Kenneth Clarke, the Chancellor, is planning to raise more than pounds 1bn in extra taxes by announcing in his Budget speech that insurance premium tax, the levy paid on a wide variety of insurance cover, will rise by 140 per cent.
Customs and Excise officials are believed to have been instructed to prepare for the extra tax to be levied as soon after the Budget as possible.
Treasury estimates are thought to show that every household in Britain may have to pay about pounds 32 more a year if insurance premium tax is raised from 2.5 per cent to 6 per cent, as planned.
But some experts argued yesterday that the additional bill could be at least twice that amount, with young people and those living in inner cities being hit the hardest.
Among the different policies expected to be hit by the increase in IPT are warranties on electrical goods, private medical insurance, mortgage indemnity cover, all personal liability and accident cover, travel insurance and even membership of motoring organisations.
Mark Wood, managing director at AA Insurance, said: "A young driver in an inner-city area may be paying pounds 50 in IPT, whereas an older driver in a rural area may be paying as little as pounds 10."
A spokeswoman at the Automobile Association added last night: "We think it is unreasonable of the Government to levy taxes which disproportionately affect people who can least afford it.
"Car insurance, for example, is required by law. How can it be right for drivers to pay more in taxes simply by virtue of the area they live in?"
The AA's home insurance service said yesterday that a postman living in a two-bedroom flat in Truro, Cornwall, would be paying pounds 13 in tax towards the cost of insuring his home.
Insurance premium tax was first announced by Mr Clarke in his 1993 Budget. When it was introduced in October last year, the tax was expected to raise pounds 760m a year. However, the fall in motor and household insurance has meant a shortfall to the Treasury of about pounds 20m.
Mr Clarke claimed that the amount of cover paid by an average family on all its usual household insurance bills would be about pounds 18 a year. A family of four taking a two-week holiday in Europe could expect to pay pounds 8 extra between them towards the cost of travel insurance.
Bupa, the private medical insurer, said raising the IPT levy from 2.5 to 6 per cent would add pounds 17.50 a year to the cost of its medical cover.
David Bryant, head of communications at Bupa, said: "This tax is going to make cover more expensive at a time when the general thinking is to move the pressure away from the state and encouraging people to take out private provision instead."Reuse content