Stealth tax to pay for Quinn losses

CONSUMERS face a further hike in insurance costs on a day when data reveals Ireland is still one of the most expensive countries in Europe.

The Government was accused of rolling out another stealth tax last night — which could hit consumers for more than a decade — in order to plug losses at Quinn Insurance.

The 2% levy on insurance for consumers will help finance a fund to cover policies in cases where an insurer is unable to meet liabilities. It is expected that over €700 million will be needed from the new Insurance Compensation Fund to cover losses at Quinn Insurance, the Department of Finance said as it announced the charge.

A family spending between €1,000 and €1,500 a year on home and car insurance could pay between €20 and €30 extra annually. However, the levy will not be imposed on life insurance or health insurance policies.

While the full €700m for Quinn Insurance will not be sought immediately from the fund, administrators with the troubled business are expected to need €320m this year alone.

There is only €40m in the fund at present and the state will frontload the other €280m this year to help cover losses in the business. The money will be initially paid to administrators by the state from exchequer funds but will be returned with interest.

The Department of Finance said last night the levy is expected to raise €65m a year, meaning it could exist for 10 years.

The fund will only be available to companies who do a large portion of their business in the Irish market, but it is being set up mainly to cover the Quinn losses.

However, there was criticism of the levy at a time when consumers are already struggling with bills.

The Irish Brokers Association said: “This levy is simply another stealth tax on ordinary consumers who will find it impossible to avoid.”

Consumers’ Association of Ireland chief Dermot Jewell said: “The big difficulty here is… you’re going to pay dearly for the next unforeseeable future because we haven’t got a close-off date [for the levy].”

Conor Faughnan of AA Ireland called the levy a double hit for consumers and said it could affect up to 90% of families.

The department could not say when the levy would be introduced but, with legislation on it set to be passed by the end of the month, the charge will likely come into effect this year.

A similar levy, which lasted almost a decade, was introduced in 1984 after the collapse of insurer PMPA.

Meanwhile, Irish consumers are still paying almost 20% more than the European average for goods and services, despite a drop in inflation, according to the CSO.

Ireland was the fifth most expensive EU state in 2010, after Denmark, Finland, Luxembourg and Sweden, with prices 18% above the EU average.

Elsewhere, the Exchequer deficit remained the highest of any EU member state in 2010, according to the Measuring Ireland’s Progress 2010 report, which was published yesterday.