Car insurance premiums to rise after tax hike


AA warns of soaring costs from June following autumn statement announcement. Car insurance premiums are set to break through the £600 barrier for the first time next year as insurers pass on higher costs and this week’s premium tax hike, experts are warning. On Wednesday the chancellor, Philip Hammond, announced he is to increase insurance premium tax (IPT) from 10% to 12% from June.

This means drivers, now typically paying around £50 a year to the Treasury when they insure their car, will see it rise to above £60. Some young drivers could have to pay more than £250 just in the IPT part of their premium, according to comparison site GoCompare.

IPT, levied on around 50m insurance policies (including car, home and medical), has gone up nearly five times since it was introduced in 1994 at a rate of 2.5%. The AA says the extra tax will add further pressure on drivers already battling steep increases in underlying premiums. Its benchmark British Insurance Premium index shows a 16.3% rise over the past 12 months with the average “shop around” premium at £586.

“It’s disappointing the chancellor seems to have used the potential £40 saving on the average premium due to the whiplash crackdown, to increase IPT,” says the AA. “The upward pressure on premiums continues, which coupled with the unwarranted hike in IPT will see premiums go through the £600 mark before any benefit from the whiplash crackdown takes effect.”

Matt Oliver, car insurance spokesperson at GoCompare, says there are still “genuine inflationary forces in the market”. “That means it is unlikely we will see any real flattening for motor premiums in the next few months.

“Until firm action is delivered on whiplash and the compensation culture, claims costs will continue to rise. Any signs that the rate had slowed earlier this year are likely to be completely undermined by the announcement of a further increase in IPT.”