Opinion  

Chancellor should resist the temptation to raise IPT

Alex Perry

Alex Perry

People view health insurance as one of the most appealing benefits that can come with a job.

Businesses use this benefit to attract great talent, and also look after their employees and their families should they fall ill, so that they can be treated and return to work faster. There's solid mutual benefit. 

This is true for physical health and also mental health – which is one of the biggest people issues that businesses face today, with an estimated 70 million working days lost every year to mental health issues.

Crucially, we know that health insurance takes the pressure off the NHS.

With all these benefits, and a big focus on mental health spearheaded by the Prime Minister, you would think that the government would want to encourage a greater uptake of health insurance by businesses. Instead, in recent years we’ve seen some of the steepest ever increases in insurance premium tax (IPT).

IPT is a tax on most insurance policies, including health – and it has doubled since 2015.

The effective tax rates facing businesses that invest in their employees’ health are particularly punitive. When added to benefit in kind taxes and National Insurance, the doubling in the rate of this tax means employers and employees can between them face an effective tax rate on health insurance premiums of between 49 per cent to 72 per cent depending on their income tax bracket.

Some may argue that this and other taxes should go up because the NHS is in dire need of further resources.

The NHS does need extra money, but raising insurance tax to help meet the extra £20bn promised to the NHS is clearly foolish as it would give the NHS money with one hand and take it away with the other.

This month, Bupa released figures from the Centre for Economics and Business Research that put some numbers around this. As insurance premium tax rates have doubled since 2015, this has led to 200,000 fewer individuals keeping their health insurance and, instead, relying solely on the NHS.

This costs the NHS an extra £126m every year to handle the additional demand – more than £1bn a decade. And if we see this tax rise to 20 per cent it would drive another 250,000 away from private health and cost the NHS even more.

As well as the extra cost, it means that those who depend solely on the NHS have even longer to wait for treatment.

We talk to many employers who would love to provide health insurance to all of their employees, which in turn would be a benefit to their business, the health of their employees, and shorten the queues faced by those using the NHS.

The main barrier to doing this is cost.