The hatchet man Chancellor George Osborne has spoken and the little red box opened to reveal one of the most stinging budgets in recent memory, already named the austerity budget, with huge public sector job losses, spending cuts and tax rises for all!
On the face of it Insurance escapes fairly lightly with Insurance Premium Tax (IPT) raised for the first time in over ten years to 6% from 5%.
IPT is chargeable on every insurance policy sold within the UK, although Insurance is currently VAT exempt.
This rise will harden the market with slightly raised premiums, however it is suggested by many in the City that the percentage increase will mostly go un-noticed by the majority of the insurance buying public. A spokesperson for specialist car insurance company Car Insurance TV said that ‘this increase in IPT will add just a few pounds to the cost of an average car insurance policy, however levels of competition will often see this absorbed by the Insurance Companies trying to win your business’.
A major impact upon the supply of Insurance and adding further inflationary pressures, will be the raise in the basic level of VAT from 17.5% to 20%.
The rise in VAT will add additional costs to the supply of insurance. Most distributors of Insurance such as Insurance Brokers are UK VAT exempt and therefore unlike VAT registered businesses, cannot claim back their VAT expenditure against their VAT income.
This will mean that all the additional costs of running the business such as bought in services like marketing and IT support, are likely to be passed onto the consumer in higher premiums.
Another major problem and potentially the biggest ticking time bomb for the UK Insurance market, will be the inevitable lack of demand for financial services products , as unemployment rises and demand falls, with cuts to public sector jobs and welfare across the board. This will naturally lead to further rationalisation of the market with the expected loss of up to 60,000 financial services jobs…. in addition to the thousands destined to go from the FSA!
Insurance Blog is of the opinion that if the ill thought out measures announced in the recent UK budget and due to be delivered this Winter, don’t lead us into a double dip recession… then nothing will!