Chancellor urged not to increase 'raid on the responsible' over insurance tax

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Calls to scrap a planned increase to a "stealth tax" affecting the cost of millions of insurance policies have been made by business and charity groups.

The Association of British Insurers (ABI), the AA and the Federation of Small Businesses (FSB) are among those who have put their names to an open letter to the Government, calling for it to cancel a planned increase in insurance premium tax (IPT) in June.

The groups also said the IPT rate should be frozen for the remainder of this Parliament.

IPT affects the cost of new policies bought by a range of insurance customers, including those buying home insurance, car insurance, private medical insurance and pet owners.

A string of increases to IPT have already been made, and as announced in the Autumn Statement, from June 1, the IPT rate will increase further, from 10% to 12%.

The letter says: "Insurance is a basic financial safety net for tens of millions of people and businesses across the UK.

"The Government's decision to double the standard rate of insurance premium tax (IPT) from 6% to 12% in less than two years has driven up the cost of over 50 million insurance policies.

"IPT is a stealth tax that hits households, charities and businesses who do the right thing and these increases have cost some families hundreds of pounds a year already."

The letter continues: "It is time to end this raid on the responsible by cancelling the planned June IPT increase and freeze it for the remainder of this Parliament."

The British Insurance Brokers' Association (BIBA), the Federation of Master Builders (FMB), the Scottish Council of Voluntary Organisations (SCVO) and the Wales Council for Voluntary Action (WCVA) have also put their names to the letter.

The AA has previously said it fears that more expensive policies could encourage drivers to take dangerous risks, such as driving uninsured.

According to an index from the AA, the average annual comprehensive car policy is currently around £633. 

The AA has said further increases to the tax should not be made in Wednesday's Budget.

A survey from the RAC recently found that two-thirds (67%) of motorists believe IPT should be reduced, but more than half (57%) believe the IPT rate will eventually be increased to match the 20% rate of VAT.