British consumers paid nearly 9 per cent more in insurance premium tax last year, raising fears that drivers are being priced out of essential motor policies.
Research by the AA, which highlighted the increase, has urged the Treasury to cut the insurance premium tax (IPT) rate on motor policies by a quarter, with a 50 per cent reduction for newly qualified drivers.
The standard rate of IPT, applied to premiums like motor insurance, has been 12.0 per cent since 2017, a significant jump from its 2.5 per cent introduction in 1994.
More expensive premiums led to standard rate IPT receipts totalling £692 million last year, an 8.6 per cent increase from the previous 12 months.
HM Revenue and Customs confirmed the rise was partly due to “rising car and property insurance premiums”.
AA president Edmund King said: “Insurance premium tax on motor insurance is a tax on responsible ownership – protecting yourself and third parties from the financial damage of incidents and injuries.
“Surges in the cost of insurance over recent years have ratcheted up the pain for those most prone to paying high premiums.
“Many of those are people least able to afford it, such as young and newly qualified drivers with higher risk as well as low-income policyholders.
“That not only threatens to price them out of cover but tempts more to drive without insurance.”
Drivers caught behind the wheel of a vehicle without insurance face a £300 fine and six penalty points.
The most serious cases are taken to court, and offenders can receive an unlimited fine and disqualification from driving.
A spokesperson for the Association of British Insurers (ABI) said: “While we appreciate fiscal headroom is limited given pressures on public spending, we continue to believe that insurance premium tax is an unfair levy on a responsible purchase.
“Those who purchase insurance should not be penalised for trying to protect themselves, their loved ones and their property.
“We continue to call for IPT to be frozen until fiscal and financial conditions allow for the standard rate to be cut.”
ABI figures show the average cost of motor cover last year was £622,…
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