Millions hit by increased bills as insurance tax goes up
1st June 2017
Millions of people and businesses will be hit with increased insurance bills as the Government’s increase in Insurance Premium Tax (IPT) takes effect from today (1 June 2017).
This latest increase now means the rate of tax paid on most insurance policies has doubled, from 6% in 2015 to 12% – in a period of only 19 months. This has significantly added to the cost of policies as the Government now rake in over £7bn a year in IPT from UK insurance customers.
Steve White, Chief Executive of the British Insurance Brokers’ Association (BIBA), said:“This rapid increase is unprecedented – between 1997 and 2015, a period of 18 years, there were only two rate rises, taking the rate from 4% to 6%.
“The Chancellor has indicated that more increases are possible, so this remains a massive cause of concern for our member brokers’ customers – who are also experiencing significant premium increases following Government’s changes to catastrophic injury awards.
“Let’s be clear about this – it is a tax on protection and penalises those that take the burden off the state by showing responsibility and prudence. We feel this rise is counter-productive to what Government should be doing and we’re calling for a freeze of the tax for the term of the next Parliament.”
Because of the way the tax is applied, those that pay more for their insurance face the heaviest burden – such as those in less well-off areas, young drivers and those in flood risk areas.
For example, the tax contribution by young drivers paying a premium of £2,000 will be £240 per year, compared to £120 just 19 months ago.
The increase will also affect:*
• 20.4 million home owners/renters with contents insurance
• 20.1 million drivers with motor insurance
• 3.2 million home owners with mortgage protection
• 1.9m million people with private medical insurance
• 3.4m pet owners.
Small businesses also face a considerable increase to the cost of doing business as a result of this increase.
In recent research by BIBA, 90% of insurance brokers anticipated that a further rise in the tax on insurance will mean clients reduce their insurance protection or buy no cover at all.
Mike Cherry, National Chairman at the Federation of Small Businesses (FSB), said: “The recent increases in insurance premium tax have hit our members, directly increasing the cost of doing business at a time when additional costs of doing business are already rising.
“If insurance premiums continue to increase, small business take-up of insurance will begin to dip, and it will be those most at risk that will be affected. Unlike VAT, businesses cannot claim back the cost of Insurance Premium Tax.
“We agree all parties should commit to a freeze on Insurance Premium Tax for the term of the next Parliament.”
Notes to Editors
1. *Statistics from the Association of British Insurers’ Key Fact Book 2016:
2. The historical rate of Insurance Premium Tax is as follows:
• 1 April 1997 to 30 June 1999 – a standard rate of 4%
• 1 July 1999 to 3 January 2011 – a standard rate of 5%
• 4 January 2011 to 31 October 2015 – a standard rate of 6%
• 1 November 2015 to 30 September 2016 – a standard rate of 9.5%
• 1 October 2016 to 31 May 2017 – a standard rate of 10%
• 1 June 2017 – a standard rate is 12%
3. BIBA’s recent research revealed that more than three quarters of brokers had been forced to address the issue of increasing insurance costs with many of their customers and more than 90% felt that a further increase in Insurance Premium Tax would have a detrimental impact on customers with almost 20% believing customers would choose to go uninsured. See BIBA’s press release for more.
4. Case study
Mr Dearsley a retired local government officer lives with his wife Karla an author and their two Bischon Frise dogs Harry and Sophie. He has insurance policies for Motor, Home, Private Health and Pets and the recent doubling in the cost of IPT has had a considerable impact of the cost of these policies.
Mr Dearsley is keen to support BIBA’s call for a freeze on IPT and is willing to speak to the media and act as a case study.
Contact details available upon request.