The rapid increase in premiums for car, pet and home insurance has brought the government a windfall worth more than £8billion.
HM Revenue & Customs reports that with one month remaining in the 2023-24 fiscal year, insurance tax receipts have reached a new record of £8.1 billion. This is an increase of 9.9 percent over the £7.34 for 2022-23. HMRC collected £1.53 billion just in February, and insurance premium tax raised more money for the Treasury than inheritance tax this year.
General insurance policies, such as car, home, pet, and health, are subject to a tax of 12 percent. Although the insurance premium tax rate has been frozen at 12 percent since June 2017, it increased from 10 to 12 percent. However, the rising cost of premiums has led to a higher tax take. According to the Association of British Insurers, 84 percent of British households pay this tax.
ABI reported that the average premium for car insurance rose by 34 percent to £627, a record-high, in the last three months of the previous year. The average premium for home insurance rose by 13 percent to £341. Before the budget, the association called on the chancellor to reduce the rate of the insurance premium tax. According to them, this added £67 to an average car insurance premium.
Cara Spinks from OAC’s actuarial consulting firm said: “The bumper haul of tax demonstrates the importance of this tax for the exchequer, as well as impact that rising premiums have on household budgets.” The financial pressure felt by many when renewing their policies has contributed to the rise in IPT revenues.
The rise in premiums is attributed to the high cost of handling claims, which includes the increased costs of parts, labour, energy, and extreme weather, leading to more claims for home insurance.
According to EY, car and home insurance companies have had some of the worst years in history in 2022 and 2023, when they paid out more claims than they received as premiums.
Direct Line, Britain’s biggest insurer, reported last week a £189.5m operating loss with a net insurance margin negative of 8%. Direct Line increased its car insurance rates last year, from £445 on average in the second quarter, to £537 at the end of the calendar year. Adam Winslow suggested that premiums could rise further.
EY predicted that home insurance premiums would rise by 16 percent this year, and car premiums will rise another 10 percent. The Office for Budget Responsibility predicted that premium tax receipts from insurance would reach £8.7 billion per year by 2027-2028 in its forecasts, published along with the budget on March 6.
The ABI stated: “We have long said that the insurance premium tax is an attack on those who protect themselves against financial shocks, and penalises them.”