Sally Laker looks at how insurers’ recent hard work could be undone if they pass on the Chancellor’s premium tax increase to consumers.
Chancellor George Osborne announced in his summer Budget that, from November, insurance premium tax would increase from 6 per cent to 9.5 per cent. This is a rise of almost two-thirds: a jump that has received a mixed response from industry experts.
Osborne justified the change by highlighting a recent fall in insurance premiums, with the cost of contents insurance alone falling by 8 per cent since 2014. He said that, despite the increase, Britain’s insurance premium tax “is well below tax rates in many other countries”. He assured us the Government would continue to make insurance better value for consumers, claiming the recent fall in the cost of contents cover was due to previous alterations.
The Treasury has suggested that, by 2021, ministers will have accrued more than £8bn from the tax changes. However, by far the biggest concern is that, although insurers pay the tax, the extra cost will be passed on to the consumer. The Association of British Insurers calculates the new rate will add £9.48 to the average annual household insurance policy.
Osborne has confirmed that the increase will be added only to general insurance products, which account for just a fifth of all premiums. However, it is this fifth that needs to be encouraged wherever possible. I am concerned the important cover that consumers need will be further pushed out of reach due to price, and the public will be tempted into not protecting themselves at all.
This change has come at a time when cheaper premiums and more comprehensive value from insurers had started to re-energise the industry. At Mortgage Intelligence, we feel this hard work could all be undone if insurers end up passing on the increase to consumers. UK insurance premium tax may still be relatively low but, with so many under-insured, the need to incentivise remains high.
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