Chancellor Philip Hammond has announced that rates for insurance premium tax (IPT) will rise by 2%, taking it from 10 to 12%, starting in June 2017.
Introduced in 1994 at 2.5%, the IPT is levied on UK insurance premiums through insurers themselves. This covers vehicle insurance as well as home cover and private medical insurance. Exceptions do exist, but they generally only affect the commercial sector and the more exotic side of things - such as spaceships.
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.
Although IPT is an indirect tax (or what some people call a ‘stealth tax’), the fear for many is that insurers will pass on this additional cost to consumers. It will affect over 50 million general insurance policies.
Hannah Maundrell from comparison website money.co.uk, says: “Yet another hike in Insurance Premium Tax seems crazy as it’ll add £51 to the average household’s insurance bill… the prospect of paying this much more for insurance simply has to be a wake-up call for people who stick with the same insurer year after year.”
"A tax on responsible care ownership"
The AA has responded by saying: “The Chancellor has created the illusion of being the motorists’ friend with a freeze on fuel duty whilst pickpocketing drivers on Insurance Premium Tax.”
Edmund King, AA president adds: “The leap from 6% to 9.5% to 10%, and now 12%, insurance premium tax is a tax on responsible car ownership - as opposed to the lawless one million without motoring cover… Uninsured driving typically adds £30 to the average car insurance policy and by encouraging more young drivers to attempt to take to the road without cover will simply add to the insurance burden for everyone.”