From Theresa May’s ‘dementia tax’ to Jeremy Corbyn’s ‘garden tax’ it wouldn’t be a general election run-up without some heated discussion on how each party plans to rob Peter in order to pay Paul.
But what would you say to a manifesto pledge to increase income tax to 96%?
It’s no great secret that we at GoCompare are focused on the insurance game, so we think it only fair to the great British public to flag up a raging taxation inequality that’s tantamount to just this.
We’re talking about insurance premium tax - IPT, as the kids have dubbed it.
What's IPT all about, Alfie?
IPT is the taxation tacked onto all sorts of household insurance policies. Do you insure your home? Your pets? Your car or perhaps your health? Then you’ll be coughing up IPT for the pleasure and you probably didn’t even know it.
But as death and taxes are life’s only real certainties, that’s not the real problem here. The issue is the stealthy yet massively disproportionate increase in IPT since its inception in April 1997.
The tax was brought in at 2.5% and was the last hurrah of John Major’s Tory reign before 13 years of Labour governance.
Today, it hit 12%. So if you paid £10 in IPT in 1997, you’d now be paying £48. That’s an increase of 380% in 20 years, equating to an average increase of 19% per year in the tax you pay.
But costs and taxes are always going up, right? Well no, actually, and that’s where this sneaky little tax starts to look a tad unfair.
Tax in context
VAT was enacted in 1973, at 10% and now stands at 20% - a 100% increase. In 1973, if you’d paid £10 in VAT you’d now pay £20. A mere 2% each year increase on average.
And what of that most visible of taxes: good ol' income tax? Although it dates back to Pitt the Younger, the modern iteration can be taken from 1979 when Thatcher reduced the basic rate to 30%. Since then it’s ducked to 20% - so if you paid £10 income tax in 1979, you’d now pay just £6.67. So basic rate income tax has decreased 33% in that time; a plunge of 0.87% each year on average.
Economies of massive scale
You might think that as IPT relates to relatively smaller sums, it doesn’t matter so much.
But look at it this way - for every £1m clawed by the government in IPT in 1997, it now snatches £4.8m. The Association of British Insurers (ABI) reckon that the latest increases mean the government can now rake in £5.8 billion a year from you, the insured public.
A nice little earner.
And if basic rate income tax had been increased in the same way since its 1997 rate of 20% we’d now be handing over 96% of our salaries.
Clearly that’s ridiculous, so why does the government condone this astronomic yet utterly stealthy tax increase that’s affecting the costs of our households, our motoring and even our healthcare and that of our pets?
The ABI has calculated that IPT increases have added an extra £283 a year to a typical household’s annual insurance bill since 2015 - food for thought when the government’s trying to sell you the idea of less income tax to pay for the ‘just about managing’.
At least with income tax you need to earn more to end up paying more. With IPT, it’s those who are already paying the highest tolls - young drivers, older people with private health insurance, poorly pets with pre-existing conditions - that are being flogged the hardest.