Millions face higher insurance bills as new tax rise comes into force
Insurance premium tax rises from 10% to 12%, but just two years ago the tax was only 6% of the cost of a premium.
British households face higher insurance bills as new a tax rise comes into effect today (1 June), the industry warned.
The cost of covering cars, homes, pet and health insurance will all be affected as the government lifts the rate of insurance premium tax from 10% to 12%.
Household finances already being squeezed by rising inflation and subdued wage growth, with observers fearing more people may risk going without insurance cover if faced with pricier policies.
The increase could add an extra £47 to the average household's annual general insurance bill, according to the Association of British Insurers (ABI).
But young drivers, those living in poorer neighbourhoods and people with houses in flood risk areas will see greater increases because the tax will come on top of their already higher premiums.
A typical 19-year-old driver could see their annual motor premium increase by £20 following this latest rise, the ABI estimates. By contrast the average motor policy is expected to rise by £8.
The British Insurance Brokers' Association (BIBA) 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.
Successive chancellors have found insurance premium tax to be an irresistible way to raise money for their spending plans.
The tax paid on most insurance policies has doubled in less than two years from 6% in 2015.
BIBA chief executive Steve White 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 throughout the term of the next Parliament.
But a Treasury spokesman said: "Insurance premium tax is a tax on insurers, not consumers - insurance firms decide whether to pass it on to their customers or not.
"Insurance premium tax is higher in several European countries, including France and Germany, than it is in the UK."
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