The Contrarian Case for 20% Insurance Premium Tax: A Thought Experiment

The Reality Check: 

It's still a terrible idea. Young drivers face +£160 costs they can't afford. Insured vehicle numbers are already falling. Uninsured driving will spike. Rural households get hammered. The market shrinks even as shopping increases – you get more competition over a smaller pie. Companion policies to mitigate harm won't materialise. Timing couldn't be worse during cost-of-living pressures.

What I Actually Think: 

It's probably bad policy that might happen anyway because Treasury needs £6bn and all alternatives are worse (income tax, NI, VAT all more toxic politically). Prediction: IPT rises to 15% (not 20%), raises £4bn, generates modest shopping increase, causes manageable harm. Not good, but survivable.

The Real Insight: 

The fact that a major tax rise might improve market dynamics reveals our insurance market is structurally broken – too dependent on customer inertia. Whether IPT rises or not, the industry needs to solve this before regulators or fiscal pressure do it for them.

Bottom Line:

Prepare for some IPT increase. Watch both the competitive benefits and abandonment harms. And ask why we built a market that might need fiscal shock therapy to function competitively.

Now you have read the summary... here's the detail.

Normally, at this point in the Budget season, you'd expect me to echo the insurance industry's calls to keep Insurance Premium Tax untouched. Trade bodies will be making their representations to the Treasury right now. The arguments are predictable and, frankly, reasonable: affordability is stretched, consumers are struggling, don't add fuel to the fire.

But let me try something deeply unpopular: thinking through the contrarian lens.

What if an IPT rise – perhaps even a significant one, aligning with VAT at 20% – wasn't entirely terrible for the industry? What if there were genuine competitive benefits hiding behind the headline pain?

I'm not advocating for this change. I'm not lobbying Treasury. I have no desire to see household insurance bills rise. But as an analyst of insurance market dynamics, I think the case deserves examination. Sometimes the uncomfortable questions are the ones worth asking. Sometimes you need to steel-man an argument to understand why it's actually wrong – or whether the comfortable consensus is resting on shakier ground than we assume.

So here's the thought experiment: why might a substantial IPT increase – from 12% to 20%, aligning with VAT's standard rate – not be the disaster the industry assumes? Why might insurers, privately and quietly, find some silver linings in what looks like a very dark cloud?

The Uncomfortable Case FOR – Why This Might Help Insurers

The Shopping Collapse Nobody Wants to Talk About

Let's start with an uncomfortable fact: consumer engagement with the insurance market is declining, and it's happening fast.

Shopping rates at motor renewal have fallen from 84% in 2023 to 71% today. That's a 13 percentage point drop in just two years. In absolute terms, that represents millions of consumers accepting their renewal quote without question, without comparison, without exercising any market discipline whatsoever.

Now, 71% still sounds reasonably healthy – seven in ten people are shopping around, after all. But the trajectory is what matters. We've lost momentum. Consumer inertia is increasing precisely when the FCA is applying regulatory pressure on loyalty penalties and renewal pricing practices. The industry is caught in an uncomfortable position: renewal books are under regulatory scrutiny, but consumers aren't providing the market discipline that would make regulation less necessary.

Here's the problem: insurers have built business models that depend on a certain level of customer inertia. Renewal pricing strategies assume a proportion of customers will accept their quote. Retention targets factor in predictable behaviour. When 84% of customers shop, the market is highly competitive. When 71% shop, there's more room for pricing comfort on renewals.

The FCA doesn't like this. They've intervened on pricing practices. They're watching renewal rates. They're concerned about value measures. The direction of travel is clear: regulators want active consumers making informed choices, and they'll intervene if the market doesn't deliver that naturally.

Which brings us to an odd question: what if an external shock forced customers to shop actively, removing the need for ever-more-intrusive regulation?

The Historical Evidence: Price Shocks Drive Shopping

This isn't speculation. We have historical proof that IPT increases drive shopping behaviour.

Between 2015 and 2017, IPT rose from 6% to 12% through a series of increases. Analysis of shopping behaviour during this period shows a 3% uplift in consumers seeking quotes at renewal. That's a 3 percentage point increase – significant in market share terms, representing hundreds of thousands of additional shoppers actively engaging with the market.

Now, here's what makes that 3% uplift particularly interesting: those IPT increases added relatively modest amounts to premiums. The jumps were 6% → 9.5% → 10% → 12%, adding perhaps £6 to £18 to typical motor premiums at each stage. Below what we'd consider major behavioural triggers, yet still sufficient to generate measurable shopping increases.

We also have proprietary Consumer Intelligence data on price sensitivity thresholds:

• A £30 premium increase triggers shopping behaviour (consumers seek quotes)
• A £50 premium increase triggers switching behaviour (consumers change insurer)

These aren't arbitrary figures – they're observed behavioural patterns across thousands of transactions. They tell us something important: consumers respond to absolute pound increases, not just percentage changes. £30 matters. £50 really matters.

Now let's apply that to a 20% IPT scenario.

On a £600 motor premium (roughly the market average):

• Current IPT at 12%: £72 tax, £672 total
• IPT at 20%: £120 tax, £720 total
• Increase: £48

That's comfortably above the £30 shopping threshold and approaching the £50 switching threshold.

On an £800 premium (typical for urban/younger drivers):

• Current IPT at 12%: £96 tax, £896 total
• IPT at 20%: £160 tax, £960 total
• Increase: £64

Well above both thresholds.

On a £1,000 premium (higher-risk profiles):

• Current IPT at 12%: £120 tax, £1,120 total
• IPT at 20%: £200 tax, £1,200 total
• Increase: £80

Significantly above both thresholds.

Here's the extrapolation: if previous IPT rises that added £6-18 generated a 3% shopping uplift, what might a £48-80 increase generate? Conservative estimate: 5-8% shopping uplift. Possibly more, given the increases cross documented behavioural thresholds.

That's not marginal. That's hundreds of thousands of additional consumers actively engaging with the market, seeking quotes, comparing prices, making informed decisions. It's exactly what the FCA wants to see – except achieved through fiscal policy rather than regulatory intervention.

Who Wins in an Active Market?

Let's be honest about who benefits from increased shopping behaviour.

Efficient operators win. Insurers with strong underwriting discipline, competitive pricing, and low operational costs gain market share when consumers shop actively. If you're confident in your pricing model and your cost base, you want consumers comparing. You want the business that comes from being genuinely competitive.

Digital-first insurers win. Those with straight-through processing, instant quotes, and seamless digital journeys convert shopping traffic more effectively. Legacy technology stacks struggle when quote volumes surge. Modern infrastructure thrives on it.

Value propositions win. When consumers aren't shopping, brand loyalty and inertia dominate. When they are shopping, value matters. Price comparison becomes the primary battleground. If you're competing on value rather than relying on sticky customers, you benefit.

Price comparison websites win. Full transparency: Consumer Intelligence benefits commercially from increased shopping. That's our business model. More shoppers means more traffic, more quotes, more conversions. I'm declaring that interest explicitly because it demands we apply higher scrutiny to our own analysis. Commercial benefit doesn't invalidate evidence, but it requires intellectual honesty about motivation.

Now, who loses in an active market?

Renewal pricing models dependent on inertia face pressure. If your profitability assumes X% of customers will accept renewals without shopping, a sudden shopping surge disrupts that model. Renewal books become less predictable. Pricing strategies need adjustment.

Operationally inefficient players get exposed. When shopping increases, the competitive gap between efficient and inefficient operators widens. There's nowhere to hide. Market share becomes more fluid.

Legacy technology struggles. If your quote engine can't handle volume, if your systems are slow, if your digital journey has friction, increased shopping exposes these weaknesses. Competitors with better infrastructure take share.

But here's the crucial question: is protecting inefficiency and inertia really what the industry should be optimising for?

The FCA clearly thinks not. They've made regulatory interventions precisely because they believe renewal pricing that exploits inertia is harmful to consumers. Pricing practice regulations are designed to force fairer treatment. Value measures aim to ensure customers on renewal aren't systematically disadvantaged.

From that perspective, an IPT rise that stimulates shopping achieves regulatory objectives through market mechanisms rather than compliance requirements. It's competitively neutral – affects all players equally – unlike targeted regulation that creates asymmetric compliance costs.

Ask yourself: would you rather compete in a market disrupted by taxation that applies to everyone, or navigate increasingly prescriptive regulation that targets specific pricing practices and creates administrative burdens?

Neither is comfortable. But one at least preserves competitive dynamics whilst achieving the policy objective of active consumer engagement.

The Competitive Dividend: Why Efficient Operators Should Welcome This

There's a deeper strategic argument here that goes beyond immediate shopping behaviour. An IPT rise to 20% would fundamentally reshape competitive dynamics in ways that favour certain types of insurers whilst exposing others.

The maturity of market infrastructure

Consider how different today's market is from 2015-2017 when IPT last increased significantly. Price comparison infrastructure has matured enormously:

• Mobile-first experiences are now standard, not exceptional
• Instant quote engines deliver results in seconds, not minutes
• Digital journeys have been optimised through years of testing
• Consumer habits are established – PCWs are the default starting point for most shoppers
• Data sharing and integration mean switching friction has never been lower

When the 2015-2017 IPT increases drove that 3% shopping uplift, consumers were navigating less sophisticated digital infrastructure. Today, the barrier to shopping has fallen dramatically. The effort required to obtain and compare five quotes has dropped from perhaps 45 minutes to under 10 minutes on a mobile device.

This matters because it means the conversion rate from "price shock triggers shopping intent" to "consumer actually obtains quotes" should be higher now than historically. The infrastructure can absorb a shopping surge more effectively than ever before.

The new business economics

Here's an uncomfortable truth: insurers with strong new business engines and competitive pricing should welcome increased shopping, even if it disrupts renewal books.

New business acquisition, whilst costly, brings several advantages:

• Customers acquired through active shopping are selecting on value, creating a better risk mix
• Initial pricing is based on current underwriting models, not legacy assumptions
• There's no loyalty penalty baggage or regulatory scrutiny
• Customer data starts fresh, enabling better engagement strategies

Renewal books, by contrast, carry increasing risks:

• FCA scrutiny on pricing practices and value measures
• Legacy pricing assumptions that may not reflect current risk
• Higher proportion of customers who haven't actively chosen you recently
• Regulatory pressure to demonstrate fair treatment

An IPT rise that increases market fluidity essentially accelerates the transition from renewal-dependent business models to new-business-optimised ones. That transition is happening anyway through regulation. An external price shock might be less disruptive than waiting for the next round of FCA interventions.

Competitive neutrality vs regulatory asymmetry

This point deserves emphasis: taxation affects all market participants equally. Regulation does not.

The FCA's pricing practices rules require systems changes, compliance infrastructure, monitoring capabilities, and reporting obligations. These costs fall disproportionately on certain business models and certain organisational structures. Large legacy insurers face different implementation challenges than digital start-ups. Direct writers and broker channels face different requirements.

An IPT rise, by contrast, is operationally simple. The rate changes. Everyone adjusts. There's no differential compliance burden. No competitive advantage goes to those with better regulatory infrastructure.

From a competitive dynamics perspective, equal-impact disruption is cleaner than asymmetric regulation. It forces competition on operational efficiency and pricing rather than on regulatory compliance capability.

The talent and capital argument

Markets that compete vigorously attract talent and investment. Stagnant markets do the opposite.

Consider the InsurTech investment cycle of recent years. Capital flowed toward insurance precisely because investors saw opportunities for disruption – better technology, better customer experiences, more efficient operations challenging legacy players. Much of that investment thesis depends on market fluidity. If customer inertia is too high, even superior propositions struggle to gain share.

An active market with healthy shopping rates makes the "disrupt insurance" investment case more credible. It attracts entrepreneurial talent. It rewards innovation. It creates a more dynamic ecosystem.

A stagnant market with declining shopping rates and increasing regulatory protection for existing players does the opposite. Capital looks elsewhere. Talented technologists choose other sectors. The industry slowly calcifies.

Which future is preferable? Short-term renewal book disruption, or long-term industry stagnation?

The Revenue Reality: Someone's Paying for Something

Let's address the fiscal elephant in the room: Rachel Reeves needs revenue. The OBR projections, the fiscal rules, the spending commitments – they all point toward a Budget that needs to find substantial sums.

The £6 billion question

At 20%, IPT would generate approximately £14.8 billion annually, compared to the current £8.88 billion at 12%. That's roughly £5.9 billion in additional revenue – rounding to £6 billion for simplicity.

Six billion pounds is material. It's meaningful in Budget terms. It's a line item that matters when balancing the books.

Now, the Treasury will find that £6 billion somewhere. The question isn't whether revenue rises, it's where it comes from. Let's consider the alternatives:

Income tax rise

• Hits earned income directly
• Disincentivises work, particularly at margins (benefit cliffs, second earners)
• Highly visible and politically toxic
• Affects every PAYE worker immediately

National Insurance rise

• Employment tax that affects hiring decisions
• Increases business costs
• Recent manifesto commitments make this difficult politically
• Hits the same base as income tax with similar disincentive effects

VAT rise

• Broadest possible base
• Hits essential goods and services if standard rate rises
• Extremely visible (every receipt shows it)
• Regressive impact on lower-income households
• Politically nearly impossible

Corporation Tax rise

• Already at 25%, among the highest in developed economies
• Affects business investment decisions and international competitiveness
• Smaller revenue base than consumer taxes
• Risk of behavioural response reducing yield

Fuel duty rise

• Frozen for over a decade
• Politically extremely difficult
• Hits rural and lower-income drivers disproportionately
• Runs counter to net zero transition messaging

Against these alternatives, IPT starts to look less absurd:

• Operates through existing collection infrastructure (no new systems)
• Affects a broad base of consumers
• Less visible than VAT or fuel duty (incorporated into premiums, not itemised separately in most consumer contexts)
• Has recent precedent (12% rate achieved through incremental rises)
• Higher rate already at 20% (travel insurance) without market collapse

The VAT alignment logic

Here's the policy coherence argument: insurance is exempt from VAT. IPT exists specifically because this exemption would otherwise create a tax gap. Insurance is a service; services generally bear VAT at 20%; therefore IPT at something close to VAT rates has logical consistency.

The current 12% rate represents a historical compromise – high enough to raise meaningful revenue, low enough to maintain political acceptability. But there's no particular policy rationale for 12% rather than 20% beyond "that's where we've landed through incremental increases".

If you were designing the tax system from scratch, would you exempt insurance from VAT-equivalent taxation? Almost certainly not. You'd want broad-based consumption taxes for revenue stability and economic efficiency. The principle that insurance should bear equivalent taxation to other consumer purchases isn't radical – it's the default position.

The 20% higher rate already applies to:

• Travel insurance (all policies)
• Insurance supplied with certain goods (vehicles, electrical appliances)
• Some vehicle insurance in specific circumstances

These categories haven't seen market collapse. Consumers still buy travel insurance. The higher rate functions perfectly well from a revenue and administrative perspective.

Extending 20% to all IPT-liable policies is therefore an expansion of existing practice, not a novel experiment. The infrastructure exists. The rate exists. The precedent exists.

The fiscal sustainability argument

There's a broader point here about tax base erosion. Governments have been reluctant to raise visible taxes for years, leading to:

• Frozen fuel duty (costing billions in foregone revenue)
• Frozen income tax thresholds (fiscal drag, but politically easier than rate rises)
• Increasing reliance on stealth taxes and specific levies
• Growing gap between spending commitments and revenue capacity

At some point, this isn't sustainable. Either spending falls (politically difficult, affects services people value) or revenue rises (politically difficult, affects people's pockets).

IPT at 20% is at least honest taxation. It's a rate, clearly stated, generating known revenue. It's not fiscal drag or frozen thresholds or complex allowance withdrawals. It's transparent: insurance costs more because the tax rate is 20%.

In a world of difficult fiscal choices, there's something to be said for clarity.

Market Vitality Over Stagnation: The Long Game

Step back from the immediate renewal book disruption and quarterly results, and consider what type of insurance market we want in five or ten years.

Option A: Protected but stagnant

• Low shopping rates maintained through customer inertia
• Regulatory intervention compensates for the lack of market discipline
• Prescriptive rules on pricing, value measures, disclosure
• Market structure slowly ossifies
• Innovation occurs within regulatory guardrails
• Capital treats insurance as mature, low-growth sector

Option B: Disrupted but dynamic

• High shopping rates driven by price consciousness
• Market discipline provides consumer protection
• Regulation focuses on safety and conduct, not pricing
• Market structure remains fluid
• Innovation rewarded through competitive gains
• Capital sees growth opportunities

The IPT question is partly about which of these futures we're building toward.

Yes, an IPT rise to 20% would disrupt renewal books. Yes, it would force repricing. Yes, it would accelerate market share shifts. But disruption isn't inherently bad – it depends what system emerges afterward.

If the result is a more competitive market where consumers actively engage, where efficient operators gain share, where innovation is rewarded, and where regulatory intervention can be lighter-touch because market discipline is functioning – is that not preferable to the alternative?

The regulatory counterfactual

Consider what happens if IPT stays at 12% but the market trends continue:

• Shopping rates drift lower (71% → 65% → 60%?)
• Consumer outcomes worsen as inertia increases
• FCA intervenes with progressively stricter rules
• Compliance costs rise
• Pricing freedom narrows
• Market becomes an increasingly regulated utility

The FCA has already signalled its direction through pricing practices regulation. If the market doesn't self-correct – if consumers don't shop actively – further intervention is likely to be inevitable. We'll see more prescriptive rules on renewal pricing, more value measures, and potentially even price caps or approved pricing models.

From an industry perspective, would you rather face:

• 20% IPT with market-driven competition, or
• 12% IPT with utility-style regulation of pricing practices?

The first preserves competitive dynamics and rewards efficiency. The second constrains pricing freedom regardless of your operational capabilities.

The uncomfortable synthesis

So here we are: an IPT rise to 20% would:

• Stimulate shopping by 5-8% (evidence-based projection)
• Generate £6bn revenue from broad base (fiscal sustainability)
• Align with VAT rate and existing higher rate (policy coherence)
• Reward efficient operators and competitive pricing (market health)
• Preserve market-driven competition vs regulatory intervention (industry autonomy)
• Operate through existing infrastructure (administrative simplicity)

If you're an efficient insurer with competitive pricing, strong technology, and confidence in your new business engine – why would you oppose this? The disruption is real, but temporary. The competitive advantage you gain from an active market is structural and lasting.

And if you're heavily dependent on renewal book inertia, with legacy technology and uncompetitive pricing – well, perhaps that business model was living on borrowed time anyway. The FCA's regulatory direction makes that clear.

Now that I've made you comfortable with this being potentially good for insurers – or at least not as catastrophic as the industry consensus assumes – let me tell you why it's actually a terrible idea.

Because whilst the competitive dynamics might work for the industry, the consumer arithmetic most certainly does not. And an industry that serves a shrinking customer base because affordability has broken is ultimately an industry with no future.

Here's where the contrarian case falls apart.

The Honest Synthesis – What I Actually Think

I've built the case for 20% IPT. I've demolished it. Now it's time to be direct about what I actually believe after working through both arguments.

The uncomfortable truth: this is probably a bad idea that might happen anyway.

And if it does happen, we need to be honest about both the damage it will cause and the few silver linings that might emerge from the wreckage.

Both Sides Have Evidence, But One Has Ethics

Let's be clear: the competitive case for 20% IPT isn't nonsense. The evidence is real:

• IPT rises historically drive shopping behaviour (+3% proven)
• Price thresholds are documented (£30 shops, £50 switches)
• £48-80 increases would trigger both thresholds across most premium levels
• Market infrastructure can absorb the shopping surge
• Efficient operators would gain share
• Regulatory pressure on inertia would ease

None of that is fabricated. The competitive dynamics would genuinely work as I've described.

But here's what I actually think: evidence of competitive benefit doesn't justify consumer harm when that harm is material, regressive, and lands on people already struggling.

The affordability crisis is more urgent than the market efficiency opportunity. Young drivers choosing between insurance and rent is a bigger problem than insurers facing renewal book disruption. Uninsured driver numbers rising is a worse outcome than shopping rates falling.

The "against" case wins not because the "for" case lacks evidence, but because it lacks proportionality. The cure is worse than the disease.

But Fiscal Reality Doesn't Care About Proportionality

Here's where it gets uncomfortable: Rachel Reeves needs approximately £6 billion. That's not speculation – it's arithmetic based on fiscal rules, spending commitments, and economic projections.

She will find that £6 billion somewhere.

The alternatives are:

• Income tax rise: politically toxic, hits work incentives
• National Insurance rise: breaks manifesto commitment, damages employment
• VAT rise: politically impossible, hits essentials
• Corporation Tax rise: already at 25%, competitiveness concerns
• Fuel duty rise: frozen for 14 years, politically suicidal
• Public spending cuts: contradicts entire government programme

Against that list, IPT starts looking less absurd. Not good – but less terrible than the alternatives.

It's collected through existing infrastructure. It has precedent at 20% (higher rate). It raises meaningful revenue from a broad base. It's less visible than VAT or fuel duty. And – here's the cynical political calculation – it affects households sporadically (annual policies) rather than continuously (weekly shopping, daily commutes).

From Treasury's perspective, IPT at 20% might be the least-bad option in a menu of bad options.

I don't like that calculation. But I understand it.

What I Think Will Actually Happen

My genuine prediction: IPT rises, but not to 20%. Probably to 15%.

Here's the logic:

15% gives Treasury most of what it needs

• Raises approximately £4bn additional revenue (not the full £6bn, but substantial)
• Adds £18-30 to typical premiums (still above shopping threshold for many)
• Generates shopping uplift (smaller than 20%, but present)

15% is politically defensible-ish

• Halfway between current 12% and VAT 20%
• Can be framed as "partial alignment" rather than full harmonisation
• Still painful, but not as egregious as full VAT rate

15% reduces (doesn't eliminate) abandonment risk

• £18-30 is below the £50 switching threshold for most
• Young driver with £2,000 premium: +£60 (bad but not catastrophic £160)
• Two-vehicle household: +£42-70 (painful but perhaps absorbable)

15% leaves room for future increases

• Treasury preserves optionality for Budget 2027/28
• "We're phasing alignment with VAT" narrative available
• Politically, can point to "restraint" vs. full 20%

I think that's where this lands. Not because it's right – it's still regressive, still hits struggling households, still accelerates abandonment among young/rural drivers. But because it's the least-bad compromise between fiscal necessity and political reality.

If It Happens At 20%, Here's What To Watch

Let's say I'm wrong. Budget 2026 announces IPT to 20%, effective October 2026 or April 2027.

The silver linings to actually monitor:

1. Shopping behaviour spike – 6 months post-implementation

• Does shopping really increase 5-8% as projected?
• Is the uplift sustained or temporary?
• Does it actually translate to switching, or just quote-gathering?

If shopping genuinely increases and sustains above 75%, that's evidence the competitive case had merit. It doesn't justify the consumer harm, but it's a real benefit worth acknowledging.

2. Market share fluidity – 12 months post-implementation

• Do efficient operators gain share?
• Do digital insurers outperform legacy players?
• Does new business volume compensate for renewal disruption?

If market concentration decreases and competitive pressure intensifies, that's beneficial for long-term market health. Again, doesn't justify the harm, but it's a real effect.

3. Premium inflation moderation – 18 months post-implementation

• Does competitive pressure contain underlying premium inflation?
• Do insurers compete more aggressively on base pricing?
• Does the market become more efficient overall?

This is the hardest benefit to measure but potentially most valuable. If competitive pressure from increased shopping actually constrains premium growth, consumers might recover some of the IPT cost through lower base premiums over time.

The harms to monitor with equal rigour:

1. Insured vehicle numbers – quarterly data

• How many vehicles drop off the insured base?
• Is decline accelerating vs. current trend?
• Which demographics/geographies are abandoning fastest?

This is the key metric. If insured vehicles fall 3-5%, the market has materially contracted and the policy has failed regardless of shopping benefits.

2. Uninsured driver claims – MIB data

• Are uninsured driver levies increasing?
• Is claims frequency from uninsured vehicles rising?
• What's the cost to honest policyholders?

If uninsured driving spikes, the regressive impact has been amplified rather than mitigated. The least able to pay are breaking the law, and the rest of us are subsidising it through higher premiums.

3. Voluntary insurance take-up – market-by-market

• Pet insurance penetration
• Private health insurance volumes
• Travel insurance conversion rates

These markets are canaries in the coal mine. If voluntary insurance collapses, we've proof that discretionary insurance demand is more fragile than motor's mandatory baseline.

What This Whole Debate Actually Reveals

I've spent thousands of words arguing both sides of IPT at 20%. But here's what I think the exercise actually tells us, regardless of whether the rate changes:

Our insurance market is structurally unhealthy.

The fact that a major tax rise looks like it might improve competitive dynamics tells us the baseline is broken. Markets shouldn't need fiscal shock therapy to function properly.

Shopping rates falling from 84% to 71% in two years is a market failure. That's not normal competitive behaviour. That's inertia, friction, and rational consumer response to a process that's become too effortful for too little perceived benefit.

The FCA is trying to fix this through pricing practice regulation. But regulation is addressing symptoms, not causes. The cause is that switching is cognitively expensive, the benefits are uncertain, and most consumers have learned that shopping around saves £20-30 after 40 minutes of effort. That's not a compelling value proposition.

Insurers have built business models that depend on consumers not shopping. Renewal pricing strategies assume X% accept without question. Retention targets factor in inertia. Customer lifetime value calculations depend on people staying beyond economic rationality.

This works until it doesn't. Either regulation makes it untenable, or fiscal policy disrupts it, or consumer behaviour shifts, or all three simultaneously.

The real question isn't "should IPT rise?" It's "how does the insurance market transition from inertia-dependent to competition-dependent business models?"

An IPT rise is one possible forcing mechanism. FCA regulation is another. Technological disruption (instant switching, embedded insurance, usage-based models) is a third. Market evolution might eventually get there organically.

But one way or another, the current model is unsustainable. An industry that requires customers not to shop around is an industry vulnerable to regulatory intervention, technological disruption, or fiscal shock.

That's the uncomfortable insight this whole debate surfaces.

What I'd Say If I Were Advising Rachel Reeves

Chancellor, you need £6 billion. IPT at 20% would raise it. The competitive arguments have some merit – shopping would increase, markets would become more fluid, efficient operators would benefit.

But the consumer harm is real and concentrated on people already struggling. Young drivers, rural households, multi-vehicle families paying the most. Abandonment risk is high. Uninsured driving will increase. Voluntary insurance markets will contract.

My recommendation: Don't do 20%. Consider 15% with explicit commitments.

15% raises £4bn. That's substantial. It's politically easier to defend as "partial alignment" with VAT. It still generates competitive benefits (shopping increase, market fluidity) without the catastrophic abandonment risk.

But pair it with three non-negotiable commitments:

1. Phase implementation over two years

• 12% → 15% in April 2027
• Final rate 15%, not stepping stone to 20%
• Give market time to adjust

2. Ring-fence £500m of additional revenue for young driver support

• Subsidised telematics schemes
• Means-tested vouchers for under-25s
• Not perfect mitigation, but visible effort

3. Enhanced uninsured driver enforcement

• £200m additional funding for ANPR, prosecution capacity
• Make non-compliance genuinely riskier
• Reduce the rational appeal of going uninsured

Is this perfect? No. Will Treasury resist ring-fencing? Yes. Will enforcement funding be difficult? Absolutely.

But if you're going to hit consumers with £4bn in additional insurance costs, you owe them visible efforts at mitigation. Otherwise it's just smash-and-grab taxation with no policy justification beyond "we needed the money."

If you insist on 20%, don't do it now. Wait until:

• Real wages have grown 3-4% ahead of inflation
• Motor premiums have stabilised
• Companion policies are operational
• You can phase it: 12% → 15% → 18% → 20% over 4 years

Absent those conditions, 20% breaks the market. You get your £6bn, but insured vehicle numbers fall, uninsured driving spikes, and you've created a new social problem while solving a fiscal one.

What I'd Say If I Were Advising The Insurance Industry

Stop assuming IPT at 12% is safe. It isn't.

Treasury needs revenue. IPT is less toxic politically than most alternatives. The fact that you hate it doesn't make it less likely – it might make it more likely, because it hits an industry that's not particularly sympathetic to the public right now.

Your opposition should focus on:

1. Affordability evidence, not industry impact

• Show Treasury the young driver abandonment data
• Quantify uninsured driver cost increases for all policyholders
• Demonstrate rural household vulnerability
• Make it about consumer harm, not insurer profitability

2. Constructive alternatives

• If not IPT, where should £6bn come from?
• "Don't raise taxes" isn't a Treasury-credible answer
• Offer thoughtful alternatives or accept you're just special pleading

3. Commitment to market reform

• Acknowledge the shopping rate decline is a problem
• Propose industry-led solutions to increase engagement
• Show willingness to compete in active markets
• Make the case that you don't need fiscal pressure to force competition

But privately, prepare for some level of increase.

15% is plausible. Maybe even 17%. If you're only preparing for 12% to stay, you're not ready.

The strategic opportunity:

If IPT rises and shopping increases as predicted, don't complain – adapt. The insurers who win will be those who:

• Can handle quote volume surges efficiently
• Have genuinely competitive pricing
• Deliver seamless digital journeys
• Convert shopping traffic effectively

An IPT rise accelerates the transition from inertia-dependent to competition-dependent business models. That transition is happening anyway through regulation. Fiscal policy just speeds it up.

The insurers succeeding in 2030 won't be those who preserved 2025's renewal book. They'll be those who built new-business engines capable of winning in active markets.

If IPT rises, don't fight the tide. Build better boats.

My Actual Conclusion

Is IPT at 20% a good idea? No. The consumer harm is material, regressive, and concentrated on vulnerable groups. The abandonment risk is high. The timing is wrong. The mitigation infrastructure doesn't exist.

Might it happen anyway? Yes. Fiscal pressure is real. Alternatives are limited. Political calculation might favour it despite the harm.

If it happens, will there be silver linings? Some. Shopping will increase. Competition will intensify. Efficient operators will benefit. Market dynamics will improve, at least among those who remain insured.

Are the silver linings sufficient to justify the harm? No. Not even close.

But – and this is the uncomfortable truth – in a world where £6 billion must come from somewhere, and all the options are bad, IPT at 15-20% might be the least-bad option available.

I don't like writing that sentence. It feels like surrender to fiscal inevitability over policy optimality. But it's what I honestly think after working through both sides.

The best outcome would be: no IPT rise, revenue found elsewhere, market reforms itself through competition, and consumers benefit from both stable costs and improved engagement.

The realistic outcome is probably: IPT rises to 15%, consumers absorb the cost, shopping increases modestly, the market adjusts, life goes on with incremental damage to affordability and participation.

The worst outcome would be: IPT rises to 20%, abandonment spikes, uninsured driving surges, voluntary insurance collapses, and we've traded market vitality for fiscal revenue.

I think we'll get the middle outcome. Not because it's right, but because it's survivable, Treasury needs the money, and surviving is usually how policy gets made.

And you know what? If I'm right about 15%, and if shopping really does increase 3-5%, and if competitive pressure genuinely emerges, and if the market ultimately becomes healthier because of it, I'll acknowledge the silver lining whilst never pretending it justified the cost.

Sometimes bad policy produces good side effects. That doesn't make it good policy. But it means we watch for the benefits whilst monitoring the harms, and we try to maximise the former whilst mitigating the latter.

That's the honest answer. Not satisfying. Not clean. Not what either side of the debate wants to hear. But probably closest to the truth.

The insurance industry should prepare for some level of IPT rise. Consumers should brace for higher costs. Analysts should watch both the shopping benefits and abandonment risks. And all of us should ask why we've built a market that might need fiscal shock therapy to function competitively.

That's the real question this whole debate reveals. And it's more important than whether IPT goes to 15%, 20%, or stays at 12%.