Insurance premium tax will rise from 10 to 12 per cent in June, as previously announced in the Autumn Statement, but chancellor Philip Hammond broke the trend of successive hikes with no further increases announced in today's budget.
After cutting the insurance discount rate last week, a move that has wiped hundreds of millions of pounds the bottom lines of many insurers, the sector was keeping its fingers crossed that the government would not add to its misery.
“Given the last one hasn’t even happened yet, we’ve made that case that this probably isn’t the thing that motorists need now," Direct Line chief exec Paul Geddes told City A.M. yesterday.
There was only one reference to IPT in today's budget under the title "Other indirect taxes":
"Insurance Premium Tax (IPT) – The government will legislate to introduce anti-forestalling provisions and increase the standard rate of IPT to 12 per cent from 1 June 2017, as announced at Autumn Statement 2016."
Consumer groups were disappointed that Hammond did not go further in giving people a helping hand. Simon McCulloch, a director at Comparethemarket said:
It feels like there was an opportunity missed in today’s Budget to make the cost of running a car more affordable – particularly for young drivers.
"IPT has been hiked three times in the past 18 months, adding an average of £109 to annual insurance costs. On top of this, we estimate recent changes to the Ogden [discount] discount rate could add almost another £60 on average, and a massive £107 for drivers under 25."
The chief executive of Admiral, speaking on a call to discuss the firm's annual results, conceded that the inflationary pressures on motor insurance could lead to an increase in people driving without insurance.
Meanwhile McColloch added: "As getting on the road becomes more and more expensive, we had hoped that Philip Hammond might have announced new measures to help motorists cut the costs, such as exempting young drivers from IPT, to avoid them being priced off the road, or even resorting to driving without insurance”.