Mr. William O'BrienTo ask the Chancellor of the Exchequer if he will make a statement on his policy towards disparities in the insurance premium tax applying to(a) travel agents and (b) insurance dealers; and what representations he has received from (i) representatives of the travel industry and (ii) consumers on his Budget measures relating to insurance premium tax. [10147]
§ Mr. OppenheimUnder Finance Bill proposals, with effect from 1 April 1997, all travel insurance sold through a travel agent, unless supplied free of charge, will be liable to insurance premium tax—IPT—at 17.5 per cent. As with the other insurances affected by this higher rate of IPT—primarily mechanical breakdown insurance on motor vehicles and domestic appliances and insurances sold with television and car hire—this tax measure addresses the VAT revenue currently lost through the disproportionately high margins often applied to ancillary sales of VAT exempt insurance by suppliers of taxable goods and services in these sectors. Those who practise such pricing policies, regardless of whether their prime
Shares of gross incomes before tax (per cent.) Group of taxpayers Top 1 per cent. Top 5 per cent. Top 10 per cent. Bottom 70 per cent. Bottom 10 per cent. 1996–97 9 20 30 43 3 1997–98 9 20 30 43 3 22W
Amount of gross incomes before tax (£ billion) Top 1 per cent. Top 5 per cent. Top 10 per cent. Bottom 70 per cent. Bottom 10 per cent. All taxpayers 1996–97 37.1 87.0 127.7 183.9 12.4 425.6 1997–98 39.2 91.6 134.5 193.8 13.2 448.1 motivation is commercial or fiscal, have a tax advantage and can distort the market. In the travel sector most travel insurance is sold by travel agents and tour operators despite their charging significantly higher prices than direct insurers. The current pricing and marketing arrangements indicate, therefore, that although insurance purchased direct from an insurer will be subject to IPT at 4 per cent., this tax differential is unlikely to have any significant effect.