Millions facing a hike in insurance premiums

TWENTY million drivers and homeowners face increases of up to 10 per cent in their insurance policies.

george osborne has announced a 50 per cent increase in the rate of insurance premium tax, which is levied on all car, buildings and contents and pet policies.

The stealth swoop is expected to net the Treasury more than £8billion over the next six years and add more than £100 a year to the premiums of a typical family.

younger and older drivers, and those who live on flood plains or in other high-risk areas, face even steeper rises in their costs.

Janet Connor, managing director of aa Insurance, said: ‘This is a very bad day for car and homeowners. This will hit them hard.

‘any contention that falling insurance premiums somehow justifies the tax increase is outrageous. The increase in insurance premium tax simply has not been thought through and will have unintended consequences.

‘This will make insurers think again about their pricing and I wouldn’t be surprised to see an overall increase of 10 per cent or more by the end of the year.’

Insurance premium tax is a levy charged on some types of insurance policies. There are two rates – a standard one of 6 per cent, for car, buildings, contents and pet insurance, and a higher rate of 20 per cent levied on travel policies. life insurance is exempt.

In his Budget yesterday, the Chancellor announced that the standard rate would increase to 9.5 per cent.

The new rate will apply to policies taken out from november 1. other policies will be charged the 6 per cent until March 1, 2016, at which point all those that qualify for the standard rate will pay 9.5 per cent.

although the tax is levied on the insurers, it is passed on to customers and priced in to their premiums.

The average cost of a combined buildings and contents policy is £291 and will now increase by £10 a year, according to figures provided by the British Insurance Brokers association. a typical car insurance policy costs around £300 a year, and this also would increase by £10.

However, those who pay larger premiums – such as older and younger drivers, and those with bigger cars – will face much larger increases. an 18- or 85-year- old could see the cost of their policy hiked by £90 a year.

although this may seem a small increase to many policyholders, details in the Budget papers reveal how the tax raid will net the Treasury £530million this year, and then £1.4billion in 2016/2017, rising every year to £1.58billion in 2020/21.

over six years this should net the Treasury £8.16billion.

There was some relief for drivers and homeowners however as the Chancellor launched a probe in to making insurance premiums clearer for policyholders.

last month the Mail revealed how motorists were being ripped off by up to £1billion a year because their insurer refused to print last year’s premium when their policy was renewed.

‘Unintended consequences’