Families could find themselves hundreds of pounds worse off if Insurance Premium Tax is increased in this afternoon’s budget, insurers have warned.
According to reports, George Osborne is considering increasing Insurance Premium Tax (IPT) – an indirect tax that affects the premiums consumers pay on insurance products.
It would be the second rise in IPT in less than a year after the chancellor raised it from 6% to 9.5% in November 2015.
The Association of British Insurers (ABI) said increasing the tax again would hit those who pay the highest insurance premiums the hardest.
Consumers who tend to pay higher premiums include younger and older drivers, households in high flood risk areas and people with ongoing medical conditions.
The ABI said many families already face insurance bills around £100 higher as a result of last year’s rise in IPT.
Further hikes would cost businesses nearly £150m per 1% increase.
According to the ABI, changes to IPT will affect 26.5m car insurance policies, 20m household policies, 3m pet policies and 3m private medical and cash plan policies.
“It will hit those on low incomes and increase the risk that some people reduce their cover or stop insuring altogether."
The AA said the price of the average car insurance policy would increase by nearly £40, or £80 for younger drivers.
AA president Edmund King said: “It’s ridiculous that the insurance industry is singled out in this way.
“Drivers are not wallets on wheels but appear to be treated that way by the Treasury. Car insurance is not a luxury but a legal necessity so should not be taxed like a luxury.”
Mr Osborne will deliver the budget – his eighth as chancellor – at 12.30pm today.
As well as increasing IPT, he is also expected to scrap the Money Advice Service, which was launched in April 2010 and offers free, impartial financial advice to members of the public.