Surprise insurance premium tax increase announced by Chancellor
Chancellor of the Exchequer George Osborne caught the insurance industry by surprise with an announcement that the standard rate of insurance premium tax (IPT) will rise from 6% to 9.5% from November.
News of the increase was met with disappointment by the British Insurance Brokers' Association (BIBA) whose CEO, Steve White, said: "We are extremely disappointed in this rise in insurance premium tax and will mean insurance will become more expensive for the public as a result. Those hit by this stealth tax will include the 20.1 million households with contents insurance; 19.6 million with motor insurance and 17 million with buildings insurance. The Government has been working with the industry to reduce the cost of insurance for consumers - including a summit chaired by the Prime Minister. It therefore seems counterintuitive to be taking measures which will add to the cost - effectively taxing protection. We hope the Government will review this rise and correct it in further budgets." Huw Evens, director general at the Association of British Insurers, added: "Insurance Premium Tax is a tax on people and businesses at the point at which they buy a general insurance product. So it's very disappointing to see a more than 50% tax increase being imposed on consumers, especially when the insurance industry and Government has worked so hard in recent years to bring down the cost of essential insurance. " David Bearman, UK insurance tax leader at EY, questioned whether the increase in IPT would lead to more uninsured drivers on the road. He said: "The rise in IPT was unexpected, and whilst a headline rate of 9.5% doesn't sound significant, it is in fact an increase of more than 50% of the standard rate. As ever with rate rises, the most prominent concern is that it will drive a number of consumers to forego buying insurance, which increases their personal risks, and in the case of motor insurance could mean a rise in illegal drivers. UK insurers will now need to pay particular attention to policies and premium payments that extend beyond the deadline, if they don't want to be caught out." The standard rate of IPT is charged on most forms of insurance, except for travel insurance and insurance on electrical appliances, which are charged at a higher rate of 20%. There are also some forms of insurance that are exempted, such as long term insurance products including life insurance and any forms of reinsurance. According to the BBC the hike in tax rates will raise about £1.5bn a year for the Exchequer.