Moneyfacts.co.uk will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by Moneyfacts.co.uk will always be from email@example.com. Be Scamsmart.
The latest increase to insurance premium tax (IPT) came into effect yesterday (1 June 2017), and unfortunately, it means millions could be hit with higher insurance bills in the weeks and months ahead. So how can you make sure your bills don't escalate too much?
The rate of IPT edged up by 2% yesterday to stand at 12%, but that's not the only increase it's had in recent years. Indeed, it's now doubled in little more than 18 months – it initially stood at 6% in November 2015, since when the rate has increased on no less than three occasions.
This has "significantly added to the cost of policies", said the British Insurance Brokers' Association (BIBA), and thanks to the latest uptick, those costs won't be coming down anytime soon. After all, it's highly unlikely that providers will absorb the extra costs – instead, they'll be passing them onto consumers, who will see higher premiums as a result.
Steve White, chief executive of BIBA, called the rapid increase in IPT "unprecedented", saying that over the previous 18 years, the rate had only edged up from 4% to 6%.
"The Chancellor has indicated that more increases are possible, so this remains a massive cause of concern," he said. "Let's be clear about this – it is a tax on protection and penalises those that take the burden off the state by showing responsibility and prudence. We feel this rise is counter-productive to what Government should be doing, and we're calling for a freeze of the tax for the term of the next Parliament."
Whether or not such a freeze comes into force remains to be seen, but it'll do little to help those already facing higher insurance bills. According to BIBA, the latest increase will affect some 20.4 million home owners/renters with contents insurance, 20.1 million drivers with car insurance, 3.2 million home owners with mortgage protection, 1.9 million people with private medical insurance, and 3.4 pet owners with pet insurance.
Not only that, but those that pay more for their insurance will face the heaviest burden, which means those in less well-off areas, younger drivers and those in flood risk areas could be disproportionately affected. For example, BIBA calculated that the tax contribution of young drivers paying £2,000 per year for a car insurance policy will be £240 per year, compared with £120 just 19 months ago.
Unfortunately, there's nothing you can do to escape the latest IPT hike – but there are things you can do to lower your insurance premiums in other ways. One of them is to thoroughly compare quotes when it's time to renew your policy, and absolutely never go straight back to your current provider without seeing what else is out there.
Hopefully, new rules that stipulate insurers have to put the previous year's premium alongside the renewal price should encourage greater levels of shopping around, but you don't need to wait until you receive the renewal notice to get searching. Start the process by heading to our insurance quote tools to get a head start, and hopefully you can bring down your insurance premiums, despite the latest tax hike.
Find out more about how to compare insurance quotes
Check out some of the best ways to get cheaper car insurance
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time. Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. Moneyfacts.co.uk will receive a small payment if you use their services after you click through to their site. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.