Chancellor is urged to slash the £7BILLION stealth tax on insurance policies from industry’s trade body
- Association of British Insurers has asked Jeremy Hunt to slash stealth tax
- Insurance premium tax receipts hit record levels due to soaring cost of cover
- Cut in next month’s Autumn statement would help businesses cope better
Chancellor Jeremy Hunt is facing calls to cut the tax levied on insurance premiums.
The plea from the insurance industry’s trade body comes as insurance premium tax (IPT) receipts hit record levels on the back of the soaring cost of cover.
The Association of British Insurers (ABI) says a cut in next month’s Autumn Statement would help businesses and households cope better with the cost-of-living crisis.
In the last financial year, the Government raised a record £7.3 billion from IPT, which is charged at 12 per cent on mainstream insurance policies such as household, motor, private medical and pet cover.
Some cover, such as travel, attracts a charge of 20 per cent.
The Association of British Insurers (ABI) is calling on Chancellor Jeremy Hunt to cut the tax levied on insurance premiums
This tax take compares with £6.6 billion in the previous financial year. Already this year, IPT receipts have totalled nearly £2.8 billion in the first four months – a 27 per cent increase compared to the same period last year.
This suggests another record-breaking year – with the amount of IPT raised likely to exceed the £7.6 billion forecast by the Office of Budget Responsibility in March.
The ABI said: ‘Insurance Premium Tax penalises people for being responsible.
‘With businesses and households facing continuing difficulties with the cost-of-living crisis, now is the time for the Government to relieve some of that pressure and consider cutting the tax.’
The MoS has highlighted the huge increases in insurance tax, reporting the experience of readers, for example, who have seen motor renewal premiums jump from £371 to £2,215
The MoS has regularly highlighted the huge increases in insurance tax, reporting the experience of readers, who, for example, have seen motor renewal premiums jump from £371 to £2,215.
There is concern that Ministers have been reluctant to challenge insurance firms’ big increases because the Treasury benefits richly from the extra take – £7.3billion is more than the amount the Government would lose if it cut the basic rate of income tax by one per cent.
The tax was introduced in 1994 with a single rate of 2.5 per cent.
A second higher rate was implemented three years later on travel, household appliances and some motor vehicle cover. The result has been steadily inflated premiums.
The Taxpayers’ Alliance lobby group has called for reforms, with the 20 per cent rate scrapped.
The ABI’s call is not universally backed. Although the increase in Government revenue from IPT is in part a result of an increase in sales of private medical insurance against the backdrop of a stretched NHS, the main driver is insurers pushing up prices.
On Friday, comparison website Confused.com said car insurance prices had risen on average by 58 per cent over the past year, with the typical policy now at £924.
Dennis Reed, head of Silver Voices, a campaign group representing the elderly, said a reduction in IPT was not the priority.
He pointed the finger at insurers he says are taking customers – especially the elderly – for a ‘ride’ with unjustifiable hikes in premiums.
Mr Reed said: ‘Premiums are rising for people when they have an exemplary no-claims record.
‘Prices should be related to risk and not rising for some spurious reason – for example, because a driver has hit age 70 or 80 and suddenly deemed to be a danger to other motorists.
‘Insurers should be striving to reduce prices, which in turn would reduce the IPT take.’
The Treasury said: ‘Revenue from Insurance Premium Tax contributes towards vital public services, such as the NHS, social care and defence.’