The Chancellor is increasing insurance premium tax (IPT) from 10 per cent to 12 per cent, making UK PMI subject to the highest tax in the EU.
The increase means IPT has doubled from a rate of 6 per cent in less than 18 months.
Of 29 EU countries, 12 exempt healthcare of IPT and a further three do not apply it at all. Only six have IPT on healthcare above 6 per cent: Belgium (9.25%), France (9%), Greece (10%), Slovenia (6.5%), Slovakia (9.5%) and the UK (12%).
The British Insurance Brokers Association has slammed the increase as ‘outrageous’.
Hammond said the impact of the increase would be offset in part by lower insurance costs as a result of restrictions on whiplash claims.
Hammond 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 per cent currently, to 12 per cent from next June.
“At the same time I can confirm the government’s commitment to legislate next year to end the compensation culture surrounding whiplash claims – a major area of insurance fraud – saving drivers an average of £40 on their annual premiums.”
Association of Medical Insurance Intermediaries chairman Stuart Scullion says: “A third increase in IPT within 18 months is unbelievable. It will only drive more people to cancel their PMI and turn towards the NHS.
“We will step up our lobbying on this issue to try to get the Treasury to understand the wider ramifications of these tax increases.”
A Biba spokesperson says: “Over the past 15 months, policyholders have already seen an increase of 66 per cent in the Insurance Premium Tax (IPT) they pay – this further increase to 12 per cent in this regressive tax is outrageous and is a tax on protection which will hit everyone and especially those ‘just about managing’. We believe that this increase is contrary to the stated policy of HM Revenue and Customs “that IPT should make the required contribution to HM Government revenue while minimising the effect on the take up of insurance. This increase comes at a time when both motor and home insurance premiums are rising and our fear is that many of those who most need it will avoid taking up insurance and be unable to afford the protection they need.”
