Insurance tax increase 'would hit millions of households'

Fears have been raised that the Chancellor is poised to impose a further hike on a tax in next week's Budget which would make millions of people's insurance bills more expensive.

The AA said it understands the possibility of raising Insurance Premium Tax (IPT) again has been talked about at senior Westminster levels.

The tax was increased as recently as November 2015, from 6% to 9.5%, as a result of the summer Budget.

The AA said it believes the tax could be ramped up again by three percentage points, to 12.5%.

It said an IPT rise to 12.5% would mean £37 added to the average car insurance premium, compared with the 6% rate of IPT, as well as a typical hike of more than £80 for a driver aged between 18 and 22.

The tax affects 7.3 million car policies, 4.7 million household policies, three million pet policies and three million private medical insurance policies.

The AA said the most recent increase to IPT added an extra £100 to the annual cost of insurance for many households.

It said any tax increase would come at a time when car premiums are already rising again sharply due to continued rises in the cost of personal injury.

The AA said that if Chancellor George Osborne does make such a move next Wednesday, it will spell out to its millions of members and customers on their invoices exactly how much the tax is "squeezing out of them" on their insurance and breakdown cover.

Edmund King, AA president, said: "It's ridiculous that the insurance industry is singled out in this way."

He continued: "If the Chancellor decides to hit drivers again we will do all in our power to show our members and customers exactly how much the Government is taking from them.

"Drivers are not wallets on wheels but appear to be treated that way by the Treasury. Car insurance is not a luxury but a legal necessity so should not be taxed like a luxury."