UK Chancellor George Osborne has increased the insurance premium tax by 0.5 percentage points to 10% in his latest budget.

This follows an increase announced in last year’s budget, from 6% to 9.5%, that was effective from November 1.

Mr Osborne has defended the increase by noting the extra revenue raised – £700 million ($1.43 billion) – will be spent on flood defences.

But Association of British Insurers Director-General Huw Evans is unmoved by the Chancellor’s explanation, and says the increase is “disappointing news”.

“Increased investment in flood defences is vital, but should be part of core government expenditure, not an afterthought paid for by raising taxes on people and businesses that do the responsible thing in protecting themselves through insurance,” Mr Evans said.

British Insurance Brokers’ Association CEO Steve White agrees. He is “astonished” that a further increase in insurance premium tax is required to strengthen flood defences. 

“[The] announced increase… means that, year on year, insurance buyers face an increase in tax of 66.6% since March 2015,” Mr White said.

“While we support the additional spending on flood defences we believe this could have been funded by the projected £1.5 billion ($2.84 billion) annual funds paid to the exchequer as a result of the increase in insurance premium tax put in place only last November.”