Chancellor’s Budget Raises Insurance Premium Tax
The Chancellor of the Exchequer George Osborne’s summer budget on 8th July 2015 announced increases to the insurance premium tax, a cost which industry experts fear will be passed to consumers.
The increase, which affects motor, home and holiday insurance, will rise in November from 6% to 9.5%. It’s believed that 19.6 million motorists will be hit, adding an estimated £12.25 to the cost of an average motor insurance policy.
The most common type of tax, VAT, is not applied to insurance. Instead, insurance premium tax is a levy imposed by the UK government on all but a few types of exempt insurance policies.
The CEO of the British Insurance Brokers’ Association (BIBA), Steve White, said, “We are extremely disappointed in this rise in Insurance Premium Tax.
“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 counter-intuitive to be taking measures which will add to the cost – effectively taxing protection.
“We hope the Government will review this rise and correct it in further budgets.”
The insurance premium tax was first introduced in October 1994 at a rate of 2.5%. It increased in April 1997 to 4% and again in January 1999 to 5%. The current rate of 6% was introduced in January 2011.
Insurance premium tax in the UK is still slightly lower than the European Union average of 10% and significantly lower than some individual countries. Despite this, the news has led to fears that more motorists will defy the law, opting to drive without any form of insurance at all when the increase comes into effect, pushing up the numbers of uninsured motorists on Britain’s roads.