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.'

PROMOTED VIDEO
News
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave long-running series
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Voices
Holly's review of Peterborough's Pizza Express quickly went viral on social media
voices
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
Sport
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
athletics
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
music
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
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

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam