THE latest hike in insurance premium tax will undermine good builders who play by the rules and encourage the rise of cowboy builders, the Federation of Master Builders (FMB) has warned ahead of the Chancellor’s spring Budget.

Brian Berry, chief executive of the FMB, said the doubling of insurance premium tax over the past two years has troubling implications for construction small and medium-sized businesses (SMEs) and home owners alike.

He said: “This stealth tax, which is set to rise for the third time in 18 months, effectively provides an additional competitive advantage to unscrupulous and uninsured builders. By driving up the costs of insurance, it punishes those businesses that play by the rules and make sure that they are always covered.

“This is increasing the danger that home owners could be tempted to opt for uninsured builders who are able to offer a more competitive quote.

“This stealth tax may also discourage clients taking out a warranty on building work, which is never advisable practice on a significant building project and could lead to plenty of heartache for consumers further down the line. It’s vital that we get a commitment from the Government that this third rise of insurance premium tax will be the last for this parliament.”

James Dalton, director of general insurance policy at the Association of British Insurers, added that insurance premium tax is a tax on businesses, especially SMEs that often operate on very tight margins and that do the right thing by purchasing insurance to help manage their risks.

He said: “At a time of continued economic uncertainty, with many firms facing increasing costs, the last thing they need is a further hike in insurance premium tax.

“Unlike VAT, no element of insurance premium tax can be reclaimed by businesses meaning they will have to absorb these extra costs – this could cost jobs, drive up prices or companies may decide to reduce their insurance cover, putting them at risk if something goes wrong. Enough is enough, give firms a break and freeze insurance premium tax.”