The Government should cut a tax that adds to the cost of insurance policies and boost investment in flood defences in the spring Budget, to ease the impact of the cost-of-living crisis and protect households, brokers have urged.
The British Insurance Brokers’ Association (Biba) said the measures it is calling for could “make a difference” to people as they struggle with the cost of living.
It has called for a cut to the headline rate of insurance premium tax (IPT) from 12% to 10%.
Biba also said multi-occupancy residential buildings which require cladding remediation should be exempt from IPT.
IPT is a tax on general insurance premiums. It is levied on insurers but the costs are passed on to consumers, through what they pay in their premiums.
The Association of British Insurers (ABI) recently estimated that IPT adds £67 to the average motor premium.
The average premium paid for private motor insurance was £627 in the final quarter of 2023, according to the ABI’s figures, with rising repair costs, including labour and energy bills, having put an upward pressure on prices.
A higher 20% rate of IPT applies to travel insurance, but Biba called for IPT on travel cover to be brought in line with the standard rate.
Graeme Trudgill, Biba’s chief executive, said: “We know individuals are struggling due to the cost of living, and this sits at the heart of our calls to action in our latest manifesto and our Budget submission.
“Recently there have been multiple stories about individuals cutting back on their insurance cover levels, or in extreme cases, cancelling cover entirely and we believe that these measures will make a difference.”
To help households in flood-affected properties, Biba said flood resilience materials should be exempt from VAT and a proportion of IPT receipts should be ring-fenced to specifically fund flood defence investments.
Mr Trudgill added: “2024 marks the start of the election year, and at a time when political parties are trying to appeal to the country for support, they need to consider the realities people are experiencing. Particularly when their key economic targets include growth and economic security.
“We believe the measures we have set out would help increase the attractiveness of insurance; deliver cost savings for individuals; and improve wider resilience against flooding.
“Ultimately, insurance brokers always have customer protection at the heart of what they do, and we believe the upcoming spring Budget is a great opportunity for the Government to act on this at a national level.”
The spring Budget will be held on March 6.
Homeowners struggling to obtain flood cover can use a flood insurance directory. The directory, a collaboration between Biba, the ABI and the Flood Re scheme lists specialist flood insurance providers.
A Government spokesperson said: “We’re fully committed to protecting communities from flooding, which is why we’ve doubled our investment to a record £5.2 billion between 2021 and 2027 – helping to directly protect over 100,000 properties from recent storms, as well as keeping hundreds of thousands of acres of farmland and thousands of businesses safe.”
Tax policies are decided by the Chancellor at fiscal events in the context of wider public finances.