Government considers premium tax rise

It is expected that the new Conservative government will increase the rate of Insurance Premium Taxation (IPT) in the next budget. The rate, currently standing at 5%, is expected to rise to 10% and will net the government around £6 billion in revenues.

It is expected that the new Chancellor of the Exchequer, George Osborne, will increase the premium tax on a number of insurances across the board, including car, home and private health insurance. The Association of Medical Insurance Intermediaries (AMII) have stated concerns over the unexpected consequences of this action, especially given the protection gap that already exists in the United Kingdom.

Quite rightly, the AMII argue that increasing the cost of private medical insurance will only push people away from private healthcare and into the care of the National Health Service (NHS). At a time when the government are trying to reduce government spending in order to tackle the budget deficit it makes very little sense to increase the burden on the already stretched NHS.

Government caution needed

The simple reality is that an increase in tax will directly increase the cost of private healthcare insurance and will therefore lower the demand for this type cover. In turn, with a lower number of people holding private insurance there will be a switch in demand for healthcare from private health facilities to the National Health Service (NHS).

Naturally, to service an increased number of patients the NHS will not only need more doctors, nurses, managers and administrators but it will also need more beds, medical equipment and possibly even more hospitals.

In this sense the government really needs to think carefully about the impact of increasing premium taxation on medical insurance. It may well be the case that the extra tax revenue gained is significantly outweighed by the cost associated with treating an increased number of patients on the NHS. It may actually be the case that the Treasury are better off removing the premium tax on health cover altogether.