The £8.2 billion stealth tax paid by every family in Britain

The profits and stock prices of the nation’s major insurance companies are rising as they charge customers ever higher premiums.

But it is not only the insurers who reap the benefits of this premium bonus; the government is also rubbing its hands with joy.

Figures released by the Office for Budget Responsibility (OBR) – in response to the Chancellor of the Exchequer’s budget – show that the taxes the government generates from insurance premiums are currently higher than from the much-despised inheritance tax.

Current revenue from the Insurance Premium Tax (IPT) levied on the sale of most types of insurance cover is a whopping £8.2 billion per year – £0.6 billion more than the tax raid on family inheritances, and not far behind the tax on tobacco. turnover (£8.8 billion).

Very simply put: the higher the premiums that insurers charge their customers, the greater the government’s tax revenue.

In the tax year ending April 2023, IPT revenues were £7.5 billion, while ten years ago, in the tax year ending April 2014, they were just over £3 billion.

In addition, IPT’s annual tax theft will continue to rise over the next five years, reaching £8.8 billion in the tax year ending April 2029, according to the OBR.

It’s a win-win situation for insurers and the money men at the Treasury — and it’s a situation that’s starting to anger pressure groups representing the elderly and financially challenged.

They ALL believe that the regressive tax is unfair to people with low incomes and tight family finances.

Some also argue passionately that the government is purposefully turning a blind eye to rampant insurance premiums because higher prices mean greater tax revenue.

IPT is currently charged at 12 percent on regular policies, such as household, auto, private medical and pet coverage. For some coverage, such as travel insurance, a surcharge of 20 percent applies.

Instead of absorbing the tax themselves, insurers automatically add it to customers’ bills.

Insurance that is exempt from the tax also includes healthcare policies such as life insurance, critical illness cover and income protection.

Although more than four in five households pay the tax, two-thirds of people have little or no knowledge of it, even though this is described in the documents they receive when taking out or renewing insurance.

The Association of British Insurers (ABI) has dubbed it the country’s ‘hidden tax’.

The ABI hoped Chancellor Jeremy Hunt would cut the IPT in last week’s Budget, arguing the tax ‘punishes people and businesses for being responsible’.

It even designed its own campaign mascot Snippy (a pair of scissors with eyes) to mark the cut. But Snippy failed to win over Mr. Hunt.

Yet, in the wake of the Chancellor’s Budget, this hasn’t stopped a plethora of financial experts from still calling for tax renewal or cuts – sooner rather than later.

James Daley, director of cash campaign group Fairer Finance, says now is the “right time” for the government to look at changes to IPT.

He told Money Mail yesterday: ‘A growing number of people are struggling to afford insurance cover, especially car insurance, which is compulsory.

‘People depend on their cars to go to work, shop and take the children to school. I think it is up to the Government to take action to support struggling families and pensioners – and cuts to IPT are an easy way to do that.”

The latest data from comparison website Confused.com shows that the average cost of car insurance is now £995 – 58 per cent higher than a year ago.

Prices are at their highest level since it started collecting data eighteen years ago, according to the company. Both young and old are victims of this increase in premiums.

Mr Daley’s views are echoed by Ian Hughes, of insurance consultancy Consumer Intelligence. “IPT places a burden on some of the most vulnerable members of society: those who are young or have had insurance claims and now pay more for cover,” he says.

“There has to be a fairer way for the government to raise money.” Dennis Reed is director of Silver Voices, a campaign group representing older people. He doesn’t mince his words.

“It is shocking that the tax authorities are reaping the financial benefits of the predatory profits that insurers are currently making,” he told Money Mail.

‘Rather than complacently pocketing these tax revenues, the government should tackle the irresponsible premium increases imposed on many older people, especially those driving well into their 70s.’

He added: ‘The cost of all forms of insurance is becoming prohibitive, leaving vulnerable people financially vulnerable. This issue must be addressed, even if it means less revenue for the Treasury.”

Just over two years ago, the Financial Conduct Authority (FCA) launched a regulatory crackdown on home and car insurance prices.

The aim was to ensure that loyal customers no longer paid more for their policy at renewal than someone purchasing identical cover from the same insurer for the first time.

Although the move was said to save policyholders £4.2 billion over the next ten years, all evidence so far suggests otherwise.

Over the past year, average home and auto insurance premiums have risen by 41 percent (according to Consumer Intelligence) and 58 percent respectively, injecting record amounts of IPT into coffers.

As Money Mail has repeatedly highlighted since the FCA rules came into force in early 2022, the only way most policyholders have been able to keep insurance costs vaguely under control is by shopping around – or trimming the breadth of their cover.

The rough financial health of the insurance sector was highlighted six days ago when Admiral Group reported 2023 profits of £443m, up 22 per cent on the previous year. Admiral’s UK brands include Diamond, Elephant and Veygo.

The figures prompted investment bank Berenberg to paint a bright future for the insurer, predicting a rise in profits to around £760 million over the next two years.

Shares in Admiral, a FTSE100-listed company, are now up 43 percent in the past year.

Rival Direct Line – a group consisting of insurance brands Churchill and Privilege – has also attracted bids from Belgian rival Ageas.

IPT was introduced thirty years ago by the Conservative government of John Major. The initial charge was only 2.5 per cent, so an annual premium of £100 would incur a tax charge of £2.50 and a total bill of £102.50.

But successive finance ministers since 1994 have increased costs. The current standard rate of 12 percent was introduced in January 2017, while the 20 percent higher rate was introduced in January 2011.

It applies to travel insurance, electrical goods cover and car insurance taken out through a dealer.

While all experts contacted by Money Mail support a fairness-based IPT reduction, some believe this will be a difficult task to achieve.

As one said: ‘I want to support consumers paying less for insurance due to the abolition of IPT, but I can’t hear anyone suggesting how this government – or for that matter the next one – will get the £8 billion a year this would cost . .’

The Treasury Department said it was scrutinizing all taxes, but that reforms that would lead to a loss of tax revenue would have to be fiscally balanced to maintain economic stability.

It added: ‘The tax on insurance premiums, which contributes £8 billion a year to vital public services, is only part of the total cost of insurance and the extent to which it is passed on to customers is a decision made by insurers.

Other factors that influence the price of insurance include the level of competition in the market.”

• Do you think that insurance premium tax should be abolished? Email: jeff.prestridge@dailymail.co.uk