Budget 2016: Insurance taxes
Cost of motoring and home protection rises
The tax was hiked from 6% to 9.5% in November, as a result of the summer Budget, and will now go up to 10% in a move that will also affect pet insurance, mobile phone insurance and private medical insurance premiums.
The government said the extra tax would raise £700 million for spending on flood defences.
The announcement left the British Insurance Brokers’ Association (Biba) “astonished”.
“Let’s be clear about this – IPT is a tax collected and remitted by insurers, it is a tax on premiums paid by policyholders –motorists, householders, and businesses large and small,” said Steve White, chief executive of the trade body.
“Whilst we support the additional spending on flood defences we believe that this could have been funded by the projected £1.5bn annual funds paid to the exchequer as a result in the increase in IPT put in place only last November which puts an increased burden on policyholders many of whom are suffering from ongoing flood damage.”
The Association of British Insurers had already warned that further rises to IPT would result in more people being unable to afford cover and potentially driving without it.
Young motorists will be hit particularly hard, according to the AA. It said those aged between 18 and 22 will now be paying almost £50 more on average for annual motor insurance than they were under the 6 per cent rate.
Edmund King, president of the AA, said: “We would have liked the Chancellor to recognise the difficulty and cost faced by young drivers buying cover for their cars by abolishing IPT for them, for at least the first year of insuring their first car. That would have been a significant help – it would typically have knocked £124 off their first car insurance premium.”
The government may have plans to raise IPT even higher, warned Ben Flockton, insurance tax partner at PwC.
“Whilst arguably modest if viewed in isolation, this latest rate rise will mean IPT will have increased by two thirds in less than a year,” he said. “This will undoubtedly fuel further speculation about the rate heading towards 20% to be aligned with the VAT rate as is already the case in some other countries such as Germany and the Netherlands.”