Column: Raising premium tax an own goal
In the November Autumn Statement, the Chancellor announced that the tax on general insurance policies will increase from 10 per cent to 12 per cent from June 2017.
This is badnews for customers. It is the third time the tax has been increased in less than two years.
In July 2015 the summer budget saw it grow to 9.5 per cent and just months later, in March this year, it went up again to 10 per cent.
This could lead to some customers not bothering with insurance cover as the cost becomes too prohibitive.
In the case of motor
insurance we could see a rise in illegal drivers as the new tax kicks in next year.
What’s more, some customers may inadvertently find themselves underinsured as they scale back on their insurance cover to compensate for the increase in IPT.
The IPT, which was launched in 1994, is added to some 50 million policies each year and produces easy returns for the Exchequer: the three recent rises will raise over £13bn for the Government over five years. The rise in IPT affects all motor, home, travel and health insurance policies, both personal and business.
Worryingly more rises are likely to be seen in the future. With interest rates at an all- time low and corporation tax coming down, the Government needs to bring in more revenue and IPT remains a soft target.
My worry is that we could see more businesses not insuring at a time when they are exposed to increased threat levels including cyber hacking and terrorism.
Business owners are already being hit with a rise in the minimum wage and pensions costs through auto-enrolment and growing the economy should include keeping insurance affordable.
The impact on businesses must also be highlighted along with consumer insurance.
It’s likely we will see more uninsured drivers. With gaps in public transport, some feel they have to drive and yet can’t afford cover. Another rise could be the last straw and lead to a further increase in uninsured driving, especially among young drivers.
What seems to be counter-intuitive is that recent government reforms to combat whiplash claims reform are designed to save customers around £40 a year.
However, the impact of the IPT increase on younger drivers under the age of 25,is around £40 a year. So this IPT increase is a cancelling out of the whiplash reforms for younger drivers, the people who are most affected by this.
The insurance industry, business bodies and consumer groups must all lobby hard to prevent further increases in IPT.