ANYONE in the market for a new insurance policy could be in for a little bit of a shock. Having already risen from six per cent to 10 per cent between October 2015 and October 2016, insurance premium tax (IPT), which as its name suggests is a tax paid on general insurance premiums, has now been lifted to 12 per cent, meaning the rate has doubled in less than two years.

With everything from home, motor, pet and private medical insurance affected, the Association of British Insurers has estimated that the latest hike could add an extra £47 to the average annual household bill.

According to the British Insurance Brokers' Association (BIBA) the rises for some, particularly those who already pay the most for their insurance, such as those in less-affluent areas, young drivers or those in flood hotspots, could be much higher.

A young driver paying an annual premium of £2,000, for example, will see their bill increase to £2,240 once the tax has been added on. Just 19 months ago the tax would have taken the total to £2,120.

Car insurance premiums had already been rising after the Government introduced changes earlier this year to the way personal injury payouts are calculated. That move is thought to have added between £50 and £75 a year to a typical comprehensive policy.

Pointing out that the IPT rise will see the Government “rake in over £7 billion a year in IPT from UK insurance customers”, BIBA chief executive Steve White said the rapid rise over recent years is unprecedented.

“Between 1997 and 2015, a period of 18 years, there were only two rate rises, taking the rate from four per cent to six per cent,” he said.

“The Chancellor [Philip Hammond] has indicated that more increases are possible, so this remains a massive cause of concern for our member brokers’ customers – who are also experiencing significant premium increases following the Government’s changes to catastrophic injury awards.

“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.”

James Dalton, director of general insurance policy at the ABI, agreed, saying it is “time to call a halt to this raid on the responsible”.

“This tax penalises hard-working families, as well as businesses, who have done the right thing by taking out insurance to protect against many of life’s uncertainties,” Dalton said.

“This latest hike must be the last. The next Government must freeze this tax, to give hard-working households and businesses a break.”

Freezing the rate at its current level will not really give people much of a break, though, seeing as it would simply lock in already-inflated prices. However, Matt Oliver of price comparison website GoCompare noted that there are steps people can take to knock down the premiums their taxes are based on.

“These include paying for their policy annually, adding an experienced named driver [to care insurance policies] and buying their policy as far in advance as possible,” he said.

Noting that the IPT rise is most likely to have an impact on motor insurance policies, which tend to have higher annual premiums than other household insurances, Oliver said the best way to try to bring the cost down is to shop around for a new provider or policy.

“Motor insurance, where the most people will have felt these rising premiums, is a captive audience and insurers and the Government have taken advantage of this for too long,” he said.

“As the cost of living continues to rise and savings rates remain pitiful, to continually punish drivers with higher premiums is cynical at best.

“Shopping around for your car insurance could save you up to £286 a year. It’s likely most motorists will see their premiums rise substantially at renewal this year and with drivers already being hit with an IPT rise, they need to make sure they’re not paying a loyalty tax as well.”

The good news for anyone preparing for their summer holiday is that IPT on travel insurance has not been affected by the recent rise. This will only be of limited comfort, mind, seeing as the amount of tax paid on travel as well as electrical appliances cover has been set at 20 per cent for the past six years.