Working families will be hit with a double whammy of a huge “stealth tax” on insurance and a tax crackdown on employee benefits as the government raids household budgets to help fund giveaways elsewhere.
The average family will pay 90 more for car and home insurance (among others) next year than in 2015 after the chancellor announced the third increase in insurance tax in 18 months. Understandably, these are few of the essential policies which not only keep us as individuals covered from any unforeseen event, but a simple policy like a pet insurance could protect our furry friends too!
Workers who benefit from company perks such as mobile phones, gym membership, or regular health screenings, like the ones provided by Eden Health or similar health insurance companies, are likely to feel valued and taken care of, which can help facilitate employee retention. However, there is also a chance that they might need to pay a lot more money in tax each year under reforms to salary sacrifice schemes.
Earners in higher tax brackets will lose the most from the changes, which will exclude everything but pensions, childcare, the greenest company cars and bicycles from the popular schemes.
In another quietly released change, the government has imposed a tax rise of 200 a year for people earning more than 43,000 after raising the salary level on which people have to pay national insurance at 12 per cent.
Motorists were given a reprieve from a planned increase in fuel duty that would have cost the average driver 130 over the next five years. Car insurance bills have already increased by an average of 33 this year to more than 440 as the cost of claims has soared.
Young drivers will be particularly hard hit because they already pay most for cover. The average policy for the under 25s costs more than 1,200 a year, which is why they may feel more inclined than most to look for car insurance companies phone numbers that offer them the best and most low-cost deals they can get their hands on. If they do decide to do this, such a surge in price will be slightly easier to handle, as less pressure will be put on their finances going forward.
The tax increase, which will come into force on June 1 next year, will also wipe out much of the benefit motorists were expecting from a crackdown on fraudulent whiplash claims.
Last week, the government said the cost of car insurance should fall by about 40 a year because of its plans to cap cash or ban payouts for whiplash.
Tony Sault, an insurance expert at EY, the consultancy firm, said: “Reforms to whiplash claims will be welcome when they come in, but motorists are unlikely to see any cost savings until 2018. In fact, premiums are expected to rise in 2017 for the third year running, adding a further 13 to the annual bill.”
The plans were met with anger by insurers. Huw Evans, of the Association of British Insurers, said: “It will hit consumers and businesses alike. To claim a consultation on whiplash reforms will offset this just won’t cut it,” he added.
Motoring groups also condemned the increase, with Mark Godfrey, of the RAC describing it as “the stealth tax of our time”. He also warned the government that the move risked increasing the number of uninsured drivers on the road. “The chancellor may now be at risk of encouraging some hard-pressed motorists to break the law, which will further increase premiums for law-abiding drivers.”
Insurance premium tax was first introduced by the Tories in October 1994 at a rate of 2.5 per cent and last night insurers said that further increases now appear inevitable.
Tulsi Naidu, of Zurich Insurance, said: “The tax is still a long way short of VAT [at 20 per cent] which we may have to assume is a level where the Treasury sees this going in the future.”
Matt Oliver, of Gocompare.com, the comparison website, added: “Unfortunately, this tax seems to be a well of easy money. However, what people can and should be doing to minimise the impact of this hike is making sure they are regularly shopping around to find the best deal available for their circumstances.”
Stealth taxes: how it will hit your pocket
● Workers earning more than 43,000 will pay 200 a year more through a national insurance change.
● People will pay hundreds of pounds more a year for employee perks such as mobile phones, health screening and gym membership under changes to salary sacrifice arrangements.
● The average family will pay 90 more for car, home and pet insurance next year than they did last year.