I refer to my post last week regarding the recently published Sickness Absence Review, (my post can be viewed here: http://www.jelfgroup.com/blog/2011/11/the-sickness-absence-review-and-what-this-could-mean-for-employee-benefits/ )

I have spent a large chunk of today reading the actual report (all 112 pages of it), and whilst not exactly a page-turner, it was certainly interesting (within a given range of ‘interesting’ naturally), and if adopted in full would represent a massive change to the approach to long term ill-health absences in the UK.

A lot of what I have read will doubtless feature on this blog and in seminars over the coming months. But let’s start with one of the more significant points, which I have already partially covered in my earlier post.

As mentioned previously, the report strongly suggests that where an employer provides medical treatments or vocational rehabilitation programmes, tax breaks should be introduced.

But who are the tax-breaks for? The more I read on this, the more it seems that the major tax-break will be for the employee. Currently the employee pays tax on the ‘benefit in kind’ (which is often the equivalent of the medical insurance premium paid by the employer). Removing this will obviously be good for the individual.

But what is needed is a significant tax-break for the employer. Without this, it’s unlikely that there will be a significant boost to the numbers covered in this market.

I would be the first to accept that I might well be reading this wrong (you can go ‘word blind’ in a report of this length), but I have yet to see any definitive statement of a tax-break for the employer, or how this would be implemented.

If (a big if) there is not a tax-break for the employer suggested, then the report is really missing a trick.

The key to increasing medical insurance cover in the UK has to be to give both parties (employer and employee) a tangible additional tax-break. A great example of this sort of approach in practice is Group Pensions.

UK pensions have long provided the employee with generous tax-breaks. Importantly, the employer has also avoided National Insurance payments on company pension contributions. In effect this made a £1 paid to a pension cheaper for the employer than a £1 paid in salary. For this reason, perhaps more than any other, the UK pensions market has flourished. Yes, we do have a saving gap in the UK, but its accepted by all parties that this would be infinitely worse had the employer’s tax break not been inherent in providing pension schemes.

Returning to medical insurance, another interesting factor in the report is the suggestion that any new tax-breaks will only apply for basic rate taxpayers. This is probably in line with where pensions tax-relief is ultimately heading also, but on the face of it may seem a little strange when the report is essentially seeking to widen coverage of medical insurance across the UK working population.

So, a priority for me will be establishing exactly what tax-breaks are being sought, for which parties, and how these are intended to be applied.

As luck would have it, I am involved in an event with one of the report’s authors on Monday, so this is a question that I will aim to table then.

Will keep you posted. Lots of other items to follow from this report over the coming weeks and months.

Best regards

Steve