A report from the Social Market Foundation that puts the spotlight on the unreasonableness of Insurance Premium Tax reflects concerns previously raised by the AA.
The study shows that the tax generates £4.8bn per year, or £179 for every household; and over the past two years has risen faster than any other tax.
It doubled between October 2015 (6%) and June 2017 (12%). Such an increase on any other form of consumer taxation would cause public outrage.
The report concludes that the tax has risen without a proper assessment of its impact on consumer behaviour and household finances.
Michael Lloyd, the AA’s director of insurance said, “IPT is a stealthy, underhand tax that penalises those who have no choice but to insure their cars; and take responsibility for protecting their homes.
“Yet unlike other European countries – where IPT is widely used to fund insurance industry regulation – insurers not only have to pay for their own regulation but also have to pay this tax to prop up Treasury income. Ultimately, these costs have to be passed on to customers and it’s little wonder that British drivers pay sky-high premiums for their car cover.
“Can it just be a coincidence that the MIB has reported a sharp rise in claims for collisions with uninsured and untraceable hit and run drivers? I think not.
“Rising IPT hits consumers and especially those on low incomes where it hurts most. As a result more people are opting for an illegal means of getting young people behind the wheel including driving without insurance or ‘fronting’ policies by an adult.”
The Institute for Fiscal Studies (IFS) also says that at 12% the tax is ‘excessive’ and has increased with little consideration of the effect on family finances. It suggests that a low single-digit rate for consumers would be more appropriate.
Concludes Lloyd: “I strongly urge the Chancellor to take notice of this powerful evidence and cut IPT.
“At the very least it should now be frozen and young drivers, who take a responsible approach to insurance by fitting a telematics or ‘black box’ device to track their driving behaviour which is proven to improve road safety, should be relieved of IPT altogether.”