Insurance premium tax (IPT), which is added to more than 50m general insurance policies each year, including those for cars, homes and private medical cover, rose to 12% earlier this year – which means it has doubled since 2015. However, the Association of British Insurers (ABI) said it was concerned that the government may be planning what it described as another “raid on the responsible” – the people who buy insurance in order to take care of their health, their belongings and their families.
Since IPT was introduced in 1994 at 2.5% it has been steadily increased by successive chancellors. Dubbed a “stealth tax” by many, it has become a moneyspinner for the government: official documents show that the most recent increase, from 10% to 12% in June this year, would raise about &850m a year for Treasury coffers, while the ABI has said that the three increases since November 2015, prior to which the tax was 6%, would bring in a total of more than &13bn over five years.
The current rate applies to most types of insurance, including motor, home and pet cover, but not travel insurance, where it is 20%, or life cover, which is exempt.
The ABI said that, taken together, the last three increases had added around &26 to the cost of an average comprehensive motor policy, &115 to a typical private medical insurance policy taken out by a consumer, &20 to the average cost of insurance for a pet dog, and &16 to a home building and contents policy.
“There is speculation that the chancellor may be considering another rise,” said the ABI. “Hard-pressed families and businesses cannot take any more increases.”
Last month, a report from the Social Market Foundation said the annual cost per household of IPT was set to rise above &200 from 2018, and that it now raised more revenue than beer, cider, wine and spirits duties.
The Financial Inclusion Commission, a campaigning body made up of MPs, peers and industry experts, warned last week that almost 16 million people did not have contents insurance, with cost one of the factors.
Meanwhile, rising taxes have seen almost 200,000 health insurance customers drop their policies to depend solely on the NHS during the past three years, according to recent research commissioned by Bupa and carried out by the Centre for Economics and Business Research.
Huw Evans, the ABI director general, said: “To penalise families and businesses again and again with repeated tax rises is horribly unfair. The recent increases have impacted hardest on the poorest, and it’s time for government to commit to no further increases this parliament.”