Fresh increase for insurance premium tax 'outrageous'

Households are facing further increases in the cost of their insurance as a tax rate affecting millions of policies is set to be increased next year.

From June 1 2017, the insurance premium tax (IPT) rate will increase from 10% to 12%, the Government announced in the Autumn Statement.

The tax affects the cost of new policies bought by a wide range of insurance customers, including those buying home insurance, motorists, private medical insurance customers and pet owners.

An increase in the tax has already been made as recently as October 1, when the rate was raised from 9.5% to 10%. That increase followed a previous rise from 6% to 9.5%, which came into effect on November 1 2015.

The Treasury said IPT is a tax on insurers and it is up to them whether and how to pass on costs to customers.

But the British Insurance Brokers' Association (BIBA) said the move will hit the "just about managing" group of people who need the Government's help.

A statement from the BIBA said: "This further increase to 12% in this regressive tax is outrageous and is a tax on protection which will hit everyone and especially those 'just about managing'.

"This increase comes at a time when both motor and home insurance premiums are rising and our fear is that many of those who most need it will avoid taking up insurance and be unable to afford the protection they need."

Steve Treloar, general insurance managing director at LV=, said IPT is a tax that consumers have to pay when they purchase insurance.

He said: "This is now the third IPT increase in a row, so it's extremely disappointing that the Treasury appears to be setting a precedent of placing an ever-increasing burden on hard-working consumers."

The tax was first introduced to the UK in 1994, and the latest increase will mark the sixth time since its introduction that the rate has been hiked.

The Government is also planning a crackdown on fraudulent and exaggerated whiplash claims, which push up motorists' insurance costs.

Huw Evans, director general of the Association of British Insurers (ABI), said: "Yet another increase in insurance premium tax is a hammer blow for the hard-pressed.

"It will hit consumers and businesses alike, hurting those who buy business, motor, property, pet and health insurance. It marks a doubling of insurance premium tax since last year, and to claim a consultation on whiplash reforms which hasn't even gone before Parliament yet will offset this just won't cut it."

Edmund King, AA president, said: "The Prime Minister has said she wants to help those who are just about managing and this tax increase has greatest impact on those least able to afford it, who are often in greatest need of the protection that insurance provides."

Mr King said IPT is "a tax on responsible car ownership - as opposed to the lawless one million without motoring cover, who leave the state to pick up the pieces".

"We have seen a 100% hike in this tax on motor insurance which is not a luxury but a legal requirement for drivers. This is a backward step which could backfire with more uninsured drivers and higher costs for business."