One of the less anticipated moves in this years budget was the Chancellor’s raid on insurance premium tax, which will be raised this November from 6% to 9.5%.
The new rate will hit policies ranging from contents insurance to motor insurance, and is expected to generate up to £1.75bn a year for the Treasury’s coffers. Travel insurance is already taxed at a higher 20% rate.
Mr Osborne sought to justify the increase by arguing that the cost of premiums had fallen for many families, and that Britain’s insurance premium tax was well below that of other countries – Germany, for example, levies 19%.
The Chancellor said that the move would affect only one-fifth of all premiums, but the British Insurance Brokers Association slammed the move as a “stealth tax” on insurance policies that would hit millions of ordinary households.
“The Government has been working with the industry to reduce the cost of insurance for consumers – including a summit chaired by the Prime Minister. It therefore seems counterintuitive to be taking measures which will add to the cost – effectively taxing protection,” said Steve White, BIBA chief executive.
Businesses will be hit alongside consumers, as the hike will apply equally to corporate insurance premiums. “This is unlikely to be a popular measure, but it is the first really significant increase in the standard rate of IPT since it was introduced in 1996,” said Daniel Lyons, indirect tax partner at Deloitte.
For the insurance industry, it remains to be seen whether the 9.5% rate will be the tipping point at which customers decide cover is simply too expensive. “While it’s still a reasonably low rate compared to other countries, it could be enough for a customer to reduce their cover, or opt for no cover at all,” said Adrian Smith, global head of IPT at KPMG.
Companies could choose to switch their policies to overseas insurers who might undercut UK providers, Mr Smith added. However, he deemed the move unlikely to have a significant impact on insurers.
Source: the telegraph