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Is another insurance premium tax hike coming?

Is another insurance premium tax hike coming?

Is another insurance premium tax hike coming? Get ready for another hike in insurance premium tax (IPT).

From October 01, a 0.5% increase will be implemented, taking the tax to 10% and affecting every home and car insurance policy at a time when premiums have been rising due to the serious extent of fraud and whiplash injury claims.

Now, the AA is reporting that the 0.5% hike will add around £2.60 to the cost of a typical annual comprehensive car insurance policy costing £568.48 and is forecast to raise £80 million in 2015/16, rising to around £200 million per year in subsequent years which the Government pledged would be used to boost flood defence spending.

However, it also points out that over the past year IPT has increased by more than £31 on average, rising from 6% to 9.5% on November 01, 2015.  Young drivers and those living in London – who pay the highest premiums – will bear the biggest burden in premiums prompting the insurer to call on the Chancellor to avoid further hikes in his autumn statement.

Mike Lloyd, insurance director at the AA said: “IPT has increased by 66.6% in less than a year.  It’s a tax that is collected by insurance companies on behalf of the Government and this is an extreme hike by any measure.

“The Government wouldn’t risk that kind of percentile increase on any other form of tax over such a short period of time.

“We have a concern that the new Chancellor may be considering a further IPT hike, perhaps as much as 2%, potentially doubling the level of tax on drivers who have no choice but to buy car insurance in order to stay legal.

“We are urging the Chancellor to leave IPT alone when he considers the Autumn Statement.  He may think it is a ‘soft touch’ source of revenue that is unlikely to generate the kind of outrage that would be expected if, for example, he increased fuel duty.

“Yet this tax is more painful to drivers who will have little option but to pay up.  But for some it could be the last straw and lead to a further increase in uninsured driving especially among young drivers who pay the most for their cover and thus pay more IPT.

“Our message is clear. Any hike in insurance premium tax will lead to spikes in uninsured driving.”

Related stories:
Taxes, whiplash claims push up car insurance premiums
ABI: Car insurance premiums up 10%