The third rise in Insurance Premium Tax (IPT) in under two years from 10% to 12%, effective from 1 June, could add an extra £47 to the average annual household bill with the average car insurance policy expecting to hit £800
The latest increase to IPT has meant that the average car insurance policy will reach a record high, according to comparethemarket.com. In June 2016, the average car insurance premium stood at £701 and has risen by over 14% in one year.
In June 2015, the average cost of car insurance was £600.
Simon McCulloch, director at comparethemarket.com, said: ‘No one factor has driven premiums up this much, but some measures taken over the past years have put serious pressure on policies. One of the most prominent causes of these rises is the doubling of insurance premium tax over the past two years. Equally, the recent decision by the Ministry of Justice to change how compensation is calculated, has also added substantial amounts to the average person’s policy.
‘Low interest rates and the cyclical nature of car insurance, have also played a part in rising premiums, but the hyperinflation caused by these governmental changes has disproportionately pushed up the cost of driving.’
Insurance customers who pay the highest premiums will be the worst hit. For example, young and older drivers who tend to pay more for car insurance. A 19 year old could see their annual premium increase by £20. Those with private medical insurance could face an extra £39 per year and businesses could pay an extra £300 in commercial insurance premiums.
How IPT is contributing to higher premiums:
| Product | Total IPT (12%) charge on 2017 average premium | Increase in IPT due to latest rise (10-12%) on 2017 premium |
| Private car - average | 50 | 8 |
| Private car - 19 year old | 119 | 20 |
| Home - combined | 32 | 5 |
| Home - buildings | 29 | 5 |
| Home - contents | 15 | 2 |
| Pet - overall | 37 | 6 |
| Pet - cat | 24 | 4 |
| Pet - dog | 40 | 7 |
| PMI | 231 | 39 |
James Dalton, Director of General Insurance Policy at the Association of British Insurers (ABI), said: ‘With a doubling of IPT in just under two years it is time to call a halt to this raid on the responsible. This tax penalises hard working families, as well as businesses, who have done the right thing by taking out insurance to protect against many of life’s uncertainties.
‘This latest hike must be the last. The next government must freeze this tax, to give hard working households and businesses a break.’
IPT was introduced in October 1994 when a single rate of 2.5% was charged. Life and mortgage insurance; spacecraft, aircraft, railway and lifeboat insurance; and good in international transit are all exempt from IPT.
Comparethemarket's research is avilable here.
