Can IPT Drive Behavioural Change in the Population?

Elliot Shulver
August 12, 2020

Unprecedented times. It’s a phrase that’s been used so much of late but the pandemic is certainly not the first incident that has adversely affected society on a global scale.

Before coronavirus, there had been a strong focus on environmental issues and initiatives. With an increase in extreme weather incidents over the last decade, governments are having to provide additional support to those affected and reconsider the long term impact of climate change.

This affects insurers too as they’re responsible for pricing climate risks into policies, as well as the need for providers to settle claims when a policy is invoked.

When extreme flooding occurred last year across Europe, an IPT exemption was made for agricultural firms in the EU to enable them to cost effectively insure against future extreme weather events.  

Environmental issues will continue to be a top priority for governments. IPT might seem like one of the last taxes that could prompt change, but its increase or decrease can influence the insurance industry’s behaviour and consumers too.

Driving change

For example, increases in the rate of IPT for car insurance policies means owning a car is an expense some may find difficult to justify. Whilst this could be viewed as a negative (that’s certainly what has made headlines over the last few years), there is potential for this higher IPT rate to bring about positive change as it could lead to people exploring alternative forms of transport.

In the UK, there is already a higher IPT rate of 20% on vehicle insurance for some new cars purchased through dealerships and this may well have had an impact on the production of new cars by making consumers think more about their impact on the environment.  

The higher premiums could encourage some to forego a car altogether, opting to use public transport and the rise of short-term car insurance could see a move to pay-as-you-go car hire services. Less cars on the road would lead to lower emissions, although it’s worth noting that this behavioural change has likely been pushed back because of COVID-19. Public transport levels are still considerably lower.

There are many tax exemptions for electric vehicles and although premiums are currently high and still come under the current IPT rate, we could see a change to this moving forward to encourage the switch to more environmentally friendly transport.

There could be a similar IPT hike for travel insurance and air freight as a result of the pandemic, which again could have a positive impact on global emissions. It will certainly make organisations question the sustainability of some business travel such as frequent short-haul flights.

It will be interesting to see what will come next. Will we see an era of green policies, using IPT exemptions and differing rates to encourage and influence behavioural change? And, could IPT shake off some of its bad reputation and be used as a force for good?

 

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Author

Elliot Shulver

Manager, IPT compliance for indirect taxes at Sovos. With 6 years’ experience of indirect tax, including IPT, VAT and Gambling Duties and part qualified chartered accountant, Elliot is responsible for our Consultancy practice, as well as providing regulatory updates for our global compliance solution suite.
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