Households will face bigger insurance bills after the Chancellor announced a second hike to premium tax in five months.
Families are already paying on average an extra £100 per year because of the rise in November, triggered by floods in northern England.
But George Osborne unveiled another increase in insurance premium tax, from 9.5 per cent to 10 per cent, during his Budget today.
Mr Osborne said he would raise the standard rate of insurance premium tax by ‘just half a percentage point – and commit all the extra money we raise to flood defence spending’.
November’s premium tax hike was even steeper, rising from 6 per cent to 9.5 per cent.
Some £700 million generated from the extra insurance taxes will go to strengthening and maintaining defences in areas ravaged by recent floods.
Premium tax hikes will affect policies for cars, households, private medical insurance and even pets.
Experts warned the changes will hit the youngest, oldest and sickest the most, as well as those who live in flood-prone areas or inner-cities. These households already pay more for their motoring, medical or home insurance.
Young drivers will pay on average an extra £50 a year under the two increases, the AA said. It urged the Government not to treat young motorists as ‘wallets on wheels’.
Older drivers, who already pay high premiums, are also likely to be hit harder by the increase.
Cash-strapped households could feel forced to reduce or even abandon their insurance cover, under what the Association of British Insurers warned was a ‘raid’ on responsible consumers.
The British Insurance Brokers’ Association (Biba) said it was ‘astonished’ at the further increase in the premium tax.
It said the latest rise means that, year-on-year, insurance buyers have faced an increase in tax of 66.6 per cent since March 2015.
The AA had raised fears last week that the tax could be increased to as high as 12.5 per cent.
Edmund King, AA president, said: ‘The Chancellor has listened to our campaign against a 3 per cent hike in insurance premium tax and 0.5 per cent increase is better than expected.
Using it for flood defences is helpful but it simply replaces past spending cuts and targeting motorists to pay for flood alleviation is robbing Peter to pay Paul.’
Huw Evans, director general of the ABI, said: ‘A further increase in IPT is disappointing news.
‘Increased investment in flood defences is vital but should be part of core Government expenditure, not an afterthought paid for by raising taxes on people and businesses who do the responsible thing in protecting themselves through insurance.’
The extra £700 million in flood defences and maintenance by 2020-21 is on top of £2.3 billion government funding already committed.
The funding includes £150 million for the flood-hit areas of Leeds, York, Calder Valley, Carlisle and wider Cumbria.
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