George Osborne announced a rise in Insurance Premium Tax during yesterday’s Budget.
This tax was first introduced in 1994 at a rate of 2.5% and is paid by policyholders not insurers. It had been set at 6% since January 2011 and Osborne’s hike means insurance premiums generally will rise by the 3.5% increase in IPT, industry figures said.
Lee Mooney, commercial director at Paymentshield, said: “There are over 20 million UK consumers with contents insurance and 17m with buildings cover and so protecting their property and belongings will now become more expensive for a very large proportion of the population. The risk is that consumers decide to cut corners with the level of protection they need which can in the long term be a false economy if they find they need to make a claim. This makes the role of advisers who offer insurance products even more important in making sure that customers can find the right cover at the best price.
“The average premium for Paymentshield 5* rated home insurance product has fallen by around £60 over the last 18 months whilst the tax increase will be less than £10 for most consumers. So, the 17% reduction in Paymentshield’s average premium more than makes up for the Chancellors 3.5% tax increase.
“IPT is effectively a form of VAT on insurance protection. Like most of our industry I would not consider insurance protection to be a discretionary purchase in the way that VAT is considered to apply. Insurance protection is an absolute necessity and plays a vital social and financial role. Our industry will need to find ways to work even harder for our customers to offer even greater value whilst allowing them to access the protection they need without the need for compromise. Paymentshield remain committed to doing just that.”