Insurance vs other services
On most goods and services we pay VAT, and the rate of VAT in the UK is currently 20%.
There is already a ‘higher’ rate of IPT that has tracked VAT rates since it was introduced. This 20% higher rate of IPT applies to insurance that is usually sold with goods and services that already attract VAT.
This includes travel insurance which is normally sold with travel. It also includes car insurance sold through a car dealer as an add-on to the car sale itself.
Could we surmise that the intention is to move IPT to the same rate as VAT?
Well there would be uproar if any government was to move so quickly to such a higher rate but you might be interested in what was said when IPT was introduced back in the 1993 budget.
The then Chancellor explained that his task, in terms of tax, was simple: “I need to raise revenue, but to do so in a way which does least damage to the economy.” One way of doing this is to charge an existing tax on new things. He said, “I have never disguised my personal view that the coverage of value added tax in this country is too narrow.”
Insurance was one service that remains VAT free and the Chancellor noted that “we have always tended to tax financial services in this country much more lightly than other sectors, including manufacturing.”
He then introduced IPT. So, right back when it was introduced, a link to VAT was made.