Government urged to scrap plans of another insurance tax hike in June

Insurers, small business and charity groups have called on the Government to scrap a planned increase on insurance premium tax ahead of tomorrow’s Budget.

They claim IPT, which is set to rise from 10 per cent to 12 per cent from June, is a ‘stealth tax’ that hits households, charities and businesses.

IPT is applied to insurers by the Government but historically it has been passed onto consumers, in the form of higher premiums.

It applies to most areas of general insurance including motor, home, pet, car and health insurance but excludes travel insurance, which has its own tax at 20 per cent, and life insurance and income protection.

In an open letter signed, among the others, by the Association of British Insurers, the AA and the Federation of Small Businesses, the Government is urged to scrap the planned two per cent hike and freeze the rate for the remainder of this Parliament.

Many experts say IPT has become a cash cow for the Treasury. Former Chancellor George Osborne raised it from five per cent to six per cent in his first Budget in 2010.

On 1 November 2015, it was increased from six to 9.5 per cent and on 1 October 2016 it went up again to 10 per cent.

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 from 6% to 12% in less than two years has driven up the cost of over 50million 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 was also signed by British Insurance Brokers’ Association, the Scottish Council of Voluntary Organisations and the Wales Council for Voluntary Action.

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 tomorrow’s Budget.

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

It comes as insurers have slammed another move by the Government to change the discount rate used to calculate how much compensation is paid in severe personal injury claims.

Insurers claim that a reduction in the rate from 2.5 per cent to 0.75 per cent, which will be introduced from 20 March, will force them to hike premiums for drivers, predicting a rise of £60 per policy.