2010 Budget results deemed positive for the UK insurance industry

Wednesday, June 23, 2010

Initial analysis following yesterday’s emergency budget announcements suggest positive steps forward for the UK Insurance industry, Price Waterhouse Cooper have stated.

Colin Graham, an insurance tax partner at Price Waterhouse Cooper has issued an initial response to the changes in the budget following yesterday’s announcement, suggesting "Despite the widely expected rises in VAT and insurance premium tax (IPT), today’s budget has delivered a number of positive commitments for the UK insurance industry.”

While the full impact of yesterday’s changes are yet to be analysed in depth, it appears that the government are implementing methods of championing the insurance industry within the UK. The industry have been lobbying the government through repeated requests for an exemption system for foreign branches of insurance companies, and yesterday’s announcement included a commitment to reform existing policies governing this area of the industry, with a promise to evaluate and amend the affected policies by the end of next year.

The announced reduction in corporation tax and the increase for higher IPT have brought the UK insurance industry in line with the new VAT rate of 20%. The changes are thought to be positive in assisting the competitive standing of the industry. While the new tax will be 2.5% higher from January 2011, the parameters for the tax are specific, with travel insurance being the principal area impacted. The increased IPT rate still positions the UK as being lower than much of Europe.

It remains to be seen what the impact of the increased VAT rate will have across financial services overall, and whether the enhancements planned for the insurance industry are sufficient to mitigate this impact to create an overall positive change.