MILLIONS HIT BY NEW £100 STEALTH TAX
Scots face huge rise in car and home insurance bills
MILLIONS of families face more expensive insurance bills following an £8billion tax raid by the Government.
a premium tax charge on all car, buildings and contents and pet policies will soar by almost 60 per cent.
insurers last night warned this could add almost £100 to a family’s annual insurance bill and described it as a ‘stealth tax on people who do the right thing’.
The rise in insurance premium tax (iPT), expected to raise £1.5billion a year for the Treasury, was announced by the Chancellor in the summer Budget.
The Treasury has repeatedly denied it amounts to a stealth tax on families and has insisted it is up to insurance companies whether they raise premiums or absorb the costs themselves.
But last night these claims were branded ‘ridiculous’ as the bosses of two of Britain’s biggest insurance companies – aviva and RSa – confirmed they plan to pass on the costs to their customers.
Stephen Hester, the former RBS boss who now runs RSa, admitted the tax was ‘bad news’ for families who face ‘quite a big rise’ in their insurance premiums.
Experts said a family could see between
£50 and £100 added to their annual insurance bill if they have more than one car and buildings and contents insurance.
Worst affected will be younger drivers, who have already seen a rise in their insurance premiums in the first half of the year. The average premium for someone aged between 18 and 24 will jump by almost £40, from £1,189.53 to £1,228.83, according to the AA.
The Treasury last night stressed that IPT is paid by companies rather than individuals. But this was derided by campaigners.
Martin Lewis, founder of consumer website MoneySaving Expert.com, accused the Treasury of ‘spin’, saying: ‘ This is a ridiculous assertion to make by the Treasury. If they genuinely thought that insurers would not pass on these costs to customers, they are not qualified to do their job. Insurers always try to charge as much as they possibly can.’
He urged customers whose policy is due for renewal before November 1 to contact their insurer and secure a quote.
IPT was introduced in 1993 to raise more money from insurers as they are not charged VAT.
There are two rates: a standard one of 6 per cent for car, buildings and contents and pet insurance; and a higher rate of 20 per cent levied on travel policies. Life insurance is exempt. From November 1, the standard rate will increase to 9.5 per cent. The higher rate is unaffected.
The new rate will apply to policies taken out from November 1. Other policies will be charged at 6 per cent until March 1 2016, then at 9.5 per cent.
It is f orecast to bring in £530million for the Treasury this year then £1.4billion next year, rising every year to £1.58billion in 2020-21. Over six years, this should net the Treasury £8.16billion.
Mr Osborne sought to justify the increase by arguing that the cost of premiums had fallen for many families and that Britain’s IPT was well below other countries – Germans pay 19 per cent.
But he came under fire from the insurance industry.
Janet Connor, managing director of AA Insurance, said: ‘The Treasury’s response is disingenuous as IPT is, like VAT, an indirect tax on individuals. It doesn’t matter how it is dressed up, ultimately it adds to the cost of insurance bought by everyone.
‘It is especially an insult to motorists who rightly feel outraged because car insurance is compulsory and the Government is imposing yet greater cost on cover they have no choice in buying.’
A spokesman for the Association of British Insurers said: ‘IPT hits people who have done the right thing and taken out insurance to protect against the financial impact of life’s uncertainties.’
The Treasury pointed out there were other measures i n the Budget designed to help reduce insurance premiums, including capping charges levied by claims management firms which pursue claims for accidents.
These firms have been accused of dri v i ng up premiums, bombarding people with calls and encouraging fraudulent claims.
A Treasury spokesman said: ‘IPT is paid by companies, not individuals, so it is up to them whether they pass costs on to consumers.
‘However, even if they did pass on the whole increase, the average motorist’s total costs, for example, would only increase by 30p a week.
‘With IPT low by international comparisons, and only 20 per cent of premiums affected, the Government’s approach for taxing insurers is sustainable, stable and fair.’
Fraudulent claims for whiplash injuries and staged accidents by criminal gangs have helped drive up premiums for every honest motorist.
The insurance industry has estimated that bogus whiplash claims alone add £93 on average to the cost of an annual motor policy.
Despite efforts by the Government to crack down on this, whiplash claims have continued to rise – helping to drive up premiums.
The average annual motor insurance premium rose from £522.12 in the first three months of the year to £549.46 in the second three months of the year, according to the AA.
This is a rise of £27.34 – or more than 5 per cent.
‘Response is disingenuous’