Government Planning to at Least Double the IPT Rate

11 Jun 2010 at 11:31

Speculation is growing that the Government is planning to at least double the 5 per cent tax rate on general insurance premiums in this month’s emergency Budget.

 

Increasing the rate charged on items such as car, household and pet cover could raise billions of pounds in additional tax revenues, but would drive up the cost of policies and could force some people to stop buying essential protection, experts said.

 

The Treasury is understood to be reviewing the 5 per cent tax rate on general insurance premiums, which applies to all policies except life, travel and extended warranty protection. Travel and extended warranties carry a 17.5 per cent tax rate and some industry experts fear that the Government could increase all rates to that level.

 

The Treasury generates an estimated £2.3 billion in annual tax revenues from the existing 5 per cent levy. Increasing it to 17.5 per cent could raise as much as £8 billion.

 

The 5 per cent tax rate in the UK compares favourably with Germany, at 19 per cent, Italy, at 21.25 per cent, and France, at 9 per cent.

Yesterday, however, insurance lobby groups said that increasing the rate, as the Government tries to raise billions of pounds to cut the budget deficit, would add to financial pressure on households and increase the burden on small business.

 

According to industry estimates, one million motorists already drive while uninsured and one in every four households lack contents insurance.

Representatives from the British Insurance Brokers Association (Biba) and the Association of British Insurers (ABI) said that they would be lobbying the Treasury in the run-up to the emergency Budget on June 22 not to increase the tax.

 

Eric Galbraith, Biba’s chief executive, said: “One of our biggest concerns is that this could begin a trend for ‘easy’ taxes. This is not the way to go about it. This would be a further tax on people’s and businesses’ ability to protect themselves.”

 

Mr Galbraith said that Biba had already found that cash-strapped businesses had not been buying enough insurance protection in the wake of the banking crisis.

 

The AA said that the average best quote on fully comprehensive car insurance increased by 22.5 per cent in the year to the end of March and would increase further if the premium tax rose. The AA believes that motor insurance premiums will increase by double-digit percentages this year, before higher taxes are taken into account.

 

Mr Galbraith said that a higher tax could also discourage individual customers from taking out comprehensive insurance policies. The ABI said: “Increasing insurance premium tax will lead to reduced levels of insurance for those that need it most — the less well-off individual consumers and small businesses who are least likely to have other financial resources to fall back on in the case of loss.”

 

The Treasury declined to confirm that it was reviewing the insurance premium tax rate.