Almost every insurance product in the UK is subject to tax known as Insurance Premium Tax (IPT). This tax rate currently stands at 5% and has been the same for over 10 years. The new Government has announced an “emergency budget” in little over a weeks time and there are rumours that there could be a significant increase in this rate.
It is being said that the rate could be doubled to 10% or even brought in line with VAT which is currently 17.5%. To put this in to perspective, if you currently pay £525 per year for car insurance, this would go up to £550 or even £587.50 depending on the rate decided upon. This doesn’t even include changes in the premium itself which, at the current moment in time, is on the way up. Your £500 premium could easily be over £600 next year when you haven’t even made a claim! What you need to keep in mind is that this is only one type of policy and this sort of increase would be likely to happen against all your individual insurances.
Insurer and broker associations BIBA and the ABI are against this increase on the basis that the increase would actually end up costing the treasury more money than the increase would actually earn them. This theory comes from the fact that massive increase in insurance premiums people are going to have to pay for things like car insurance and the like are going to affect all of us. Insurance is a common thing to be avoided by individuals or businesses who are trying to reduce their outgoings so is likely to increase the number of people who are uninsured when, in the current climate, people should be encouraged to be protecting themselves.
Of course, this increase has not been announced yet but it is certainly something that requires a lot of thought by the Treasury as any quick decision could end up costing them, and ultimately us, more money.