A “stealth tax” is costing households around £223 per year on average, analysis has found.
Low-income families tend to be hit harder as larger proportions of their income go on insurance, according to the report compiled by think tank the Social Market Foundation (SMF) and sponsored by the Association of British Insurers (ABI).
The report looks at the impact of insurance premium tax (IPT) – a tax on general insurance premiums which is levied on insurance providers but may be passed on to consumers in the form of higher costs.
The standard rate of IPT now stands at 12%, having been hiked several times in recent years.
The amount of revenue raised from IPT in the 2019/20 financial year is estimated to stand at £223 per UK household, the report said.
Around half of what households spend on IPT are amounts passed on by businesses to consumers to cope with this steep tax on their products, the report said.
A higher rate of IPT translates in to lower net profits for businesses and in turn, lower incomes and dividend payments for households, it added.
Huw Evans, director general of the ABI said: “This new report clearly shows how regressive and unfair insurance premium tax is. IPT costs hard-working families £223 a year, just for doing the right thing and buying insurance to protect themselves.
“Businesses and public bodies are also losing out as this tax damages their bottom lines. We urge the Government to cut this stealth tax in the March Budget.”