Warning on higher premiums

With the emergency budget just around the corner, fears are growing in the insurance sector that the government could be about to increase significantly the amount of tax on standard insurance premiums.

At the moment, tax on insurance premiums stands at 5% for standard policies such as car insurance, home insurance and pet insurance. But there is now speculation that the government could at the least double this rate on June 22 when the budget is announced.

Travel insurance is slightly different because it already carries a 17.5% tax rate. There are now fears that other insurance policies will see this level introduced. Premiums are expected to go up even without the extra tax imposed, meaning that the overall prices could rise significantly.

At present the Treasury earns about £2.3 billion a year from insurance tax revenue. If the rates were to rise to 17.5% the Treasury would gain billions of pounds in tax revenues.

But experts say that the higher premiums could stop people buying policies in order to save money in these cash-strapped times. Higher rates will put more pressure on both households and businesses, and this could see people cutting back on vital home and car insurance and playing the odds.

This can lead to huge financial problems if something goes wrong. The ABI (Association of British Insurers) and BIBA (British Insurance Brokers Association) have both said that they will do what they can to persuade the Treasury not to increase the tax rates before the emergency budget is announced.