Insurance tax budget rise will hit bikes

[Whealie]

Insurers and brokers are pleading with the government not to increase Insurance Premium Tax (IPT) in the emergency budget on 22 June fearing it will lead to cuts in cover or more uninsured. Coming on top of premium rises anyway, it could mean motor premium up more than a third.

The Chancellor is predicted to raise IPT from the current 5% to possibly the same rate as VAT (17.5%). Unlike VAT, everyone pays it – nobody claims it back – but like VAT it is cheap to collect because insurers just hand it over to HMRC.

Brokers angry
The British Insurance Brokers’ Association (BIBA) said: “Increases to tax on premiums will serve only to add further financial pressure during the recession and discourage individuals and small businesses from taking out adequate and appropriate insurance protection.

“This could result in greater losses to HM Treasury than any increase in rate that may be proposed.”

Eric Galbraith, BIBA chief Executive, said: “Our research last year demonstrated that businesses and consumers were reducing insurance cover as a result of the recession and we are concerned that increases to insurance premiums as a result of IPT could lead to even further underinsurance or even a lack of insurance protection.”

IPT comparisons
IPT on travel insurance and warranties is already the same as VAT to help prevent tax avoidance schemes. It is lower than inb many other European states and the Treasury is said to have hired an accountancy firm to compare rates across Europe.

An ABI spokesman said: “Increasing IPT will lead to reduced levels of insurance for those that need it most: the less well-off individual consumers and small businesses, who are least likely to have other financial resources to fall back on in the case of loss.”

Insurers have been under-pricing for years in many popular lines of business – specifically car insurance. Claims costs have also spiralled out of the control. This already means insurers have to hike rates by 20% and more just to keep the losses stable, let alone make a profit.

Motor premiums could rise 34%
On a £400 motor insurance policy, a 20% increase from an insurer and then a 12.5% increase in IPT would leave the driver swerving to avoid a rise in premium more than 34%. That’s the cost of car or bike policy up by more than one third.

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ABI
BIBA