Business

Insurance tax rise 'a raid' on consumers, says industry

flooded river in York Image copyright Getty Images
Image caption Money raised from the tax increase will be spent on flood defences in the north of England

An increase in Insurance Premium Tax (IPT) which takes place on 1 October amounts to a "raid" on consumers, the industry claims.

IPT, which rose to 9.5% last November, rises by half a percentage point on Saturday, to 10%.

Consumers who have policies covering cars, homes, pets and medical bills will all have to pay more.

However, the government said insurers did not have to pass the "small increase" on to their customers.

The extra money raised by the tax will be used to build new flood defences in Yorkshire and Cumbria.

Under the IPT changes, the average motor policy will rise by £2 a year, while the average buildings policy will go up by £1.60, according to the ABI.

At the same time, the National Minimum Wage (NMW) will also rise, for all workers under the age of 25.

Young people

"These two IPT increases are a raid on the responsible, taking advantage of those who already do the most to avoid becoming a burden on the state," said ABI director general Huw Evans.

However, the government said the increase would benefit insurers directly.

"The revenue raised by this 0.5% increase will directly boost spending on flood defence and resilience by more than £700m - an area in which the ABI has called for more government investment," a Treasury spokesperson said.

Image copyright Thinkstock

The RAC said young people would be hit particularly hard by the rise.

It said a typical young driver policy costing £1,500 a year before tax will now have £150 added to it to cover IPT.

Both the RAC and the ABI are asking the chancellor not to raise the tax further in the Autumn budget.

Minimum Wage

Pay rates under the NMW also rise on Saturday.

For those between 21 and 24, the rates will rise from £6.70 an hour to £6.95. Those over the age of 25 are paid according to the National Living Wage, currently £7.20 an hour.

New National Minimum Wage rates ( from 1 October 2016)
Age Old rate New rate
21-24 £6.70 £6.95
18-20 £5.30 £5.55
16-17 £3.87 £4.00
apprentices £3.30 £3.40

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