Insurance Premium Tax rise could drive more motorists towards telematics, says RAC

Motorists will have to pay an extra £386 million a year to pay for an incoming increase in Insurance Premium Tax (IPT), according to the RAC, forcing younger drivers to take on telematics-based insurance policies that could cost less than usual car insurance deals.

The automotive services company has said that the increase in IPT, from 6% to 9.5%, which will take place on 1 November, will be another burden on motorists and take their insurance tax contribution to over £1bn for the first time.

The RAC says that motorists contribute about a fifth of the total £3 billion insurance premium tax collected by the Treasury in 2014.

The IPT tax hike, announced in the Chancellor’s Summer Budget in July 2015, will add £12.80 to an average annual car insurance premium of £367, according to the ABI. The RAC has also warned that the rise will hit young drivers in particular.

However, the company said that new motorists would do well to consider a black box car insurance policy – which uses telematics technology to base future premiums on an individual motorist’s actual driving, something that is in the hands of the driver to control.

“Even though the IPT hike is being forced on motorists those starting their driving careers can have some influence over their future premiums by choosing a black box-based insurance policy,” said RAC insurance director Mark Godfrey.

“This uses telematics technology to understand how a driver behaves, with the potential to reward them with lower premiums.”

“Insurance is – rightly – mandatory for anyone getting behind the wheel,” he added.

“The 3.5% hike in IPT is another stealth tax like fuel duty that has unreasonably added to the already considerable contribution made to the Treasury by motorists. With insurance premiums currently going up faster than they have in the last five years, it’s sadly going to be a double whammy of bad news for the motorist.”

Mark Dugdale