Budget Aftermath: Insurers to pass cost of new tax to clients

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MOST insurance companies intend to pass the new 3 per cent tax on general premiums on to their customers, it became clear yesterday.

Only Pearl Assurance followed Prudential Corporation's declaration that it would try to absorb the additional cost imposed by Tuesday's Budget. Although Prudential and Pearl insure many thousands of cars and homes, their main areas are life insurance and other long-term savings, which will escape the tax.

Those firms dealing mainly in general policies said they could not afford to take on the extra cost. Commercial Union, General Accident, Royal Insurance, Guardian Royal Exchange, Norwich Union and Legal & General said they intended to pass the cost on. Sun Alliance, Britain's largest general insurer, said it would wait some months before making a decision, which would take underwriting results and premium trends into account.

Kenneth Clarke said the new tax, introduced from next October, would cost the average family an extra 35p a week and raise more than pounds 750m in a full year.

Many insurance bosses are privately angry with Mick Newmarch, Prudential's chief executive, who declared his intention to absorb the cost of the tax within an hour of the Budget speech. One senior insurance executive said: 'I thought his comments were a little ill-founded. It's 3 per cent from next year, but what about the year after that? It could potentially be a bit of a soft touch.'

Insurers fear the Government will raise the tax rate. It is much lower than the rates, ranging between 10 and 30 per cent, paid in Germany, Italy and France.

Prudential said it would reconsider its position if the rate rose, but it was determined to absorb the pounds 10m a year cost of the 3 per cent levy.