The Chancellor is being urged by the industry body to cut £7bn of stealth tax on insurance policies
- The Association of British Insurers has called on Jeremy Hunt to cut the stealth tax
- Insurance premium tax revenue reached record levels due to rapidly rising insurance costs
- Cutting the fall statement next month would help businesses cope better
Chancellor Jeremy Hunt is facing calls to cut tax on insurance premiums.
The appeal from the insurance industry association comes as insurance premium tax (IPT) revenues have reached record levels due to soaring cover costs.
The Association of British Insurers (ABI) says cutting next month’s autumn statement would help businesses and households better manage 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 common insurance policies such as home, motor, private health and pet insurance.
Some coverage, such as travel, carries a 20 percent fee.
The Association of British Insurers (ABI) is calling on Chancellor Jeremy Hunt to cut tax on insurance premiums
This tax expense compares to £6.6 billion in the previous financial year. Already this year, IPT revenues in the first four months amounted to almost £2.8 billion – an increase of 27 percent compared to the same period last year.
This points to another record year – the amount of IPT raised is set to exceed the £7.6 billion forecast by the Office of Budget Responsibility in March.
The ABI said: “The insurance premium tax punishes people for their sense of responsibility.”
“As businesses and households continue to grapple with the cost of living crisis, now is the time for the government to ease some of this pressure and consider tax cuts.”
The MoS has highlighted the huge increases in insurance tax, reporting for example the experiences of readers who have seen car renewal premiums rise from £371 to £2,215
The MoS has regularly highlighted the huge increases in insurance tax and reported on the experiences of its readers, who have, for example, seen car renewal premiums rise from £371 to £2,215.
There are concerns that ministers have been reluctant to challenge insurance companies’ large increases as the Treasury stands to benefit handsomely from the extra revenue – £7.3 billion is more than the amount the government would lose if it passed the basic income tax rate would be reduced by one percent.
The tax was introduced in 1994 at a uniform rate of 2.5 percent.
Three years later, a second higher rate was introduced for travel, household appliances and some car insurance. The result was consistently inflated premiums.
The lobby group Taxpayers’ Alliance has called for reforms and abolished the 20 percent tax rate.
The ABI’s claim is not universally supported. Although the increase in government revenue from IPT is partly due to an increase in private health insurance turnover against a backdrop of a strained NHS situation, the main reason is that insurers are driving up prices.
On Friday, comparison site Confused.com said car insurance prices had risen by an average of 58 per cent over the past year, with the typical policy now priced at £924.
Dennis Reed, head of Silver Voices, a campaign group representing older people, said reducing IPT was not the priority.
He pointed the finger at insurers who, in his opinion, are ripping off customers – especially older people – with unjustified premium increases.
Mr Reed said: “Premiums are rising for people who have an exemplary no-claims record.”
“Prices should be based on risk and not increase for some flimsy reason – for example because a driver has reached the age of 70 or 80 and suddenly thinks they are a danger to other drivers.”
“Insurers should look to reduce prices, which in turn would reduce IPT revenue.”
The Treasury said: “Insurance premium tax revenue contributes to vital public services such as the NHS, social care and defense.”