Millions of UK motorists may face potential issues with their car insurance, as per a recent announcement by auto insurance giant, AA.

Millions of UK motorists may face potential issues with their car insurance, as per a recent announcement by auto insurance giant, AA.

Rising Insurance Premium Tax Burden in the UK

The Insurance Premium Tax (IPT) in the UK has seen a significant increase over the past decade, reaching a record high of £8.88 billion in the 2024-2025 financial year, a 9% (£737 million) increase from the previous year [1][2][4]. This growth is partially due to rising premiums in various insurance sectors, including motor insurance, and increased demand for health-related insurance products.

Despite the hike in IPT, average motor insurance premiums have actually decreased recently. They fell from £622 in Q2 2024 to £562 in Q2 2025, marking a real-terms decrease of £81 year-on-year [5]. However, costs related to claims—particularly car repairs and theft—are on the rise, driven by more complex vehicle technology, inflation in parts and labor, and a shortage of skilled technicians [5].

The Association of British Insurers (ABI) has voiced concerns about the IPT, viewing it as an unfair levy on a responsible purchase. They are urging the Government to focus on reducing vehicle theft and insurance fraud, boosting recruitment in the vehicle repair sector, and tackling the rising cost of car insurance [6].

Industry voices, including the AA, argue that the increased IPT makes insurance less affordable, particularly for low-income households and small employers who rely on private health insurance to maintain workforce health and productivity [1][3]. The large IPT revenue growth has fueled calls to "cut" or reduce the tax to support economic growth and ease cost-of-living pressures [3].

However, the government has yet to announce any policy changes or promises to reduce the IPT. The ongoing collection of rising IPT revenues indicates that currently, IPT remains an important revenue stream [1][4]. The absence of a formal response or announced changes suggests that calls for reduction have not yet resulted in concrete government action.

In summary, the IPT has increased substantially, raising government receipts to nearly £9 billion annually [1][4]. Average motor premiums have fallen recently despite the IPT rise, but underlying claims and repair costs remain high [5]. Industry and consumer groups urge IPT reductions to improve affordability and economic growth [1][3]. The government has so far maintained the IPT at current levels without publicly responding to these calls [1][4].

This scenario illustrates a complex balance between tax revenue objectives and the desire to keep essential motor insurance affordable for British consumers.

• The standard rate of IPT on premiums like motor insurance has been 12.0% since 2017, a significant jump from its 2.5% introduction in 1994.
• Total claims payouts rose by 17% in 2024.
• Drivers caught driving without insurance can face a £300 fine and six penalty points.
• The AA president, Edmund King, stated that insurance premium tax on motor insurance is a tax on responsible ownership.
• The rise in IPT receipts totalled £692 million last year, an 8.6% increase from the previous 12 months.
• The taskforce led by the Treasury and the Department for Transport focused on the rising cost of car insurance was established in October last year.
• No new fact was explicitly stated in the paragraph that wasn't already mentioned in the earlier bullet points.
• The ABI also wants the Government to focus on reducing vehicle theft and insurance fraud, and boosting recruitment in the vehicle repair sector.
• The cross-Government taskforce on motor insurance aims to support drivers by finding ways to tackle the high cost of motor insurance.
• In the most serious cases, offenders can be taken to court, where they can receive an unlimited fine and disqualification from driving.
• The increase in car and property insurance premiums was partly attributed to the rise in IPT by HM Revenue and Customs.
• The Treasury contributes over £8 billion a year towards vital public services through insurance premium tax.
• The average cost of motor cover last year was £622, representing a 15% increase from 2023.
• The AA has urged the Treasury to reduce the insurance premium tax rate on motor policies by a quarter, with a 50% reduction for newly qualified drivers.
• The taskforce is expected to publish its final report in the autumn.

1. The increase in Insurance Premium Tax (IPT) has led to concerns in the finance and business sectors, with the Association of British Insurers (ABI) advocating for government action to address rising costs and improve affordability.
2. The high expenditure on car repairs and theft claims in the motor insurance sector is a concern for both insurers and consumers, with complex vehicle technology, inflation, and a shortage of skilled technicians contributing to escalating costs.
3. In the arena of politics and policy-and-legislation, calls for IPT reductions have been made to support economic growth and alleviate cost-of-living pressures, although the government has yet to announce any policy changes regarding the tax.
4. The American Football industry, specifically the NFL and football, has not been directly related to discussions surrounding the IPT, so it remains separate from the general-news and personal-finance context.
5. The banking-and-insurance industry is significantly affected by the IPT, with the increased tax revenue contributing to over £8 billion annually towards vital public services, as reported by the Treasury.
6. Sports enthusiasts may find the impact of IPT on the average cost of motor cover ($622 in 2024) interesting, as this could potentially influence their driving behavior or car insurance decisions, connecting sports and personal-finance in the broader context of rising insurance costs.

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