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Insurance Premium Tax increase would be a raid on the responsible

Increasing Insurance Premium Tax (IPT) in today’s Budget would be a raid on the responsible that hits those who do the right thing the hardest, the ABI has warned.

A further increase in IPT - an indirect tax that affects households and businesses that purchase insurance - would be felt the most by those who pay the highest insurance premiums.

Customers who tend to have higher insurance premiums include:

  • Younger and older drivers
  • Households in inner city or high flood risk areas
  • Those with ongoing medical conditions
  • Those with older pets

Some areas of the country would also be harder hit than others. New calculations show that drivers in the North West could face the biggest rise in the cost of their car insurance of around an extra £40 a year.

James DaltonJames Dalton, Director of General Insurance Policy at the ABI said:

"Another increase in Insurance Premium Tax would be a raid on the responsible that laser targets those who do the right thing. It will hit those on low incomes and increase the risk that some people reduce their cover or stop insuring altogether."

The changes will also hit business as, unlike VAT, insurance premium tax can’t be claimed back. Further increases to IPT could:

  • Cost business nearly £150m per 1% increase
  • Lower spending power of its customers – many families face insurance bills around £100 higher as a result of last year’s increase in IPT

The warning follows the decision to increase insurance premium tax by more than 50% - from 6% to 9.5% - at the summer 2015 budget, raising £8bn over five years - the biggest revenue raiser in that budget.

Changes to IPT will affect:

  • 26.5 million car policies
  • 20 million household policies
  • 3 million pet policies
  • 3 million private medical insurance and cash plan policies

The ABI estimate that the 1st November 2015 increase likely added the following to premiums:

  • Nearly £13 to the average comprehensive motor insurance policy
  • More than £10 to the average combined building and contents cover.
  • More than £10 to average pet insurance
  • More than £40 to average private medical insurance

About Insurance Premium Tax

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%

The Government exempts the following products from IPT:

  • Life insurance
  • Mortgage insurance
  • Insurance for spacecraft
  • Commercial ships and aircraft
  • International railway rolling stock
  • Lifeboats and lifeboat equipment
  • Goods in international transit

Last updated 01/07/2016