Insurance costs are set to rise after yet another increase in insurance premium tax – meaning this form of tax will have doubled in less than two years.
In his Autumn Statement, Mr Hammond said that the “insurance premium tax”, which is paid on all insurance premiums, will increase from its current 10pc rate to 12pc from next June, pushing up the cost of home, car, pet and buildings insurance.
Travel insurance is exempt from the rise as it has a separate tax rate.
PwC, the accountancy firm, predicts the tax hike will cost around £25 extra on the average motor insurance bill.
The move will cost UK households an additional £680m next year, rising to an additional £855m in 2021/22.
Mr Hammond said: “Insurance premium tax in this country is lower than in many other European countries, and half the rate of VAT.”
In the Budget earlier this year, insurance premium tax was increased by 0.5 of a percentage point, from 9.5pc to 10pc. At the time the insurance industry had feared a rise to 12.5pc.
But that increase came on top of a rise in 2015 of 3.5 percentage points. This rise meant individuals paid an £13 on insuring the average car and £10 for a pet’s medical cover a year.
Huw Evans, director general of the Association of British Insurers, the industry trade body, said the move was a “hammer blow for the hard pressed”.
“Yet another increase … will hit consumers and businesses alike, hurting those who buy business, motor, property, pet and health insurance. It marks a doubling of insurance premium tax since last year,” he said.
But, as he had been tipped to do, Mr Hammond gave a sweetener to drivers in the form of a Government crackdown on fraudulent whiplash claims.
Autumn Statement | Key points
- No further welfare savings measures
- Increase in Personal Allowance to £12,500 by the end of the parliament, and the Higher Rate Threshold to £50,000 by 2020-21
- Increase in National Living Wage from £7.20 to £7.50 in April 2017
- Ban on letting agents charging fees to renters “as soon as possible”
- New three-year NS&I Investment Bond available from spring 2017
- Fuel duty frozen for a seventh year
- New national productivity investment fund of £23bn to be spent on innovation and infrastructure
- £1bn to invest in full-fibre broadband and trialling 5G networks
- £2.3bn Housing Infrastructure Fund for infrastructure for up to 100,000 new homes in high-demand areas
- Continued support for Help to Buy loan scheme and Help to Buy ISA
- Corporation Tax to fall to 17%
- Salary sacrifice schemes to be subject to the same tax as cash income from April 2017 (pensions, childcare and cycle-to-work schemes exempted)
- Autumn statement abolished. Instead, the UK will hold annual budgets in Autumn from 2017 and hold Spring fiscal statements
He said the Government will pass laws next year focused on this “major area of insurance fraud”, that will save drivers “an average of £40 on their annual premiums”.
However, Mr Evans said that the consultation on whiplash reforms “which hasn’t even gone before Parliament yet” will not offset the tax hike.
Mr Hammond also announced that the the fuel duty rise will be cancelled this year, for the seventh year in a row.
The rise in the oil price over the past year, coupled with the fall in value of sterling when compared to the dollar is expected to push petrol prices up.
However, Mr Hammond says cancelling the fuel duty rise will save the average car driver £130 a year and the average van driver £350 a year.