The UK may soon face a new economic challenge: amid an already uncertain business climate, a potential increase in the Insurance Premium Tax (IPT) has sparked serious concerns among companies and experts alike. According to a recent study conducted by the British Insurance Brokers’ Association (BIBA) and WPI Economics, the consequences of raising this tax could be far more serious than expected.
Insurance Becoming a Luxury
The current IPT rate stands at 12%, already costing British businesses £4.7 billion annually. According to the survey, over half of businesses (54%) say any further rise in the tax would make it harder for them to purchase insurance coverage. One-third (30%) state that it would force them to cut investments, while 35% are already struggling to afford their current premiums.
Amid this pressure, 68% of businesses admitted they would expand or extend their coverage if premiums were more affordable. This, experts argue, highlights a stark contradiction between the current tax policy and the government’s stated goal of stimulating economic growth.
Cybersecurity and Export at Risk
One of the most concerning areas is cyber insurance — a vital form of protection in today’s digital age. The study found that only 40% of businesses currently have cyber insurance, and among small and medium-sized enterprises (SMEs), the figure drops to just 17%. Meanwhile, 61% of respondents report growing concerns about cybercrime impacting their business.
The report warns that a 10% increase in cyber insurance costs could reduce the likelihood of SMEs renewing their policies by more than 20 percentage points. As digital threats grow increasingly sophisticated, this could lead to greater vulnerabilities across the UK’s business landscape.
The export sector tells a similar story. Some 57% of businesses said they would purchase or increase trade credit insurance if premiums were lower. Otherwise, the report cautions, many SMEs may abandon protective measures for export activities — putting vital trade flows at risk.
Business Community: The Government Is Sending the Wrong Signal
According to WPI Economics, 64% of 500 surveyed business decision-makers believe the current approach to IPT suggests the government is not genuinely committed to supporting UK economic growth. This view is echoed by Joe Ahern, Director at WPI Economics, who stated:
“Insurance is not a luxury — it’s a necessity. People shouldn’t have to choose between heating their homes and maintaining the financial protection that insurance provides.”
This sentiment is shared by BIBA CEO Graeme Trudgill, who warned that any increase in IPT would contradict the government’s own growth agenda and force both businesses and consumers into an impossible choice between financial protection and essential services.
Households Also Affected
The issue extends beyond the business world. In a parallel survey of over 2,000 households, BIBA found widespread dissatisfaction with the current IPT rate. Many families are already limiting or forgoing insurance coverage due to high costs.
In response, BIBA is advocating for a reduction in IPT from 12% to 10%, urging the government to honour its pre-election pledge not to raise taxes. The organization warns that this is “the wrong decision at the wrong time”, particularly in the current economic climate.
A Political Decision at a Time of Economic Fragility
The proposal to increase IPT appears especially risky at a time when the UK economy is still recovering from multiple crises — including the pandemic, energy shocks, and Brexit-related trade barriers. Any move that is perceived as a tax burden on business risks not only slowing the pace of recovery but also undermining the UK’s appeal to international investors.
The message from the business community is clear: insurance tax, though it may seem technical or minor, directly affects companies’ ability to protect themselves, invest, and trade. In an era of instability and rising threats — particularly cybercrime — the government should focus on easing the tax burden, not increasing it, if it truly wants to support a resilient and growing economy.