Motorists and insurers alike have reacted angrily to the insurance premium tax (IPT) rise, announced in the November budget statement. The IPT figure will rise from its current level of 10% to 12% with effect from June 2017, meaning that insurance premiums will rise and motorists will again be penalised.
Chancellor Philip Hammond attributed the rise as a necessary evil to help fund the government’s slew of planned transport infrastructure upgrades, but consumers and industry bodies have responded negatively to the proposed 20% increase in the premium. The tax was only introduced to the motor insurance market in 1994 at a level of 2.5%, but this value has already seen numerous increases, including a very recent rise from 9.5 to 10% in October 2016. The tax is already levied on travel, medical and home insurance policies as standard; however the levels of IPT on those policies has been frozen in this statement. By contrast, the rise in the cost for motorists is startling and seen as another punishing “stealth tax” for consumers.
The end of 2016 has been a bad one for motorists and the motor trade in general. Although rises in insurance premiums were beginning to slow down, or even reverse, this comes as a blow just weeks after a series of fuel price increases which has already left many motorists feeling the pinch in the run up to Christmas. Those who were set to benefit from reduced insurance policy costs will actually suffer, with the raised cost of Insurance premium tax now putting them out of pocket, while lining the Treasury coffers still more.
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In real terms, the average cost of an insurance policy for new and used cars is set to rise by around £10 but those who are more liable to pay higher rates, for example younger drivers or London commuters, will see a higher rise, as the IPT is a percentage of the premium rather than a flat cost. The danger of course is that some motorists will no longer be able to afford these costs, leading to an increase in uninsured drivers or those with inadequate policies.
The Chancellor has again chosen to freeze the proposed rise in fuel duty, but the goodwill that may have arisen from this has been hugely compromised by yet another rise in IPT, which has now more than doubled in less than two years. With the last couple of years being especially good for the UK motor industry, with competitive prices and incentives leading to more cars being purchased and taken out on trade plates, this latest announcement is a setback for many millions of motorists and the trade alike.