A ‘stealth tax’ levied at 20% could lead holidaymakers to travel uninsured this year, an insurance specialist has warned.

Travel add-ons company EssentialTravel.co.uk says that UK insurance premium tax (IPT) at 20% is double the rate of many other countries in Europe.

The higher rate was originally created to stop travel companies selling cheap package holidays but adding on expensive travel insurance policies, which were not liable for tax at the time.

The government is collecting £103 million a year as a result.

But Essential Travel argues that the higher rate should be removed from insurance policies, and promised to pass on savings to the consumer if this happens.

The company is concerned that the high level of IPT may prevent some holidaymakers from investing in protection for when they are abroad.

Spokesman Stuart Bensuan said: “Excessive insurance charges caused by hidden taxes discourage holidaymakers from buying travel insurance, which flies in the face of policy advocated by the Foreign Office.

“These stealth taxes seem to demonstrate a government which is not joined up, and is happy to put its citizens at risk.

“The other fear is these taxes present an excuse for the government to fill a sizeable budget deficit. There is immense value derived to the UK economy from travel, and a more equitable tax regime needs to be established.”

He added: “Continued taxation across the sector will inflict high prices to consumers and potential economic damage to the industry and the UK economy.

“It is hard to understand why the government would risk damaging such an important part of the economy in such unprecedented hard economic times. I would like to ask the government what they intend to do about this?”