Insurance prices are likely to rise on average by up to £6.50 a year following a hike in taxes that is a “raid on the responsible”, according to the Association of British Insurers (ABI).
Insurance Premium Tax rose from 9.5% to 10% on 1 October, a decision that was first announced in the Budget in a move to fund investment in flood defence and resilience measures.
The tax last rose on 1 November 2015 when it increased from 6% to 9%.
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But while IPT is a tax on insurers, it’s typically passed on to consumers. The ABI explains that because IPT is a tax the Government applies to individual policies, people who have the highest insurance costs – such as young drivers or those with on-going medical conditions – attract the highest amounts of tax.
Businesses are also affected when they buy cover for their premises, vehicles, and to guard against issues such as business interruption.
According to the ABI, prices on four major consumer insurance policies are likely to increase as follows:
|Policy type||Average annual increase from 1 October 2016||Average annual increase following both IPT hikes|
|Combined building and contents insurance||£1.60||£12.50|
|Comprehensive car insurance||£2||£16|
|Private medical insurance||£6.50||£52.50|
Source: ABI, 30 September 2016.
“A raid on the responsible”
The ABI’s director general, Huw Evans, says: "These two IPT increases are a raid on the responsible, taking advantage of those who already do the most to avoid becoming a burden on the state. The Government should be in no doubt that such steep increases in insurance premium tax may eat into the finances of both households and businesses. Any further hikes would be indefensible."
Travel insurance attracts a higher rate of IPT at 20%, which is unchanged. Life insurance is exempt from IPT, as are a few other specific insurance products, such as insurance for spacecraft and commercial ships and aircraft.