Britain’s Insurance Premium Tax (IPT) is due to rise by 2% to a new high of 12%, Chancellor of the Exchequer Phillip Hammond has announced in the Autumn Statement.
Taking effect from June 2017, this will represent the third increase in IPT in less than two years. In July 2015 it increased to 9.5%, and in March 2016 it increased to 10%.
First introduced in 1994, IPT is a tax on general insurance premiums such as home insurance, car insurance and travel insurance.
Insurance executives have criticized these tax rises, as they have contributed to a sharp increase in motor insurance premiums. Usually passed directly to policyholders, the tax is added as a percentage on top of the premium – so if you live in an area where insurance premiums are high you will pay more in tax.
According to research carried out by Mirror Money, this latest rise will add an estimated £51 to average household bills, whilst Consumer Intelligence estimates the average motor insurance premium of £788 would increase by £15 per year.
The government believes that its recently announced plans to crack down on the current “unacceptably high” number of whiplash claim payouts, alongside a freeze in fuel duty which was announced in the Autumn Statement, will save drivers money despite the IPT increase.
However the British Brokers’ Association (BIBA) has called the IPT increase “outrageous”, having lobbied the government for a freeze.
In a statement the organisation said: “This increase comes at a time when both motor and home insurance premiums are rising and our fear is that many of those who most need it will avoid taking up insurance and be unable to afford the protection they need.”