British drivers are facing rising costs for motor insurance, with research from the AA revealing that insurance premium tax (IPT) caused consumers to pay nearly 9% more last year, raising concerns that essential coverage could become unaffordable for many.
The AA is urging the Treasury to cut the IPT rate on motor policies by 25%, and by 50% for newly qualified drivers, to ease the financial burden.
The standard IPT rate, applied to policies like motor insurance, has remained at 12% since 2017, up sharply from its 2.5% introduction in 1994. The increase contributed to IPT receipts of £692 million last year—an 8.6% rise from the previous year—driven in part by higher car and property insurance premiums, according to HM Revenue and Customs.
“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,” said AA president Edmund King.
“Surges in insurance costs in recent years have increased the financial strain on those most likely to pay high premiums, including young and newly qualified drivers and low-income policyholders. This not only risks pricing them out of cover but may also tempt more to drive without insurance.”
The AA’s call highlights growing concerns that high IPT and rising premiums are making essential car insurance less accessible, particularly for those most vulnerable to cost increases.
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