Insurance Premium Tax will rise from 10% to 12%, the Chancellor has announced.
The change will take effect from from 1 June 2017, Phillip Hammond said in the Autumn Statement.
Mr Hammond said: “Insurance premium tax in this country is lower than in many other European countries, and half the rate of VAT.
“In order to raise revenue, which is required to fund spending commitments I am making today, it will rise from 10% currently, to 12% from next June.
“At the same time I can confirm the government’s commitment to legislate next year to end the compensation culture surrounding whiplash claims – a major area of insurance fraud – saving drivers an average of £40 on their annual premiums.”
The ABI cited figures showing that the increase in IPT announced today is the third rise since the Summer Budget in 2015.
Former Chancellor George Osborne announced an increase from 6% to 9.5% in the Summer Budget in July 2015 which came into effect in November of the same year.
The rate was increased again to 10% in this year’s March Budget, coming into effect on October 1.The third increase today, to 12%, means the tax has doubled in less than 18 months, according to the ABI's analysis.
Director General of the Association of British Insurers Huw Evans 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.”
Keith Richards, PFS chief executive and Chartered Insurance Institute Managing Director (Engagement), was also unhappy about the changes.
He said: “It is very disappointing that the Government has for the third time in twelve months targeted insurance as a source of additional revenue for the Treasury without considering the unintended consequences this will have on the public’s access to insurance.
“At a time when we are observing under-provision of insurance in many parts of society, effectively doubling insurance premium tax between Nov 2015 and June 2017 will have the effect of disproportionately increasing the cost of protection and further dissuading many people from managing the risks they face.
“The government should remind themselves of the words of Sir Winston Churchill over a hundred years ago, which are as relevant to our society today as they were then: “If I had my way, I would write the word ‘insure’ upon the door of every cottage […] because I am convinced for sacrifices so small, families and estates can be protected against catastrophes which would otherwise smash them forever.”
The Treasury stated in the papers: “IPT is a tax on insurers and so any impact on premiums depends on insurers’ commercial decisions.”
Insurance Premium Tax increase announced in the #AutumnStatement is a hammer blow for the hard pressed pic.twitter.com/8TQKbhyJK6
— Huw Evans (@huwevans71) November 23, 2016