Insurance tax hikes car insurance prices up by 11 per cent

Over the past year, the cost of annual car insurance policies has risen by 11 per cent, the biggest increase since 2012.

Figures for 2016/17 show that drivers are now paying an average of £484 for their annual policy, an increase of £48, which is four times the rate of inflation.

According to the Association of British Insurers (ABI), reasons for this include a rise in insurance premium tax, changes to compensation rules and mounting repair costs.

The ABI reports that an increase in premiums could have contributed to the rise in insurance tax, from 10 per cent to 12 per cent, in June. This tax is applied to car, home and medical insurance policies, and has doubled since 2015.

Huw Evans, Director General at ABI, said: “This dramatic increase drives home how important it is the government press ahead with a new framework for the discount rate and call a stop to further hikes in insurance premium tax.

“The UK is one of the most competitive motor insurance markets in the world, but the unprecedented increase in claims costs is driving up prices to record levels.

“Worryingly these increases are unlikely to be the end of the road if reinsurance premiums go up at the end of the year, adding further costs to insurers.”

Contrary to the concerns of the ABI, the Office for Budget Responsibility (OBR) has previously claimed that the Government is putting an extra £1.2 billion aside a year to meet the expected costs to the public sector, which is likely to push up car insurance premiums by a further 10 per cent.