With the mounting deficits in the national budget and the ever shrinking riches of the national coffer, the coalition government has been exploring means for expanding its revenue streams. And in tax rate for general insurance premiums, it seems to have a found a likely candidate to help do just that.
Intensifying speculation in and around the corridors of power suggest that the Government is considering almost trebling the rate in this month’s emergency Budget. The current 5% levy helps the Treasury generate and estimated £2.3 billion in annual tax revenues; increasing this to 17.5% will mean annual revenues of up to £8 billion.
The current 5% tax rate applies to all polices except life insurance, which is not taxed, and travel and extended warranty protection, both of which carries a 17.5% tax rate. Industry chatter indicates that this 17.5% mark might just be the new level for taxes on general insurance premiums.
The increased rate will apply on insurance premiums for items such as car, household and pet cover, and while the existing 5% tax rate in the UK seems lenient compared to the 19% for Germans, the 21.25% for 21.25 % for the Italians, or the 9% for the French, experts fear that the rise in cost of policies could force some to forego essential protection in these impoverished times.
Industry insiders estimate that there are already around one million uninsured motorists, while a quarter of all households lack contents insurance, and the Government’s attempts to balance the books in this way could force households and small businesses into increased financial hardships.
The industry has been up in arms over the tax raise suggestions, with both the British Insurance Brokers Association (Biba) and the Association of British Insurers (ABI) saying that they would lobby the Treasury against any such hike.
Eric Galbraith, Biba’s chief executive, said that a major concern was that such actions on the part of the Government could signal the beginning of “easy” taxes trend, which would be harmful for both the taxpayers and economy. He also said that, with cash-strapped businesses already having their hands full in trying to purchase adequate cover in the aftermath of the financial crisis, a tax hike would be detrimental to the ability of households and businesses to protect themselves by taking out comprehensive insurance policies.
According to the AA, the average best quote on comprehensive car insurance shot up by 22.5% this year, and is set to go higher, even before higher taxes are even taken into account.
The ABI has said that the groups that will suffer the most from the tax hikes will be “the less well-off individual consumers and small businesses”, making them much more vulnerable than ever before.
Thus far, the Treasury has remained quiet on the issue.