Insurance tax hits a wide target: Estimate of an extra pounds 18 a year from consumers ignores impact on many types of common cover

THE AVERAGE cost of the new 3 per cent insurance tax will be 35 pence a week for a 'typical' family with motor, home contents and building cover, according to Kenneth Clarke.

But the overall bill is likely to be higher than the predicted pounds 18.20 a year, because the tax affects a lot of other cover usually taken out by consumers.

The insurance premium tax will bear on travel policies, warranties on electrical goods, private medical insurance, mortgage indemnity, personal liability and accident cover, and even membership of motoring organisations.

A family taking out household and contents cover for a three-bedroom, semi-detached house in Wolverhampton, with premiums of pounds 355 through Eagle Star or pounds 349 with Norwich Union, will pay around pounds 10.50 more.

Costs will differ according to where people live. A one- bedroom flat, part of an apartment block in Hampstead, north-west London, would cost about pounds 613 to insure through Eagle Star or pounds 415 with Norwich Union.

The new insurance levy would cost between pounds 12 and pounds 18 a year for the property cover alone.

Car insurance is similar. A 42-year-old Glasgow midwife pays about pounds 260 for comprehensive cover on her F-registered 1,200cc Vauxhall Nova with Frizzell, and would pay pounds 144 through Eagle Star. Her tax bill would range between pounds 4.50 and pounds 8 a year.

An advertising executive aged 23, with one speeding conviction and living in Stamford Hill, north London, pays about pounds 1,070 with Frizzell for fully comprehensive cover on his E- registered 1,300cc VW Golf. Norwich Union charges pounds 2,000 for the same cover. The new tax would add between pounds 33 and pounds 66 a year.

Insurance companies claim there will be additional hidden costs - running into millions of pounds - involved in setting up the systems needed to administer the new levy. They fear some of those costs may have to be paid by consumers.

Some insurers will try to absorb them. A spokeswoman for Prudential said premiums would not rise for its 2 million customers with household insurance. 'Over the past 18 months, we have reduced premium rates and are confident that further planned improvements in efficiency should enable us to absorb the cost of the tax,' she said.

Frizzell, based in Bournemouth, said it would incorporate administration costs for its 600,000 customers but was not sure about the tax. General Accident will pass on the tax but not the cost of collecting it. Eagle Star, along with the Automobile Association and Sun Alliance, said no decision had yet been taken.

However, David Prosser, group chief executive of Legal & General, said his company was unable to absorb the costs.

Norwich Union, which has about 2 million household and motor insurance policyholders, is also unlikely to follow the Pru's lead. Patrick Smith, a manager with the Norwich, said it might cost several million pounds to set up a system to collect the tax and about pounds 1m a year to administer it.

Consumers will face additional bills whenever they take out travel insurance. A week in the US will cost about pounds 1.20 per person in extra charges, or 75p each week for a fortnight in Europe.

A spokeswoman for the jointly owned Dixons and Currys electrical chains said warranty cover currently stands at pounds 149 over five years for a washing machine, pounds 110 for a 21-inch colour TV, or pounds 138 for a video recorder. Spread over a typical five-year replacement period, the tax on all three items will be about pounds 2.50 a year.

House buyers, who currently move home every seven years on average, also face higher mortgage indemnity bills. Nigel Grinsted, of the insurance advisers Special Risk Services, said the average one-off premium of pounds 1,000 for a pounds 50,000 mortgage will cost an extra pounds 30.

Membership of motoring organisations will also cost more. A couple with joint membership of the AA, using its Super Relay and Homestart services, will pay pounds 2.90 on top of the pounds 97 annual charge.

Bupa, the health insurer, said its most popular private medical scheme costs a couple, aged 35 to 39, with two children, about pounds 840 a year. The new tax will add a further pounds 25.

Alan Ainsworth, the company's marketing director, said: 'This tax does appear to be counter-productive. It will deter some people from joining. If the Government's objective is of helping NHS resources to go further, there is a need for more incentives for medical insurance, not less.'

News
The Edge and his wife, Morleigh Steinberg, at the Academy Awards in 2014
peopleGuitarist faces protests over plan to build mansions in Malibu
Sport
Cristiano Ronaldo in action for Real Madrid
football
Voices
Nigel Farage has backed DJ Mike Read's new Ukip song
voicesNigel Farage: Where is the Left’s outrage over the sexual abuse of girls in the North of England?
Life and Style
The Zinger Double Down King, which is a bun-less burger released in Korea
food + drinkKFC unveils breadless meat beast
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer with T-SQL, Watford, Hertfordshire - £350 - £360

£350 - £360 per day: Ashdown Group: SQL Developer with T-SQL, Watford, Hertfor...

Chief Financial Officer

120-150k: Accountancy Action: We are looking for an experienced CFO from a min...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?