Average UK household expenses are set to rise by at least £51 after Chancellor Philip Hammond announced Insurance Premium Tax (IPT) is going up 2% in today's Autumn Statement.
The move, which will take effect from June 2017, represents a doubling in the tax rate on home and motor insurance premiums within the past two years - and will add an estimated £51 to average household bills, according to research carried out by Money.co.uk.
Consumer Intelligence estimates this to be an extra £15 a year to the average motor insurance premium of £788 which has already increased 13.5% in a year.
Younger drivers will suffer the most with average premiums for under-25s rising by £35 on their current £1,831 premium.
It is the third time IPT has been increased in less than two years. In July 2015 the Summer budget saw it grow to 9.5% and just months later, in March this year, it went up again to 10%.
Hannah Maundrell, Editor in Chief of Money.co.uk said: "Yet another hike in Insurance Premium Tax seems crazy as it’ll add £51 to the average household’s insurance bill. The cost of insurance is expected to rise anyway – this will make it so much worse.
"The prospect of paying this much more for insurance simply has to be a wake up call for people who stick with the same insurer year after year.
"Who has that kind of cash to spare? Worse still, if you pay monthly for your insurance, the horrendous rate of interest you’re likely to pay will make this hike even more of a blow," she added.
Announcing the government's plans to scrap the Autumn Statement entirely in today's speech, Hammond also announced a fuel duty freeze for the seventh year - the longest for 40 years.
This, the Chancellor claims, will save an estimated £130 for car drivers and £150 for van drivers per year.
Announcing changes to IPT he said: "Insurance premium tax in this country is lower than in many other European countries, and half the rate of VAT.
"In order to raise revenue, which is required to fund spending commitments I am making today, it will rise from 10% currently, to 12% from next June."
Tim Ryan, Executive Chairman at UNA; the organisation owned by 13 of the UK's regional insurance brokers says another increase to insurance premium tax will significantly hit the pockets of families throughout the country and risks consumers forgoing buying insurance at all.
He said: "In the space of a year Insurance Premium Tax (IPT) has now risen from 6% to 10% and now to 12%. This is a significant blow.
"As a result, this will hit the pockets of families throughout the country with significant figures being added to the average buildings and contents policies.
"When IPT was initially raised to 9.5%, which was bad enough, our own survey of 1000 consumers found that a quarter were forgoing buying insurance as a result."
Amanda Blanc, Group CEO, AXA UK, added: "This hike – the third in the space of 18 months – represents an unwarranted attack on millions of people simply looking to protect themselves, their families and their key assets.
"This is a classic case of the Government giving with one hand, in the form of whiplash reforms, and taking with another. The affordability of insurance is being fundamentally threatened.
"The country is already underinsured and ever rising insurance taxation could have the unintended consequence of making this situation even worse.”
Kevin Pratt, consumer affairs expert at MoneySuperMarket, said: "The 20% increase in insurance premium tax (IPT) is grim news for Britain’s households, affecting car, home and pet insurance, among others. It’s a crude and punitive tax at a time when we’re seeing double-digit inflation in car insurance premiums.
“The Chancellor is clearly milking insurance customers for all they’re worth – how else do we explain this tax rising by an inflation-busting fifth, from 10% to 12% of premiums? More importantly, IPT is now double what it was this time last year - prudent consumers will be outraged and quite rightly so.
"Let’s not forget car insurance is a legal obligation - Mr Hammond knows drivers have nowhere to hide. This is even more reason for motorists to shop around to ensure they’re getting the best deal at renewal."
What is insurance premium tax?
Put simply, insurance premium tax – frequently just known as IPT – is added to the cost of your cover and goes into the pockets of the Government.
It is added onto car, home, holiday and life insurance much like VAT is added to the price of things you buy in the shops.
Increasing it means anyone who drives will be FORCED to pay more for their car insurance, sometimes by as much as £50 a year, while all other sorts of insurance will also become more expesive.
“The primary concern with the insurance premium tax rise is that it will now cause a number of consumers to forgo buying insurance, which increases their personal risks, and in the case of motor insurance could mean a rise in illegal drivers,” said Tim Ryan from UNA.
“It is certainly a concern that young people remain completely unaware of what’s coming next month. Therefore, these are very worrying statistics.”
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