Fifty million people to pay more for insurance policies

More than 50million people will be hit by yet another rise in the tax on insurance premiums, which has now doubled in the past 18 months. In his Autumn Statement, the Chancellor said “insurance premium tax”, which is paid on all insurance premiums, would increase from its current 10pc rate to 12pc from next June, pushing up the cost of home, car, pet, health and buildings insurance.

Travel insurance is exempt from the rise as it has a separate tax rate.

The increase is the third in the past 18 months. The rate was raised from 6pc to 9.5pc in July last year and then to 10pc in March this year.

The rises mean that the cost of a personal private medical plan will rise by £129 a year, according to the Association of British Insurers (ABI), the industry trade body.

On average, annual car insurance costs will rise by £25.79, buildings and contents insurance premiums will increase by almost £19 a year, while the cost of pet insurance for a dog will rise by £21.82 and for a cat by £12.63. Over the next five years individuals and businesses will pay an extra £13bn because of the tax increases. Those who pay the highest premiums, such as young drivers and those with large properties or more expensive contents to insure, will be hit hardest by the rise. A typical young driver who pays £1,250 a year for their insurance will now pay £150 in the premium tax, compared with £75 18 months ago. A spokesman for Insure The Box, an insurance provider, said: “These continuous rises add to an already frustrating outlook for young motorists, many of whom are at risk of finding themselves priced out of driving altogether. Even worse, they could consider taking the risk of driving while uninsured.” The Chancellor said: “Insurance premium tax in this country is lower than in many other European countries, and half the rate of VAT.” However, Charles Calkin, the head of financial planning at James Hambro, the investment company, said many policyholders would just assume that the increase was their premium rising. “It is one of those clever tax rises that many people will not notice until they renew their policy next year, at which point they’ll probably blame the insurers, not the Chancellor,” he said.

However, Mohammad Khan of PwC, the accountancy firm, said policyholders should brace themselves for further insurance price rises.

“We expect further rises for insurance premium tax in the coming years, which would further eat into any savings brought about through whiplash reforms,” he said.

As he had been tipped to do, the Chancellor gave a sweetener to drivers in the form of a government crackdown on fraudulent whiplash claims.

He said the Government planned to pass laws next year focused on this “major area of insurance fraud”. The changes should save drivers “an average of £40 on their annual premiums”, he said.

However, Huw Evans, the director-general of the ABI, said the consultation on whiplash reforms, “which hasn’t even gone before Parliament yet”, did not go far enough to offset the tax rise.

Mr Hammond also announced that a scheduled rise in fuel duty would be cancelled this year for the seventh year in a row. He said this would save the average car driver £130 a year.