- Tax rise was the Chancellor’s biggest revenue raiser in Summer Budget 2015
- It added an extra £100 to the annual cost of insurance for many households
In advance of the Chancellor’s Budget on 16 March, the ABI is today warning that Insurance Premium Tax (IPT) should not be seen as a ‘soft touch tax’ to raise revenue as any increase leads to a further financial squeeze on millions of households and businesses who have done the right thing and taken out insurance.
The increase from 6% to 9.5% came into force in November 2015. It will raise more than £8billion over five years, making it the biggest revenue raiser left from the 2015 Summer Budget.
The ABI’s most recent statistics show that motor premiums rose by 7% in the last quarter of 2015, around half of which was down to the IPT increase. Combined household insurance rose 1% in the last quarter, but would have fallen were it not for the IPT rise.
IPT affects 50 million car, home, pet and private medical insurance policies.
The ABI calculates that the increase in IPT from the last Budget could add:
- More than £42 to the average private medical insurance.
- Over £13 to the average comprehensive motor insurance policy.
- More than £10 to the average combined building and contents cover.
- More than £10 to the average pet insurance policy.
This means that a family with two cars, a pet and medical insurance could have to pay around an extra £100 a year.
James Dalton, Director of General Insurance Policy at the ABI, said:
"Insurance Premium Tax penalises the millions of people and businesses throughout the UK who do the right thing by taking out insurance to protect themselves against life’s expensive uncertainties.
"At a time when personal injury costs are pushing up average motor insurance premiums, a further hike in IPT is the last thing the UK’s hard pressed motorists need. And with the Government keen to encourage less reliance on the state, any move that raises the cost of private medical insurance would be counter-productive.
"The UK insurance market is highly competitive, but affordable insurance cannot be taken for granted. IPT should not be seen as a soft touch by the Chancellor, as further increases will hit people in the pocket hard, or even worse could see people starting to reduce or drop their cover altogether."
Higher rate IPT of 20% already applies to travel insurance and warranties for some mechanical and electrical goods.
Insurance Premium Tax was first introduced to the UK in 1994. The rise on 1 November 2015 was the 4th increase in the standard rate since its introduction:
- From 1 October 1994, a single rate of 2.5% was charged
- 1 April 1997: increased to 4%
- 1 July 1999: increased to 5%
- 4 January 2011: increased to 6%
- 1 November 2015: increased to 9.5%