Sunday’s increase in Insurance Premium Tax (IPT) from 6% to 9.5% is due to cost motorists an extra £386m a year, taking their insurance tax contribution to over £1bn¹ for the first time.
As 80% of drivers questioned did not know of the IPT rise, the RAC analysis of industry figures reveals that the tax hike – which comes into effect on Sunday 1 November 2015– is yet another burden on motorists who already contribute over £40bn in motoring taxation every year.
While the rise in insurance premium tax will force up the cost of the vast majority of insurance policies, it is expected to hit motorists hard as they are currently paying around £11bn a year to be able to drive legally.
As a result motorists contribute about a fifth of the total £3bn insurance premium tax collected by the Treasury in 2014.
The IPT tax hike, announced in the Chancellor’s Summer Budget in July 2015, will add £12.80 to an average annual car insurance premium of £367¹. And, with the price of car insurance rising at its fastest rate for five years this will be doubly bad for the country’s 30m drivers.
But the RAC is also warning that the situation will be especially hard on young drivers and those new to motoring who face far higher premiums, significantly raising the bar for anyone starting driving for the first time.
Young drivers aged 25 and under pay an average of £810 a year for their insurance with 18 to 20-year-olds paying £972 a year. The insurance premium tax rise would take their next renewals to £838 and £1,006 – increases of £28 and £34 respectively.
In terms of overall motoring taxation, a typical driver who fills up an average 55-litre car with diesel twice a month, will now pay in the region of £1,200 a year to the Treasury including fuel duty, VAT paid on every litre of fuel bought, annual car tax and IPT.
The RAC believes the price hike “unreasonably adds” to the annual tax burden and that young drivers in particular will be hit hardest, possibly leading to more driving without cover they cannot afford.
AA is concerned that the rises may encourage some drivers, especially young ones, to attempt to drive without cover – or falsify their information to achieve the lowest possible premium to become ‘pseudo-insured’.