Customers and business will be hit in the pocket, say industry watchers

The Government is being warned it will be hitting the customer in the pocket if it hikes up insurance premium tax (IPT).

The emergency budget takes place on Tuesday, with the Government expected to announce an increase in IPT.

CBG Group director Steve Howell said: "A large increase in the current level of Insurance Premium Tax (IPT) will have an impact on the public's decision whether or not to buy and if they do buy, at the right levels.

"Householders may decide reduce their levels of cover or worse decide not to insure and we have already experienced the difficulties this brings following the floods of the recent years."

The Manchester-based broker director continued: "There is already a major concern with the number of uninsured drivers in this country, particularly amongst young drivers and this will only deter people from buying insurance in the future. When you consider the current premium levels for young drivers, the impact of such an increase on their decision to buy cover could be a major factor.

“We also have concerns for the Business sector regarding such an increase in tax. Although there has been an expectance over some years that an increase in this tax from the current 5% would be an easy target, the timing of such an increase is at best unfortunate.

"Many businesses are looking to trim costs in this difficult climate and one such cost they are reviewing is their Insurance spend and the level of coverage.

"At a time when many businesses are experiencing a large reduction in their reserves and therefore their ability to "self-insure", they clearly require greater insurance protection rather than less. An increase in tax at this time may dissuade businesses to continue to adequately protect themselves with insurance leaving them exposed in the event of a claim."

Elite Insurance managing director Charles Wright said: “If an increase of the suggested magnitude happened, then the number of uninsured motorists would increase, hence an increased burden upon those motorists who do insure. Politically it could be said the middle classes may have a double whammy, paying increased premiums for themselves & others."

“Any discouragement to buy legal expenses cover is clearly detrimental with successive governments having withdrawn legal aid from many segments of civil litigation.”