Young drivers and those living in London expected to be hardest hit by tax rise, which has been described as a ‘hammer-blow for the hard-pressed’.
In yesterday’s Autumn Statement, the Chancellor Philip Hammond announced yet another increase of insurance premium tax (IPT) – which will rise from the current level of 10% to 12% from 1 June 2017.
Motoring groups and insurance companies reacted with fury at the new rise – the third time IPT has been increased in the past 18 months.
In the run-up to the Autumn Statement, industry insiders had described the tax – which is added to 50 million car and home insurance policies – as the UK’s “fastest growing stealth tax”.
The Chancellor justified the latest increase in insurance premium tax as as necessary as the money is needed to pay for the government’s infrastructure plans, and maintained that UK IPT rates remain amongst the lowest in Europe.
However, the Association of British Insurers (ABI) moved quickly to denounce the 2% tax hike as a “hammer blow for the hard-pressed”.
IPT was first introduced in the UK in 1994 at a rate of 2.5% in order to raise tax revenue from the insurance industry, which was seen as being under-taxed at the time. Since then the rate has been steadily increased by successive Chancellors. In the past 18 months insurance premium tax has been increased three times. The latest rise of 0.5% to take it to 10% only came into effect last month.
In 2010 the IPT rate was a relatively modest 5%.
Motorists are expected to feel the brunt of the latest tax rise, with the increase next June predicted to add a further £10 per year to the average car insurance premium – according to the AA. Car insurance premiums have been rising steadily in recent times, as insurers continue to pass on tax rises and increasing claims costs onto customers.
The AA recently released research that stated car insurance prices have risen by £82 in the past year – up to an average of £585.54 a year.
Responding to yesterday’s announcement, AA’s president Edmund King said the tax rise would only serve to increase the number of uninsured cars on the roads, while putting further strain on UK drivers already feeling the pinch of high insurance prices and high fuel costs. King said: “In 18 months, tax on insurance will have doubled – no other tax has increased by that much.”
Amanda Blanc, the group CEO of AXA – one of the UK’s biggest insurers – said:
“This is a classic case of the government giving with one hand, in the form of whiplash reforms, and taking with another.
“The affordability of insurance is being fundamentally threatened. The country is already underinsured and ever rising insurance taxation could have the unintended consequence of making this situation even worse.”
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