That insurance premium tax (IPT) will rise from 5 to 6%, and the higher rate from 17.5 to 20% from 4 January 2011 is not unexpected. Given recent speculation that the rate could have been increased to 10% rather than 6%, it could have been worse for consumers who face a comparatively modest rise in their premiums.
Most insurance is taxed at 5% but travel insurance is taxed at the higher rate. This is the first time IPT has been increased since 1999. IPT was introduced in 1994 at a flat rate of 2.5%. It was increased on general insurance products to 4% in 1997 and to 5% two years later. In 1997 a second higher band of 17.5% was added to include travel policies.
The Chancellor listened to pleas not to increase IPT to 10% or more, so the companies and organizations hoping that he will not implement the increases are wasting their time and have failed to understand how the new coalition government operates.