Rise in Insurance Premium Tax is “outrageous” says AA

In his Budget, the Chancellor said Insurance Premium Tax will be increased from 6 per cent to 9.5 per cent. The AA, for one, was unimpressed, describing the increase as “an outrageous hike thatcould well backfire by leading to an increase in uninsured drivers.” The IPT increase will mean an extra £17.50 on a £530 average Shoparound premium according to AA benchmark British Insurance Premium Index.

The IPT hike will also hit the costs of breakdown cover and will mean the AA (or customers) will have to pay millions of pounds more per year in tax.

Edmund King, AA president, said: “Drivers shouldn’t be dancing in the streets or at the pumps due to a promised freeze in fuel duty. The sting is in the tail. The Insurance Premium Tax increase on the average car insurance policy is still equivalent to a fuel duty increase of almost 2p per litre. Either way drivers are being hit in their pockets.”

The Government also announced that it will revise VED bands for new cars and set up a new Road Fund. Some of the current incentives to choose cleaner, greener cars will be lost in the new system unless the car is 100 per cent zero emissions. A car emitting 1g/CO2 km will end up costing £140 per year.

There will be a consultation on the MOT with a proposal for new cars to have their first MoT after 4 years rather than 3.

In AA Populus poll Sept 2011 (16,961 responses) 55 per cent (23 per cent strongly) supported the first MOT at 4 years not the current 3.

The Chancellor announced a continued freeze on fuel duty this year although 10 per cent of all tax still comes from motoring

The AA had stated clearly that the Government should avoid tax hikes on motorists in the Budge. A week ago, 73 per cent of a Populus poll of 25,810 AA members said they feared a post-election rise in motoring taxes. Among blue collar workers, that worry rose to 83 per cent.

“Three quarters of AA members were right to be worried that the Government might hike motoring taxes after the election. Whilst fuel duty has been frozen, every driver will be hit with the increase in insurance premium tax.” says Edmund King, the AA president. He went on:

“Simply hiking Insurance Premium Tax will hit all drivers and homeowners and may well backfire on the Government.

“We still need to study the details of the VED review but a return to Lloyd George’s principle of the Road Fund is a welcome step although the pot will need substantial funds if it is to cover the millions of potholes on our roads.”