Rising costs and growing demand for health insurance products have created a significant uptick in UK Treasury revenue, according to an analysis of HM Revenue & Customs (HMRC) data on Insurance Premium Tax (IPT) by actuarial consultancy OAC.
IPT receipts for the 2022/23 financial year reached a record £7.34bn, an increase of 11% from 2021/22 when the tax take stood at £6.63bn, the OAC said.
It also represented an 18% increase compared to five years prior with £6.2bn collected in 2018/19.
While calls have been made by industry players earlier in the year for the Treasury to reduce the tax, indications are that IPT collections will continue to grow rapidly, exceeding the expectations of the Office of Budget Responsibility (OBR).
“The start of 2023/24 has maintained the rapid rate of IPT collections and looks set to surpass OBR expectations,” OAC, a part of the Broadstone Group, said.
“Through the first four months of the year, IPT receipts totalled £2.76bn – a 27% increase compared to the same period last year (2022/23).”
If that trend continues, it would mean another record-breaking year.
“If full-year receipts surpass the levels seen in 2022/23 by the same proportion, they would reach £9.32bn,” the OAC said.
That compared to the OBR prediction back in March that IPT would raise £7.6bn in 2023/24.
Two main drivers
Cara Spinks, head of insurance consulting at OAC, said: “There appear to be two main drivers for the growth in IPT receipts.
“The first is the inflation in premiums due to increased healthcare costs which feeds directly into tax receipts for the Treasury.
“The second is the increase in demand for private health insurance due to the currently overburdened NHS, which is driving individuals and employers to arrange additional cover.
“Long-term sickness in the UK is increasing and the industry is calling for a reduction in the rate of IPT to make premiums more affordable.
“Economic inactivity is a significant headwind on the UK economy and, whilst the Treasury might take a short-term hit on IPT receipts, over the longer-term minimising IPT could, conversely, pay for itself through increased productivity from an able and healthy workforce, and economic growth.”