Budget 2016: Insurance companies furious at levy for floods

The chancellor said the £900 million raised from a hike in insurance premium tax would be used to build 1500 new flood defences

Linking tax rises to specific spending is rare because taxpayers never normally know how money is spent (Getty Images)

Raising insurance tax to build more flood defences could set a dangerous new precedent and pave the way for future taxpayer rebellions, according to insurance firms.

The chancellor said the £900 million raised from a hike in insurance premium tax would be used to build 1500 new flood defences.

But charging insurance customers to fund infrastructure spending was slammed by the industry.

Linking tax rises to specific spending is rare because taxpayers never normally know how money is spent.

The ring-fencing tactic has been frowned upon by previous governments but George Osborne has made this a mark of his tenure, including yesterday’s sugar tax, which will fund schools sports.

Cormac Marum, from Harwood Hutton, warned the move paves the way for “conscientious objectors”, who rebel against certain taxes. “More people will justify not paying a certain tax on moral grounds. You can’t have people having a menu of taxes to pick and choose from,” he said.

The 0.5% increase set off alarm bells in the industry.

The AA criticised it for unfairly burdening motorists. “Using it for flood defences is helpful but it simply replaces past spending cuts.