The Association of British Insurers (ABI) has cautioned the UK Government against raising the insurance premium tax (IPT) in its upcoming budget, warning it could encourage consumers to reconsider their levels of protection.

Director of General Insurance Policy James Dalton says the tax “penalises the millions of people and businesses throughout the UK who do the right thing by taking out insurance to protect themselves against life’s expensive uncertainties”.

“At a time when personal injury costs are pushing up average motor insurance premiums, a further rise in IPT is the last thing the UK’s hard-pressed motorists need,” he said.

The tax has been raised four times since its introduction in 1994, when the standard rate was set at 2.5%. Its last increase was in November, up to 9.5% from 6%.

The ABI estimates the November rise will boost state coffers by more than £8 billion ($15.9 billion) over the next five years. A family with two cars, a pet and medical insurance can expect to pay an extra £100 ($200) a year because of the increase.

“The UK insurance market is highly competitive, but affordable insurance cannot be taken for granted,” Mr Dalton said. “IPT should not be seen as a soft touch [by the Government], because further increases will hit people in the pocket hard, or even worse could see people starting to reduce or drop their cover altogether.

“And with the Government keen to encourage less reliance on the state, any move that raises the cost of private medical insurance would be counter-productive.”

Chancellor George Osborne will unveil the 2016/17 budget on March 16.