The hon. Lady and I can duel with statistics all afternoon, but I wanted to point out that it was the 17 and 18-year-olds who pay a substantial amount more than those in their 20s. I think she is probably quoting statistics relating to 17 to 25-year-olds. Nevertheless, the changes need to be seen in the context of the amount that young drivers are saving and the opportunities they may have from using a telemetric device to measure their driving performance.
Finally, I want to say a word about implementation. We recognise that the insurance industry needs notice to effect the changes. We have tried to ensure a smooth implementation of the new rate by following the approach agreed by industry representatives and HMRC back in 1995. That sets out transitional arrangements required by the insurance industry to account for the tax at the new rate. The rate, as we said, comes into effect on 1 November, which provides a period of nearly four months from the date the measure was announced. There is a further four-month statutory concessionary period for insurers who have elected to account for the tax using a special accounting scheme. In simple terms, the concessionary period ensures that premiums for policies beginning before 1 November will be taxed at the current rate effectively until 1 March 2016.
That leads me to the Opposition’s amendment, which proposes that a report be produced on the impact of the change in the standard rate of insurance premium tax as soon as three months from the enactment of the Finance Bill. It calls for the report to be undertaken very soon at a time when the impact of the rate will have hardly begun. That is why we will not agree to the amendment this afternoon and encourage the hon. Lady to withdraw it.
The impact of any increase in the rate of insurance premium tax will depend on whether insurers change their prices to pass on the increase. As I have said, it is a tax on insurers, not customers, and we are aware of at least one insurer—we heard earlier of another example—that has pledged to absorb the cost of the increase for at least one year. We think this is partly because insurers have benefited, and will continue to benefit, from the reductions in corporation tax announced in the Budget. Any such benefit might encourage more of them not to pass on this additional cost.
We have investigated what the overall distributional impact would be if all insurers passed on the entire rate rise. If the entire rate rise of 3.5 percentage points were passed on, households in the top income decile would pay just over £1 a week more for their insurance, while the additional costs for those in the bottom income decile would be less than 40p a week. We calculate that almost two thirds of the overall distributional impact will fall in the top half of the income distribution.