A planned increase to Insurance Premium Tax (IPT) could be detrimental to good builders "who play by the rules", according to the Federation of Master Builders (FMB).

Brian Berry, Chief Executive of the FMB, said the doubling of the tax over the past two years has "troubling implications for construction SMEs and homeowners alike".

"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," he said.

"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 homeowners could be tempted to opt for uninsured builders who are able to offer a more competitive quote. The 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.

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"It's vital that we get a commitment from Government that this third rise of IPT will be the last for this parliament."

James Dalton, Director of General Insurance Policy at the Association of British Insurers, said a further hike could "cost jobs, drive up prices or companies may decide to reduce their insurance cover".

"Insurance Premium Tax is a tax on businesses, especially SMEs that often operate on very tight margins, 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 IPT. Unlike VAT, no element of IPT 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."

(LM/MH)