The rate of insurance premium tax will rise from 10 per cent to 12 per cent from next June, Chancellor Philip Hammond announced in the Autumn Statement.
The rise will be the third hike since last November 2015 and means insurance premium tax will have doubled from six per cent to 12 per cent in just over 18 months.
Steve Treloar, LV's general insurance managing director, said the government was mistaken in who would ultimately be hit. He said:
The government has incorrectly stated that insurance premium tax (IPT) is a tax on insurers – it’s not, it’s a tax that consumers have to pay when they purchase insurance.
This is now the third IPT increase in a row, so it’s extremely disappointing that the Treasury appears to be setting a precedent of placing an ever-increasing burden on hardworking consumers.
Meanwhile the UNA Alliance, which represents 12 of the largest regional insurance brokers reacted angrily to the news. "This is a significant blow. As a result this will significantly hit the pockets of families throughout the country with significant figures being added to the average buildings and contents policies," said UNA executive chairman Tim Ryan.
Treloar also noted that, unlike the hike in March, there was no justification for next year's increase by Chancellor. "We understood that the previous 0.5 per cent IPT increase in the last Budget was specifically for raising an additional £700m funding for flood defence management – yet we are still no closer to understanding how this will be distributed," he said.
The news did not come as a complete surprise to the sector according to PwC. Tax partner Benjamin Flockton said it was "not wholly unexpected". He added: "Insurers have been predicting a trend of IPT ultimately aligning with the UK’s 20% VAT rate."
"If these are passed on to the man on the street, we expect around £25 in extra tax will be added to the cost of the average motor insurance bill," said Flockton.