Increasing Insurance Premium Tax (IPT) in the budget on June 22 could lead to a sharp increase in the number of uninsured drivers on UK roads, AA Insurance has warned Justine Greening MP, economic secretary to the treasury.

The warning comes amid speculation that the coalition government might double IPT, which is applied to car, home and all other insurance products sold in the UK from its current 5% to 10%.
Edmund King, president of the AA, said that while recognising that there is a “gigantic hole” in public finances, taking the easy option of increasing IPT would disadvantage many vulnerable in the UK.

Mr King said: “Car insurance premiums are under severe pressure as insurers struggle to recoup losses brought about by increasing fraud, personal injury claims and poor investment income.

“Last year, the average quoted ‘Shoparound premium’ for a comprehensive car insurance policy rose by 22.6%, according to the AA’s benchmark British Insurance Premium Index. We expect a similar increase this year.”

He believes the 5% increase could see more than 50% added to the average family’s car insurance bill in just two years.

“Young drivers already pay by far the highest car insurance premiums and it is now almost impossible for a 21-year-old man buying his first car to obtain insurance for under £1,000,” he said. “In addition, those on low incomes often live in high crime areas and keep their cars on the street or in public parking areas, both of which lead to higher-than-average insurance premiums.

“My fear is that increasing IPT will be the last straw for many people and that they will just not bother with insurance at all, which in turn, will put yet further pressure on the premiums paid by honest motorists. It can also lead to more hit-and-run casualties as the uninsured don’t want to wait around to face the music.”