Last year, UK drivers ended up paying almost 9 percent more in insurance premium tax (IPT), making car insurance even more expensive. This has sparked worries that some people, especially younger drivers, might struggle to afford basic insurance.
The AA has been sounding the alarm and is urging the government to cut the IPT on car insurance by 25 percent. For new drivers, they want the tax slashed by half.
Just so you know, IPT is a tax added on top of insurance costs. It has been stuck at 12 percent since 2017, way up from the 2.5 percent it was when it first started back in 1994. Because premiums have gone up, the government collected £692 million from this tax last year, which is almost 9 percent more than the year before.
HM Revenue and Customs said the rise is partly because car and property insurance prices are increasing. AA president Edmund King said, “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.
“Surges in the cost of insurance over recent years have ratcheted up the pain for those most prone to paying high premiums.
“Many of those are people least able to afford it, such as young and newly qualified drivers with higher risk as well as low-income policyholders.
For many, this could mean they simply cannot afford insurance, which might push some to take the risk of driving without it.
And just so you are clear, if you get caught driving without insurance, the fine is £300 plus six penalty points on your license. For serious cases, you could face an unlimited fine and even a driving ban.
The Association of British Insurers (ABI) says IPT is unfair because it penalises people for doing the right thing by buying insurance. They want the government to freeze the tax until financial conditions improve enough to cut it.
Last year, the average car insurance policy cost £622. That is up 15 per cent from 2023 and nearly double the jump from 2022 to 2023. The ABI also reported that claims payouts went up by 17 per cent in 2024, which adds to the cost pressure.
To tackle this, they suggest focusing on cutting vehicle theft, fighting insurance fraud, and getting more people to work in car repairs.
There is some good news. In early 2025, insurance prices were about 7 per cent cheaper than the same time last year.
Since October, a government task force made up of industry experts and consumer reps has been working on solutions to lower car insurance costs. They are expected to release their final report this autumn.
A Treasury spokesperson said, “The overall cost of insurance is determined only in part by insurance premium tax, which contributes over £8 billion a year towards vital public services.
“Our cross-Government taskforce on motor insurance will deliver on our commitment to support drivers by finding ways to tackle the high cost of motor insurance.”
