Millions of people face rise in insurance costs due to tax hike, insurers warn
A 2% rise in the rate of insurance premium tax means the average household could be paying £47 a year more, insurers warn.
Millions of people are set to see their annual insurance bill go up as a tax hike comes into force from Thursday, the industry has warned.
The cost to cover cars, homes, pet and health insurance are all affected with the rate of insurance premium tax (IPT) increasing from 10% to 12%.
It means the rate of tax paid on most insurance policies has doubled in less than two years, up from 6% in 2015.
The increase could add an extra £47 to the average household's annual general insurance bill, according to the Association of British Insurers (ABI), which represents insurance firms.
The British Insurance Brokers' Association (BIBA) said it is concerned pricier policies will lead to more people going without or reducing their cover.
It estimates the tax rise will affect 20.4 million homeowners/renters with contents insurance, 20.1 million motorists, 3.2 million homeowners with mortgage protection, 1.9 million people with private medical insurance and 3.4 million pet owners.
Those who already pay more for their insurance face the heaviest burden, such as young drivers and households in flood risk areas, it said.
Businesses who take out commercial insurance could also face a considerable increase to their costs.
Steve White, chief executive of BIBA, said: "This rapid increase is unprecedented – between 1997 and 2015, a period of 18 years, there were only two rate rises, taking the rate from 4% to 6%."
He called for a freeze on the tax to be imposed for the term of the next Parliament.
The latest IPT rise comes after figures revealed that inflation hit its highest level in nearly four years – 2.7% – in April.
A spokesman for the Treasury said: "Insurance premium tax is a tax on insurers, not consumers – insurance firms decide whether to pass it on to their customers or not.
"IPT is higher in several European countries, including France and Germany, than it is in the UK."