Osborne also promised to review the regulation of claims management companies while he said the government will cap the charges that can be applied to customers.
He told a packed House of Commons: “Britain's insurance premium tax is well below tax rates in many other countries.
“I am therefore today raising insurance premium tax which applies to only one fifth of all premiums to 9.5%, effective from this November.
“With these measures I am putting in place an approach for taxing banks and insurers over this Parliament which is sustainable, stable and fair.”
Osborne’s announcement has angered the head of trade body the British Insurance Brokers' Association Steve White.
White said: “We are extremely disappointed in this rise in insurance premium Tax and will mean insurance will become more expensive for the public as a result.
"Those hit by this stealth tax will include the 20.1 million households with contents insurance; 19.6 million with motor insurance and 17 million with buildings insurance.
“The government has been working with the industry to reduce the cost of insurance for consumers – including a summit chaired by the Prime Minister. It therefore seems counterintuitive to be taking measures which will add to the cost – effectively taxing protection.
“We hope the government will review this rise and correct it in further budgets.”
