an employer’s National Insurance Contribution (NIC) incentive if you purchase group income protection or the reduction or removal of insurance premium tax on private medical insurance (PMI).
Dead weight loss
But Ahern explained such tax incentives are “very unpopular” with government and the Treasury due to what is know as a “dead weight loss”.
“If you were to introduce any new tax incentives, you would get an immediate cost for the people who have already purchased this product, who already make use of health and insurance protection products receiving the benefit of a tax incentive and the government paying the cost of that,” Ahern explained.
“So the only benefit comes if you actually are able to increase take up from that point. And if you’re not able to increase take-up from that point, then the government has lost money.”
Prove the case conclusively
Ahern maintained that projected increase in take-up is difficult to prove conclusively, adding he was not sure anyone has been really able to do so effectively.
“And I think particularly at times when there’s going to be very significant fiscal constraints, it seems an unlikely option for any new government to introduce tax incentives at the moment – regardless what people might think about the virtues of some of those ideas,” he added.
Clear argument needed
In the subsequent Q and A session, Health & Protection asked whether the UK has now reached a point where it could no longer afford not to introduce such tax breaks with group PMI premiums skyrocketing for some employers.
In response, Ahern said the sector would need to make a clear argument for such tax breaks.
“I think that if you’re going to make the argument to government, then there needs to be really, really clear evidence that the tax treatment of PMI and the cost of PMI have a demonstrable impact on take-up and that effect of take-up will not hurt the public finances or hurt the exchequer.
“Maybe I’m totally ignorant but I’ve not seen that really, really clear evidence before.”