If your last car insurance renewal quote was significantly higher than last year's, it might have had something to do with increases in Insurance Premium Tax. What is it, why does it keep rising and what can you do about it?
What is Insurance Premium Tax?
Insurance Premium Tax (also known as IPT) is a tax that's added to insurance premiums by law. It's set and controlled by the Government, and every time there's an increase it pushes up the price of your car insurance premium.
The standard rate, which covers most types of insurance (including motor insurance) sat at 6% for almost five years between January 2011 and October 2015. But since then the rate of Insurance Premium Tax has doubled to a staggering 12%. Amazingly, increases in Insurance Tax have risen even faster than the tax on tobacco.
This week, the Association of British Insurers (ABI) started a campaign urging the Chancellor Philip Hammond to put a brake on the repeated increases in Insurance Premium Tax. The ABI is concerned that Insurance Premium Tax may well see its fourth increase in two years as part of the Autumn Budget, driving up car insurance premiums even further. We agree with the ABI that constantly upping the tax on motor insurance is unfair, and it sends the wrong message by punishing responsible drivers for doing the right thing.
The ABI has created a surreal and thought-provoking video to support the campaign. You can watch it here:
Why haven't I heard of it?
If you don't know much about Insurance Premium Tax, you're not alone. Half of the people surveyed in a recent report hadn't heard of it – and it receives little media coverage so increases have gone largely unnoticed. And it's not just small change we're talking about here. The revenue generated from Insurance Premium Tax is currently greater than all of the duties on alcohol!
Insurance Premium Tax is a stealth tax, and a very profitable one at that. In a time when the cost of car insurance is more expensive than ever, we believe drivers could really benefit from more openness and transparency. That's why By Miles policies will clearly break out Insurance Premium Tax as part of your premium so you can see exactly what you're paying and why.
How does an increase affect me?
Anyone that insures a vehicle in the UK (or anything else for that matter) will be affected. All insurance quotes in this country must include Insurance Premium Tax – so if it goes up then car insurers are forced to raise the cost of your premium.
The increase from 6% in October 2015 to 12% in June 2017 has already added £28 to the cost of the average motor insurance premium. If you've done the responsible thing by insuring your car, we don't think it's fair that you should be shouldered with the burden of paying even more.
If there's an increase in Insurance Premium Tax, that's more money you need to factor into your annual or monthly bills. It's as simple as that. And because it's charged at a flat percentage rate, if you're already paying quite a high premium (because you're inexperienced or have a long history of claims), you'll end up paying even more.
The growing cost of car insurance is linked to the number of accidents caused by uninsured drivers in the UK. There were 145,000 uninsured cars seized in 2016 so it's already a pretty big problem. Any increase in Insurance Premium Tax could discourage motorists from purchasing insurance and make this issue even worse.
What can I do about it?
If you want to help bring an end to the so-called raid on the responsible you can raise awareness by sharing the ABI's video with the hashtag #IPTsUnfair. Spread the word about Insurance Premium Tax so other motorists know about it, and if you feel really determined to do something about it, contact your local MP.
We set up By Miles to make car ownership fairer and more cost-effective for everyone, and we think this campaign can play a part in helping make that happen.