UK Insurance Tax Hike Could Backfire: Higher Costs, NHS Delays, and Lost Productivity
Raising the UK’s Insurance Premium Tax may seem like a quick revenue boost, but it could drive up private healthcare costs, worsen NHS waiting times, and hit workforce productivity hard. (Source: Pexels)
The UK Government is reportedly considering an increase to Insurance Premium Tax (IPT) in the Autumn 2025 Budget. While designed to raise revenue, such a move could have significant unintended consequences for the private healthcare market, NHS performance, and workforce participation. Rising IPT rates may reduce access to employer-funded private medical insurance (PMI), shift more patients back onto NHS waiting lists, and increase the overall burden on the UK economy.
Policy and Market Impact
IPT and Healthcare Costs
Currently set at 12%, IPT applies to most insurance policies, including PMI. An increase would raise premium costs for employers while simultaneously increasing tax liabilities for employees. This “double burden” risks lowering take-up rates across the UK workforce, particularly among lower-income employees.
Effect on NHS Waiting Lists
NHS waiting lists, though reduced from their pandemic peak, remain at record levels with 7.37 million patients waiting for treatment in June 2025. Private healthcare has played a vital complementary role, with a record 939,000 private inpatient admissions in 2024, many funded by PMI. By making PMI less affordable, higher IPT rates could push patients back into the NHS system, reversing recent progress in backlog reduction.
Economic Productivity
Access to private healthcare enables faster diagnosis and treatment, allowing workers to return to employment sooner and reducing long-term sickness-related inactivity. Policy changes that undermine private healthcare adoption could increase absenteeism, reduce productivity, and raise costs for both businesses and the state.
Global Comparisons
United States: Similar debates are unfolding around employer-funded healthcare benefits and tax treatment. Increases in healthcare costs there have been linked to declining coverage among small businesses, reinforcing the importance of policy incentives in maintaining private health uptake.
European Union: Countries such as Germany encourage private insurance alongside statutory coverage, often through tax incentives rather than disincentives. This mixed model has helped sustain system balance and patient choice.
Market Outlook
The UK’s private healthcare sector has grown significantly, driven by delayed NHS care, claims inflation, and higher demand for faster treatment. IPT receipts rose 9% to £8.9 billion in 2024/25, highlighting the sector’s expansion. However, further taxation risks slowing this momentum. A balanced regulatory approach is critical: while revenue generation is important, sustaining a resilient healthcare ecosystem requires supporting both public and private provision.
Key Takeaways
Raising IPT could limit access to private healthcare and create added strain on the NHS.
The economic impact extends beyond healthcare, affecting workforce participation and productivity.
International experience shows that tax incentives, not tax hikes, better sustain complementary private health systems.
Policymakers must balance fiscal objectives with long-term healthcare system sustainability.
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