Insurance Premium Tax will rise to 10% from tomorrow (1 October) - an increase that will affect more than 50m households, says the ABI which has branded the hike a “raid on the responsible.”

The rise is the second increase in the rate of insurance premium tax (IPT) in less than a year. The standard rate of IPT, which applies to most general insurance policies purchased, rises to 10% after being increased by the previous Chancellor George Osborne in his Budget earlier this year. This follows a previous rise from 6% to 9.5% which came into effect in November last year.

The Association of British Insurers says this means that the tax itself has risen by more than 66% in less than a year.

The ABI says the increase will add the following extra cost to policies compared with 12 months ago (taking into account both increases):
· Over £52.50 to the average private medical insurance policy
· More than £16 to the average comprehensive motor insurance policy
· More than £12.50 to the average combined building and contents policy

The ABI warns that because Insurance Premium Tax applies to individual policies, people with the highest insurance costs – such as young drivers or those with ongoing medical conditions – attract the highest amounts of tax.
Businesses are also affected when they buy cover for their premises, vehicles and to guard against issues such as business interruption.

ABI director general Huw Evans said: “These two IPT increases are a raid on the responsible, taking advantage of those who already do the most to avoid becoming a burden on the state. The Government should be in no doubt that such steep increases in insurance premium tax may eat into the finances of both households and businesses. Any further hikes would be indefensible.”

The ABI’s quarterly trackers measuring movements in motor and property premiums for domestic customers show that in Q2 2016, the average comprehensive motor insurance premium was £434, up 10% on the same quarter a year earlier and the average combined buildings and property policy was £309, down less than 1% on the same quarter a year earlier.

Travel insurance has IPT paid at a higher rate of 20%, which is unchanged. Life insurance is exempt from IPT, as are a few other specific lines such as insurance for commercial ships and aircraft.