Rise in insurance premium tax to pay for new flood defences

HOUSEHOLDS will face bigger insurance bills after the Chancellor announced a second hike to premium tax in five months.

Families are already paying on average an extra £100 per year because of the rise in November, triggered by floods in northern England.

But during his Budget yesterday George Osborne unveiled another increase in insurance premium tax (IPT) from 9.5 per cent to 10 per cent.

He said he would raise the standard rate by ‘just half a percentage point – and commit all the extra money we raise to flood defence spending’.

The IPT increase in the Autumn Statement was even steeper, from 6 per cent to 9.5 per cent. Some £700million generated from the extra insurance taxes will go to strengthening and maintaining defences in areas ravaged by recent floods.

Premium tax hikes will affect policies for cars, households, pets and private medical insurance. But experts warned that the changes will hit the youngest, oldest and sickest the most, as well as those who live in flood-prone areas or inner cities.

These households already pay more for their motoring, medical or home insurance.

Young drivers will pay on average an extra £ 50 a year under the two increases, the AA said. It urged the Government not to treat young motorists as ‘wallets on wheels’.

Older drivers, who already pay high premiums, are also likely to be hit harder by the IPT rise.

Cash-strapped households could feel forced to reduce or even abandon their insurance cover, under what the Association of British Insurers warned was a ‘raid’ on responsible consumers.

The British Insurance Brokers’ Association said it was ‘astonished’ at the further increase in the premium tax. It said the latest rise means that, yearon-year, insurance buyers have faced a 66.6 per cent increase in tax since March 2015.

The AA had raised fears last week that IPT could be increased to as much as 12.5 per cent.

Huw Evans, director-general of the Association of British Insurers, said: ‘A further increase in IPT is disappointing news.

‘ Increased investment in flood defences is vital but should be part of core government expenditure, not an afterthought paid for by raising taxes on people and businesses who do the responsible thing in protecting themselves through insurance.’

The extra £ 700million in flood defences and maintenance by 2020-21 is on top of £2.3billion government funding already committed.

The investment includes £150million for the flood-hit areas of Leeds, York, the Calder Valley in West Yorkshire, Carlisle and wider Cumbria.