Insurance costs to rise again thanks to the Chancellor

While there were plenty of people-pleasers in yesterday’s Autumn Statement, it’s safe to say that insurance companies were not happy. Yes, there will be a crackdown on fraudulent whiplash claims, and yes, there is another freeze on fuel duty (all good news for insurers and their customers). But these aren’t the issues clogging my inbox this morning. Insurance Premium Tax (IPT), that’s what’s got them all going. This is the crux of the matter: the former Chancellor George Osborne announced an increase in IPT from 6 per cent to 9.5 per cent in the Summer Budget in July 2015 which came into effect in November of the same year. The rate was increased again to 10 per cent in this year’s March Budget, coming into effect on October 1. And now this third increase, due for implementation in June 2017, to 12 per cent. In a nutshell, it means the tax has doubled in less than 18 months. Looking back to when IPT was first introduced back in 1994, it came in at 2.5 per cent. That’s a far cry from today’s rate. You can see why the insurance industry is so dismayed. And you should be downhearted, too. According to the Association of British Insurers, IPT affects more than 50 million policies and applies to plans purchased by businesses, charities and individuals. Taken together, the three increases will raise more than £13 billion for the Government over five years.

Huw Evans, director general of the Association of British Insurers, said: ‘Yet another increase in Insurance Premium Tax is a hammer blow for the hard-pressed. It will hit consumers and businesses alike, hurting those who buy business, motor, property, pet and health insurance. It marks a doubling of Insurance Premium Tax since last year and to claim a consultation on whiplash reforms which hasn’t even gone before Parliament yet will offset this just won’t cut it.’

He’s not a lone voice – far from it. Insurance industry representatives have been clamouring to comment.

Matt Oliver, car insurance spokesperson at Gocompare.com, said: ‘This increase could be considered as tax on young drivers who will take the brunt of the increase. With the proposed rise, a 17-year-old driver could pay as much as £252.60 in tax on their insurance premium.

‘IPT is paid as a percentage of your insurance premium so an increased rate means groups such as young drivers, or older people with medical insurance, are likely to be hit the hardest. Ultimately, these are the people who already face the highest premiums, meaning this IPT rise will be felt the most by those who can least afford it.’

Take a look at the table below. These are figures from the Association of British Insurers, and they make for grim reading. And that’s just the impact of the last three increases.

Money.co.uk. estimates that from June, the average family will pay £481 a year in car, home, pet and health insurance – £51 more than they are currently paying.

I’ll leave you with these words from Kevin Pratt of comparison site MoneySuperMarket. ‘The Chancellor is clearly milking insurance customers for all they’re worth – how else do we explain this tax rising by an inflation-busting fifth, from 10 per cent to 12 per cent of premiums?’

Helen Nugent is Online Money Editor of The Spectator