Government urged to cut sneaky Insurance Premium Tax that costs motorists £67 per year

More than four in five UK households are paying more for insurance because of a ‘hidden in plain sight’ tax – but the majority don’t even know what it is, according to data.

Insurance Premium Tax sees people paying an average of £67 per year extra for their motor insurance, research from the Association of British Insurers shows.

The ABI, which is calling on the Chancellor to cut the levy ahead of the Spring Budget, said its research revealed that 67 per cent of people said they have little or no knowledge of IPT, while half had no idea how the tax impacts their insurance costs. 

Scrap it: The ABI is calling on UK Chancellor Jeremy Hunt to cut Insurance Premium Tax in his upcoming Spring Budget

The tariff is not one that can easily be avoided, being levied across general insurance policies covering motor, home, pet, travel insurance and private medical insurance.

Having been implemented at a rate of 2.5 per cent in 1994, the duty has steadily risen since then, reaching six per cent in 2011, before rising to 10 per cent in 2016 and 12 per cent in 2017.

Those who have lots of different types of insurance policies could be landed with an extra bill of £264.

The tax is initially levied onto insurers, but this cost is generally passed, in large part at least, onto those paying for an insurance policy.

Overall, IPT is expected to bring in more than £8 billion for the UK Government this tax year, an increase of more than 10 per cent from the previous year.

In the financial year so far, to the end of January 2024, IPT has raised £6.7 billion, while tax duties on alcohol have brought in £6.8 billion over the same period. 

Tobacco and gambling have made the Government £7.3 billion and £2.3 billion respectively.

The ABI has created a mascot, Snippy, as part of its campaign for a cut to IPT, which it says will help to ‘unmask’ the tax

‘It is high time we unmask this tax which penalises people and businesses for being responsible,’ ABI’s director of general insurance policy Mervyn Skeet said.

‘This tax hits the poorest hardest because they typically spend more on insurance, such as home and motor cover, as a proportion of their income.’

As a result of the levy, ABI said one in five insurance customers are reducing their level of cover by cutting out optional extras, in order to lower their bill.

‘Insurers are doing all they can to offer competitively priced insurance, despite facing some substantial increases in costs outside of their control,’ Skeet added.

‘Now has never been a better time for the Government to show its support to the millions of homeowners and businesses who do the right thing by protecting their families and livelihoods against sudden financial shocks, than to reduce Insurance Premium Tax.’

For those looking to cut their insurance bill, and their IPT payments, one way to go is to improve the security of your house or car in order to cut your insurance premium, and therefore the amount you pay in IPT.

In a similar vein, increasing your voluntary excess will also lower your premium, but would impact your liability if you need to make a claim.

A spokesperson for the Association of British Insurers said: ‘Despite insurers battling some sustained cost pressures, motor and home insurance remains competitive, so it can pay to shop around to get the best deal. 

‘When shopping around, always make sure that you buy the right policy for your needs, which may not be the cheapest.’

This post first appeared on Dailymail.co.uk