You’re now paying £264 a year in insurance TAX as the Treasury rakes in £7.45bn, warns LEE BOYCE
The world of personal finance is littered with boring terminology and acronyms that can actually down the hatches for the average Jane or Joe.
One that falls firmly into this category is IPT – Insurance Premium Tax.
And that’s why former Chancellor George Osborne tinkered with it, knowing that most people would have no idea what it was or how it could ever be relevant to them.
Boring, with a long statement about the letter O. Research shows that only two in five of us have heard of it.
Rising costs: Car premiums have risen 29% in a year – and IPT now makes up £60 of annual bills
But it’s likely your household is now paying three figures as your share of IPT, with an average stealth bill of £264 – and the Treasury is taking billions a year out of that.
Hopefully that got your attention.
At last count, the IPT – one of those classic stealth taxes – has raked in £7.45 billion for the Treasury in the 2022/2023 financial year. Thanks to compounding, this will likely snowball even further as we see insurance costs rise this year.
According to the Association of British Insurers, motorists are now paying a record amount for cover, with costs rising by 29 per cent in a year.
In many cases we hear from readers that their renewal quotes are MUCH higher than this – we’re talking deep increases of three percentage points.
My own auto coverage quote is up 21 percent this year, while our home insurance is up 77 percent, despite an inconvenient change. We shopped around a bit, but still had no choice but to pay more than last year.
If you drive, go on vacation, have a pet and a roof over your head, IPT will hit you harder in the wallet than ever before. If you check all four of these boxes and insure all these categories, your personal tax bill will be much higher.
Simply put, the IPT is a tax on general insurance premiums, which is 12 percent for most policies.
This tax is levied directly on the insurers, who then typically pass on the majority of the costs to those who purchase the product.
Compared to the 2021/22 financial year, IPT raised an additional 9.8 percent – or almost £700 million – while total revenue was £6.79 billion.
Going back further, in 2018/19 IPT revenue was £6.2 billion – a difference of around 20 per cent, despite IPT then also being 12 per cent.
IPT has been moving higher and higher over the past decade. Until 2011, this percentage was 5 percent. Between 2011 and 2015 this rose to 6 percent.
It rose to 9.5 percent for a year, then to 10 percent for another year, before landing at 12 percent since June 2017.
Between 2002 and 2011, the total IPT bill was between £2 billion and £2.5 billion. Even in the 2014/2015 financial year the total bill was less than £3 billion.
It has become a more prominent beast this year due to rising premiums.
Taking car insurance as an example, the ABI – which I met earlier this year to complain about a bulging mailbag of readers complaining about rising insurance costs – says the average annual cost is now £561.
The increases are attributed to more expensive repair costs as cars become more advanced, a shortage of skilled technicians and the price of energy.
But of that £561, £60 is now typical IPT. That is a big blow for motorists who already pay fuel excise and road tax.
According to the latest figures, home and contents insurance rose by 10 percent, while pet insurance rose slightly last year.
While it is difficult to predict whether cover costs will continue to rise, this has been the case so far this year – and given the financial year starts in April, there is a very good chance that the total IPT bill for 2023/2024 will increase .
The ABI, the trade organization that represents insurers, is fighting back in the run-up to the Autumn Declaration on November 22.
It is now calling on Chancellor Jeremy Hunt to consider reducing the rate of the IPT – “the government could help motorists with an immediate cost reduction by reducing the IPT,” says Mervyn Skeet, director of general insurance at the ABI.
The ABI told me: ‘We have long said that IPT is an attack on those responsible, punishing people who protect themselves from financial shocks.
‘The UK has one of the highest IPT rates in Europe and it is important that customers are aware of the impact this has on insurance costs.
‘As businesses and households across the country continue to face cost-of-living challenges, now is the time for the government to relieve some of that pressure and consider reducing taxes.’
It’s hard to argue with that: the ball is in your court, Mr. Hunt.