Insurance Industry Shocked by 3rd Rise in Insurance Premium Tax in Less Than Two Years
Here we are again. Writing about yet another rise in Insurance Premium Tax. The Autumn Statement’s latest rise marks the 3rd increase in Insurance Premium Tax within 18 months.
The insurance industry was disappointed by the first rise back in July 2015, angered by the second rise only a few months later in March 2016, and shocked when a further increase was recently announced in November 2016.
What is Insurance Premium Tax?
Insurance has traditionally not been subject to VAT. Back in the 1990s, the government felt that this should be rectified and introduced Insurance Premium Tax as a means of revenue generation.
The rate was initially set at 2.5%, but has slowly risen over the years to the 12% due to be introduced in June 2017.
There is also a second, higher rate of 20% which applies to travel insurance, appliance insurance and some car insurance.
What does this mean for you, the customer?
Much is being done to try and improve insurance premiums, such as the current government consultation on whiplash, but it is clear that insurers will be unable to avoid a price rise on the average cost of insurance. The AA estimates the tax increase will add around of £10 a year on to the average car insurance premium. The tax is mandatory so insurers have no choice but to pass on the cost to customers.
The worry remains that motorists will find it increasingly hard to cover the costs of insurance and will decide that driving uninsured is a risk worth taking. Driving without insurance is never a good idea and can result in hefty fines, penalty points and your car being impounded.
The most effective way you can mitigate the rise in insurance premiums is to seek the most competitive cost possible.