Insurance premium tax needs to be scrapped altogether, industry experts have said.
Speaking in response to the Budget, in which it was announced there would be a review of IPT, Keith Richards, chief executive of the Personal Finance Society, and Huw Evans, director general of the Association of British Insurers, called on chancellor Rishi Sunak to reduce any levy on IPT altogether.
Over previous budgets, the IPT rate has been raised, so that it has doubled to 12 per cent since 2015 and has led to an increase in premium rates charged by insurers.
Earlier this year, a report by the independent Social Market Foundation revealed that IPT is costing households an average of £223 a year. This is up from £87 per year in 2009-10.
The lowest income families are being hit hardest – they have spent 4.1 per cent of their post-tax income on insurance, compared to 1.6 per cent for the highest income households.
In 2017-18 the 12 per cent standard rate of IPT cost the poorest 50 per cent of households an extra half a billion pounds in extra spending, compared to if the rate had stayed at 5 per cent.
Although it was not raised by Mr Sunak, the government has pledged to review IPT.
Mr Evans commented: "Millions customers who do the right thing and take out insurance will be pleased to see that the rate of IPT has not been raised in this Budget.
"The government should consider reducing IPT, as it is a regressive tax that hits the poorest households hardest.”
Mr Richards agreed, highlighting the fact the UK is already gearing up to "battle against the economic fallout from the coronavirus outbreak".
Mr Richards said: “While it is understandable that the government’s focus is on the immediate financial needs of people and businesses affected by the coronavirus it is important that the Autumn Budget focuses on more measures to make sure people have enough cash to last a lifetime.
“The increase to the national living wage and annual allowance for pension saving won’t stop people sleepwalking into a care funding crisis or running out of cash in retirement.
“We hope the government will review ways to improve access to financial advice and guidance for all. I hope the review of insurance premium tax, that was announced in the Budget, will result in this levy being axed as it has increased the cost of cover for consumers."
According to Mr Sunak's "getting it done Budget" - a phrase repeated often during his 104-minute speech, he acknowledged the cost to individuals and small- to medium-sized enterprises that the coronavirus outbreak would bring.
Mr Richards added: “The government needs to rethink IPT and make sure individuals as well as businesses can afford to access insurance that will assist them if work is disrupted, travel plans have to be abandoned or loved ones die.”