Insurance Premium Tax (IPT) may increase to 12.5% in Wednesday's Budget according to sources from Westminster and the insurance industry.
Senior Westminster sources have indicated that the Chancellor may slip another 3% IPT increase under the radar in the Budget.
The tax on IPT has affected private medical insurance products with insurers passing on the subsequent premium increases to the customer.
The Treasury has said it would not comment on speculation about the Budget.
Adrian Smith, global head of Insurance Premium Tax at KPMG said: "Given IPT was raised from 6% to 9.5% last summer, the tax would have more than doubled in 9 months if it did rise to 12.5%. Increasing IPT to 12.5% is likely to generate an additional £1.5bn for the government, bringing the total IPT take to £6bn per annum.
"Speculation over a possible increase in IPT is of course bad news for UK insurers but should worry us all. We are already under-insured as a society and any increase in premiums will inevitably lead to some individuals or businesses deciding to do without as the costs are passed on to end users.
"Foreign based insurers who do not always take IPT into account when underwriting risks located in this country, may look to benefit further, though consumers should be mindful that they may not have the same level of regulation or protection.
"In European terms the mooted rate of 12.5% is higher than the average Member State rate. The UK insurance industry is a major strength for the economy and the politicians must ensure it remains competitive."
Further reading
ABI: Further IPT increase would be ‘double blow' for UK businesses
REVEALED: The health insurers passing on the IPT rise to employers
