The Insurance Premium Tax rise from 1 November 2015

One of the measures set forward in the 2015 Summer Budget that is most relevant for car owners is the increased Insurance Premium Tax. This change will impact all new consumer car insurance premiums from 1 November 2015, as well as those modified or rebroked. Therefore, it is important to understand the specific details of the changes and what this means for car owners.

Insurance Premium Tax Increase

Under the new changes, the standard rate of insurance premium tax will increase from 6% to 9.5%. Intended to increase the revenue raised by the IPT, the changes will take effect from November 1, 2015 and will affect the vast majority of households, businesses and insurers.

The changes have wide-reaching impact given the broad base of the insurance policies to which they apply, including buildings, contents, pet and cars. While going from 6% to 9.5% may sound negligible, it amounts to nearly a 60% increase, which will certainly be felt by consumers when they start or renew their insurance policies.

The Government has said that the increase is not meant to be unfair to consumers; rather, it reflects the decreased costs of insurance over recent years – private motor insurance specifically falling by 10% over the last three years. The new tax rate of 9.5% is still much lower than many other EU member states, such as Germany’s 19% tax rate on insurance premiums.

However, many people feel that the increase represents a move in the wrong direction. Mark Godfrey, director of RAC Insurance, said: “This increase can only be seen as a tax on the motorist because of course insurance is mandatory if you drive, so consumers have no choice.It really undermines the work that has been undertaken by both the industry and the Government to drive down the cost of car insurance.”

They also point out that though car insurance specifically has been decreasing over the last three years, at the end of Q2 2015 the average car insurance premium had risen by 5.2% or £27.34 to £549.46, after being roughly £520 for most of the previous year. The increase was steeper for young drivers, with 23 – 29 year olds seeing increases of 6.2%. This is the first significant increase in prices since the end of 2011 and does not bode well for the additional tax increases.

What does this mean for you?

On a typical £400 car insurance premium, the new rules would mean an increase of £14 a year. While this may not immediately sound like a high number, it’s not just car insurance premiums that will be affected. When you consider the full range of insurance products that the average household might have, the new rules could cost an average family an extra £100 each year. For families who already struggle to keep up with their current insurance payments, this may be the tipping point at which they decide they can no longer afford insurance.

Having car insurance is mandatory in the UK, so driving without insurance is not an option. Estimates show that uninsured drivers kill 160 people and injure 23,000 every year – adding to those figures isn’t the desired outcome of the Insurance Premium Tax increase. If you belong to one of the 19.6 million households with motor insurance in the UK , pay close attention to prices when your policy comes up for renewal, as these changes will be factored into premiums. Shopping around will help you find the best car insurance policy for you.