James Dalton, Director, General Insurance Policy, ABIGiven the headlines in last week’s Budget about the living wage, changes to welfare and changes to tax credits, little attention has focussed on the Chancellor’s surprise decision to increase Insurance Premium Tax (IPT).
While it sounds technical, IPT is something which directly affects consumers and has a very obvious impact on household finances. Increasing the basic rate from 6% to 9.5% may not sound like much but it represents a massive hike of nearly 60%, which will hardly go unnoticed when consumers come to renew their insurance. According to the Government’s own figures, they are adding £1.5 billion a year to the cost of insurance.
ABI figures show the new rate of IPT will add £9.48 to the average annual household insurance policy for building and contents combined, and £12.25 to the average comprehensive motor insurance policy.
And the numbers tot up quickly when you consider that IPT doesn’t just apply to car and home insurance but to other products as well, including pet and health insurance. Combine the tax increase on insuring a car, a home, your health and a pet and the rise in Insurance Premium Tax could cost an average family an extra £100 each year.
Ultimately, this is a tax on those who take sensible precautions to protect themselves, their loved ones and their possessions and those who comply with the law by purchasing compulsory car insurance. And for all the Government’s talk about wanting to decrease the cost of car insurance for young drivers, a 21 year old could need to find an extra £32 a year to pay for their car insurance. But the impact of this decision won’t just be felt by customers. Companies will see the cost of their insurance going up and it will be small and medium sized companies who will find the higher bills the hardest to absorb.
Just when consumers were beginning to enjoy the benefits of the competitive home insurance market - the average price of home and contents insurance has reduced by 3% - as well as the benefits of the Government’s crackdown on the UK’s whiplash epidemic – the average cost of car insurance has reduced 2% - this has made it harder for customers to get the best price on their insurance.
So although last week’s announcement of an IPT increase got the briefest of mentions in the House of Commons, it represents a very significant increase in the cost of insurance for millions of households and businesses. This makes it even more important than ever that the Government works with the insurance industry to reduce the underlying cost of insurance by delivering on the ABI’s Top 10 Insurance and Savings priorities. Cracking down on Claims Management Companies, as announced in the Budget, is a start. But there is much more to do in order to off-set the billions of pounds extra consumers will be paying for their insurance in the years ahead.
James Dalton is Director, General Insurance Policy, at the ABI