Punishing ‘stealth tax’ costing low-income households £223 a year

A punishing "stealth tax" is costing hard-working households £223 a year on average, analysis has found.

The report said Insurance Premium Tax (IPT) –  a tax on products such as car and home insurance – is leaving many people worse off.

It's charged to insurance providers – however, critics say it's often passed on to consumers in the form of higher costs.

The report said low-income families are being hit harder by the levy as larger proportions of their income go on insurance.

Think tank the Social Market Foundation (SMF) – which carried out the report – said it's leaving them unnecessarily out of pocket.

There are two rates of IPT: a standard rate of 12%  and a higher rate of 20%, which applies to travel insurance, electrical appliance insurance and some vehicle insurance.

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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."

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