Insurance premium tax hike should be axed

Insurance premium tax hike claims

Nearly nine in 10 motorists believe that a planned tax hike which will push up the cost of their policies is "unfair" and will encourage uninsured driving, according to research by the AA.

Chancellor George Osborne is being urged by the AA to think again about his announcement in the recent Budget that the insurance premium tax (IPT) will be increased from 6% to 9.5% from November.

Nearly 30,000 drivers responded to the AA-Populus study - and almost nine out of 10 (87%) motorists believe that the tax is unfair and that it will encourage some drivers to attempt to drive without insurance, while 11% considered the increase to be justified.

The AA said it was informing the Treasury about its new research. The AA, which said the average annual cost of comprehensive car insurance has already jumped recently to around £549.46, has previously estimated that the tax hike will add an extra £18 to the cost of a typical car insurance policy.

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Young drivers aged between 18 and 24 years old, who tend to pay the highest car insurance premiums, were particularly likely to see the tax hike as unfair, with 91% stating they felt this.

The research also showed that nearly a third (29%) of people surveyed were unaware that IPT applied to home and motor insurance while 72% were unaware that it also applied to roadside breakdown cover.

The jump recently seen in car insurance premiums for someone who shops around marks the first time that premiums have recorded a significant quarterly increase since winter 2011, AA Insurance has said.

Janet Connor, managing director of AA Insurance, said: "Over the three months ending June 30, the average 'shoparound' quote for a comprehensive car insurance policy rose by 5.2%, an extremely sharp jump.

"That premiums have been falling seems to be the Chancellor's justification for the tax increase but he is wrong. His timing couldn't have been worse; not only are premiums starting to rise but the tax can only lead to even greater premium increases than could otherwise be expected over coming months."

Ms Connor continued: "There is no justification for this underhand and unfair tax increase.

"We strongly urge the Chancellor to reconsider. I hope he doesn't just take note of our findings but acts on them."

Graeme Trudgill, executive director of the British Insurance Brokers' Association, said: "Insurance has been seen as a special case in terms of taxation as it is a social good - enabling people to protect themselves and their assets, alleviating the burden on the state."

He said that margins in the insurance industry are "tighter than they have ever been", and the tax hike will result in higher premiums for the public, including the 20.1 million households with contents insurance, 19.6 million with motor insurance and 17 million with buildings insurance.

Mr Trudgill continued: "Young drivers are the most over-represented age group for uninsured driving and increasing the cost of their motor insurance further is likely to increase the level of uninsured driving, which we are aware has now started to deteriorate.

"The increase completely undermines the constructive work that the industry and government have done in the past few years to tackle fraud - particularly with regard to whiplash claims - which previously saw premiums soar."

A Treasury spokeswoman said: "This government has taken real action to bring down the price of premiums for insurance customers: As the Chancellor said at Budget we will cap the charges that claims management companies can apply to their customers and launch a review in the Autumn to look at whether more can be done to give the regulators stronger powers and more resources to protect customers from abuse.

"Insurance premium tax is paid by companies, not individuals, so it is up to them whether they pass costs on to consumers. However, even if they did pass on the whole increase the average motorist's total costs would only increase by 30p a week. With insurance premium tax low by international comparisons, and only 20% of premiums affected, the government's approach for taxing insurers is sustainable, stable and fair."

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The cheapest cars to insure
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Insurance premium tax hike should be axed

Price new: £5,995

Dacia has made a big impact in the UK with its line of affordable motors.
The Sandero is the foundation of the brand's offering and is famed for being the UK's cheapest car.

With a group two insurance classification it's also one of the cheapest cars to insure right now.
The entry level Access model is sparsely equipped, but it has a practical interior, big boot and low running costs.

Price new: £8,060

The Seat Mii is a small city car which Auto Express praises for its spacious interior, good build quality and supple ride.

All models are in insurance group one, bar the group two Sport version.
The Mii is available in three-door or five-door styles, but both measure just 3.5 metres, making it perfect for getting around town.

Price new: £8,090

The Skoda Citigo was crowned Auto Express Best City Car 2013.

The magazine praised its low running costs and practicality as well as its grown up driving experience.
Like its Mii stable mate the Citigo has group one insurance in all apart from its top specification model, making it one of the cheapest cars to insure.

Price new: £8,265

The third of the Volkswagen's group of three city cars to make the list is the Up!

Auto Express says the Up! was 'born to rule' city streets with its small dimensions and lightweight body.
There's three versions of this fun city car; Take Up! has a group one rating as does Move Up! while the higher spec High Up! gets a group two classification.

Price new: £8,345

The Hyundai i10 is another car which can get you a cheap insurance quote thanks to a group one insurance rating across all the 1.0-litre petrol models.

Auto Express says the new 2014 i10 offers big car features in a small package. And for £8,345 you also get Hyundai's five-year warranty and roadside assistance package.

Price new: £8,995

Vauxhall has managed to squeeze one of its full sized Corsas into insurance group two.
Auto Express says the 1.0-litre ecoFlex model has the lowest insurance costs of any mainstream supermini.

The eye-catching design, solid interior and big-car features make it an appealing buy for drivers.

Price new: £9,575

The Smart car caused a bit of a stir when it first appeared thanks to its dinky dimensions and bold two-seat layout, making it very useful for driving about town and absurdly easy to park.

The Smart ForTwo is the latest incarnation, which keeps to the same formula; it still has only two seats and is one of the smallest cars on the road measuring just 2.5 metres long,
The entry level 0.8- and 1.0-litre models qualify for group two insurance.

Price new: £11,810

The Peugeot Partner Tepee 1.6 VTi is the passenger version of the Partner van and according to Auto Express easily the most spacious new car that currently qualifies for a group two insurance rating.

It's got a boxy shape that provides plenty of room and has sliding doors which make it a very practical and flexible family car.

If you're after something smaller the Peugeot Bipper Tepee, which is the smallest of Peugeot's family of Tepee MPVs, also gets a group two insurance rating.

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