In his 2016 Autumn Statement on 23 November 2016, Chancellor Philip Hammond announced a further 2% increase to Insurance Premium Tax (IPT) for policies incepted after 1 June 2017. Consequently, the new standard IPT rate will be 12% on premiums received on or after 1 June 2017 which relate to risks for which the period of cover under the terms of an insurance contract begins on or after that date.
There is a transitional period for premium payment instalments that are paid after 1 June 2017, up to 1 June 2018, but relate to risks for which cover begins before 1 June 2017. In this scenario, the backstop date for all premiums will be 1 June 2018.
It would appear that the Government have struck upon a rich seam of revenue recovery, particularly noting that much of the insurance market comprises compulsory insurance products such as motor insurance. Indeed, its projections for revenue from the increased IPT proposals estimate an increase of £680m to the Exchequer in 2017-8, and £855m by 2021-22.
Policyholders may rightly feel aggrieved. As recently as 2015 the rate for IPT was just 6% before it was increased to 9.5% in November 2015, and the further recent increase announced by Philip Hammond came mere months after his predecessor George Osborne had announced a 0.5% increase in IPT in the 2016 Spring Budget.
Whilst the media focus has predominantly been on how the increase in IPT will affect homeowners and motor policyholders, it may also have an effect on the market for ATE litigation policies.
“Whilst the media focus has predominantly been on how the increase in IPT will affect homeowners and motor policyholders, it may also have an effect on the market for ATE litigation policies.”
Whilst ATE products may not be compulsory for embarking on litigation the financial risks to Claimants in bringing even the strongest of claims without some degree of cover, at least in relation to adverse costs, can be daunting. Allied to the inability to recover ATE from the opponent following LASPO, the ATE product and IPT is a cost that now must be absorbed by the Claimant from their damages. There is a prospect that this further hike in IPT may start to impact on the number of claims being brought.
For example, in low value personal injury claims, up to 25% of damages are already payable by successful Claimants to their solicitor as a success fee. Further deductions from their damages may put prospective Claimants off instigating a claim if the likely funds they will receive in their pocket become negligible. Claimants will have to decide whether the “game is worth the candle” if their net recovery after paying out lawyers’ fees and premia is modest.
That said, the prospect of recovering some damages rather than none is still a powerful incentive for Claimants, with the ABI’s recent study in respect of motor claims, post –LASPO, suggesting that the fall-off in claims following the introduction of the Jackson reforms has dissipated, with the volume of claims close again to pre-LASPO levels. It would appear that litigants are still willing to absorb these further expenses, so long as there is a net recovery.
There is also the possibility for further increases in IPT in future. In announcing the increase to 12% in his Autumn Statement, Philip Hammond stated that “Insurance premium tax in this country is lower than in many other European countries” and indeed several EU member states impose higher rates on certain classes of risk, such as Finland (24%), the Netherlands (21%), and Germany (19%).
Given the hefty increases to IPT in recent years, the Government may decide to hold off any further changes in the near future, but it is a factor that practitioners must be alive to in future years.