Norfolk's insurers warned that customers may have to pay more for their premiums after the chancellor announced a tax raid on the insurance industry.

Eastern Daily Press: Chris Gibbs of Alan Boswell Group. PHOTO BY SIMON FINLAY.Chris Gibbs of Alan Boswell Group. PHOTO BY SIMON FINLAY. (Image: Archant Norfolk)

George Osborne will increase the insurance premium tax from 6pc to 9.5pc, which will boost government coffers by £530m to the end of next March, before rising to an extra £1.5bn or more a year from 2017/18.

Aviva estimates that the tax on an average car insurance premium of £360 would rise by around £12, while the tax on the average home insurance premium could increase by £9.50.

The Treasury claimed the UK will still have one of the lowest standard rates of insurance premium tax compared to the rest of the European Union. It comes as Mr Osborne revealed in the budget a further clampdown on charges by claims management companies, which have been blamed for increasing costs to the insurance sector.

Aviva said it was 'surprised' by the decision to raise the insurance premium tax, as it had been working closely with the government to tackle claims fraud and drive down the cost of premiums.

'The increase in insurance premium tax will directly hit the pockets of motorists and homeowners,' the Norwich-based insurer said.

'Given that we have been working closely with the government to help reduce the cost of motor insurance, we're disappointed, and surprised, that they've taken this opportunity to increase prices for consumers.'

Some insurance companies are already absorbing costs and offering cheaper premium prices in order to gain large numbers of customers and undercut the competition – a move which sees some running at a loss.

Chris Gibbs, managing director of Norwich-based Alan Boswell Insurance Brokers, said: 'Because of the pressure already on insurers to trim costs down to a minimum we believe that in most instances the increase will have to be passed on to the consumer rather than absorbed by the industry.

'However, competition remains fierce and so some insurers are bound to use the opportunity to absorb the costs in the short term. For businesses the increase will be more dramatic as the premiums tend to be much higher.

'We would expect there to be cost increases but there may be opportunities in certain cases for insurers to squeeze their profit margins and not pass on the full effect of the tax increase.'

The British Insurance Brokers' Association said it was a 'stealth tax' that would hit 20.1 million households with contents insurance, 19.6 million with motor insurance and 17 million with buildings insurance.