The UK chancellor George Osborne has surprised the market by announcing that standard rate IPT will go up by just 0.5% to 10% and that all the revenue raised from the increase will be invested in flood defence and resilience measures.
But in a statement bound to irritate insurance company bosses, the chancellor stressed to voters that IPT is a tax on insurers: “However, if they do pass the cost of this rate increase on to their business and household customers, the average combined home and contents insurance would only increase by £1, and the average motor insurance premium by £2 per year.”
Mark Holweger, managing director, Partnerships, Legal & General, welcomed the news on improving flood defences but said that insurers will have no choice but to pass the cost onto consumers. “Whilst the increase in IPT is not as steep as many feared, it is paramount that the Government and the insurance industry work together to insure that people aren’t dissuaded from taking out policies, and the UK doesn’t become a nation at risk of being under-protected.”
Stephen Brown at the law firm Mazars said linking the increase to flood defence spending shows that the Government is taking the issue seriously. “A reduced increase is good news, and ring fencing the money for flood defences will certainly soften the blow for the people in those affected areas. This is in conjunction with the start of Flood Re in April and should help those in flood hit areas significantly.
“It would be great if the Chancellor could go the extra step and also put some of last year's IPT raise towards the same cause,” Brown added.
On top of the Government’s £2.3bn capital programme, which will invest in over 1,500 flood defence schemes across the country, Osborne announced an additional boost to spending on flood defence and resilience of over £700m by 2020-21.
The Government says it will increase maintenance expenditure in England by £40m per year, and promises more flood defence schemes – including investing over £150m in Leeds, York, Calder Valley, Carlisle and wider Cumbria.
The Chancellor also reported that it is taking action against rogue claims management companies (CMCs). Alongside action to cap the amount that CMCs charge, the Government says it accepts the recommendations of the independent review into the regulation of CMCs: “The new regime will be tougher and will ensure CMC managers can be held personally accountable for the actions of their businesses,” it said. In order to ensure that the new regulatory regime is implemented effectively, the Government intends to transfer responsibility for regulating CMCs to the Financial Conduct Authority.