Insurance premium tax could lead to price rises for motorists, warns AA

09 Feb 2017

Vehicle breakdown service the AA has warned that it may need to raise its prices due to a significant increase in the rate of insurance premium tax (IPT).

The government has doubled IPT from 6% to 12% over the last two years as part of its attempt to balance the public finances, but the Treasury has claimed that the tax is on insurance companies, not motorists and insurance customers.

However the AA, which reported a rise in personal memberships of 0.4% to 3,335,000 in the six months to the end of January, now says that it will need to review its fees if the tax is increased again.

A spokesperson for the AA said: ‘We have managed to protect our members. But this is an industry-wide challenge and we will need to review our pricing policy in the context of any future increase in IPT.’

Meanwhile, the Association of British Insurers (ABI) has said that rather than bear the extra cost of IPT themselves, many insurers have passed on the burden to customers in the form of higher premiums.

The ABI claims that, for a family with two cars and combined contents and building cover, as well as pet and health insurance, the tax rises have added more than £100 to annual costs.