UK Chancellor of the Exchequer George Osborne angered Britain’s insurance industry by unexpectedly increasing a tax on policy holders that is expected to raise an extra 1.8 billion pounds ($2.8 billion).
The insurance premium tax will be increased to 9.5 percent in November from 6 percent, Osborne told lawmakers in London on Wednesday in his summer budget, adding that the costs of premiums for consumers were down on previous years. The tax already generates about 3 billion pounds a year, according to estimates by KPMG.
“The contention that falling premiums somehow justifies the tax increase is outrageous,” Janet Connor, managing director of AA Insurance, said in a statement. “Because of intense competition, new business is usually sold at a loss. This can therefore only put greater upward pressure on premiums as a whole.”
The increase in the levy hits an industry that’s seen prices decline on increased competition from price-comparison websites, prompting some companies to write less business. Firms including KPMG and Ernst & Young LLP have warned Osborne’s new measures may result in consumers reducing cover.
While 9.5 percent “doesn’t sound significant, it is in fact an increase of more than 50 percent of the standard rate,” said David Bearman, a UK insurance tax specialist at Ernst & Young. “The most prominent concern is that it will drive a number of consumers to forgo buying insurance.”
Even so, car insurers closed higher in London trading. Admiral Group plc and Esure Group plc climbed 1.4 percent and 2.3 percent, respectively.
Was this article valuable?
Here are more articles you may enjoy.