16th Mar 2016 14:39
LONDON (Alliance News) - The UK government's move on Wednesday to increase the insurance premium tax to 10% from 9.5% was not as bad as feared by the industry ahead of Chancellor of the Exchequer George Osborne's Budget for 2016.
Addressing lawmakers on Wednesday, Osborne said that the increase in the tax will raise GBP700.0 million to bolster investment in flood defences.
Budget documents said that that the effect of the tax increase will have a limited effect on customers in the event that insurers pass on the cost of the government's decision. The average combined home and contents insurance would increase by GBP1.00, and the average motor insurance premium by GBP2.00 per year, according to government calculations.
The AA, which had raised concerns the tax could rise to as high as 12.5%, welcomed the lower-than-expected increase. The roadside assistance provider said the latest increase will add GBP2.86 to average motor policy and GBP6.19 to young driver premiums.
"Using it for flood defences is helpful but it simply replaces past spending cuts and in effect targeting motorists to pay for flood alleviation is robbing Peter to pay Paul," Edmund King, AA president, said in a statement.
"We would have liked the Chancellor to recognise the difficulty and cost faced by young drivers buying cover for their cars by abolishing IPT for them, for at least the first year of insuring their first car. That would have been a significant help ? it would typically have knocked GBP124 off their first car insurance premium," King added.
The insurance premium tax increased to 9.5% from 6.0% in November 2015.
By Samuel Agini; [email protected]; @samuelagini
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