- Jeremy Hunt rejects insurer’s request to reduce the level of insurance premium tax
- The tax adds 12% to most premiums and makes the government billions per year
Families got a shock today as the Government refused to cut a tax which adds hundreds of pounds a year to the cost of insurance.
Insurance premium tax is a hidden tax that adds 12 per cent to the price of car, home and pet insurance and 20 per cent on travel insurance and a range of add-on covers.
Trade body the Association of British Insurers called on the Government to cut the IPT rate this month in today’s Autumn Statement.
Typically, the little-known tax adds £264 a year to home insurance bills – and the amount is higher if you insure a car, home, holidays and pets.
However, Chancellor Jeremy Hunt left IPT rates unchanged in his Autumn Statement today.
Keeping the IPT at the current rate would generate £57.9 billion for the government over the seven financial years starting in April 2022 and ending in April 2029.
The tax is currently worth £7.5 billion a year to the Treasury and government figures estimate this will rise to £8.8 billion a year by the 2028/29 tax year.
This assumes that the premium itself does not increase or decrease significantly.
In comparison, over the seven years between April 2015 and April 2022, it earned £40.4 billion less – meaning it is now earning 43.3 per cent more in IPTs.
When the IPT was first created in October 1994, the rate was 2.5 percent and as of 2011, the rate was 5 percent. From 2011 and 2015, it increased to 6 percent.
This rate has remained at 12 percent since June 2017. It is estimated to be worth £8bn in 2023/24 and ABI research shows only two in five Britons have heard of it.
In comparison, in the first seven years of creation – from 1994 – the IPT treasury’s contribution was £12.1 billion.
As premiums rise, the impact of IPTs becomes even greater – and they are rising everywhere.
Car insurance premiums have risen 29 per cent in a year to a record average high of £561, putting even more pressure on struggling families.
meanwhile typical The ABI said buildings and contents insurance premiums for the second quarter of 2023 were £329, up 10 per cent on a year.
While the IPT is technically a tax on insurers, in practice the tax is levied on the ‘real’ cost of insurance and then passed on to consumers in the form of higher premiums.
The only covers where IPT is not charged are life insurance and some types of health insurance.
Mervyn Skeet, general insurance policy director at the ABI, said: ‘It is disappointing that the Chancellor did not provide some relief to those households facing high insurance costs such as home and motor by reducing the IPT.
‘This tax has doubled to 12 per cent since 2015 and we will continue to argue for it to be reduced.’
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