British motorists handed over nearly 700 million in insurance premium tax (IPT) last year, fuelling concerns that rising cover costs are putting car insurance out of reach for many drivers.
Figures from the AA show IPT receipts on motor insurance jumped 8.6% to £692 million in 2024, driven by rising premiums. The average cost of motor cover hit £622, according to the Association of British Insurers (ABI), marking a 15% increase on the previous year and following a 25% spike in 2023.
The AA is calling on the Treasury to cut the IPT rate on motor policies by 25%, with a 50% discount for newly qualified drivers, according to a report in The Independent.
“Insurance premium tax on motor insurance is a tax on responsible ownership,” said AA president Edmund King, as quoted in The Independent. “It’s adding pressure on those already facing high costs, including young and low-income drivers. The risk is more people driving without cover.”
Introduced in 1994 at 2.5%, IPT has been held at 12% since 2017. It is levied on most insurance products and raised over £8 billion last year, according to HMRC.
The ABI echoed calls for reform, describing IPT as an “unfair levy” on those seeking to protect themselves and others. It wants the government to freeze the tax and prioritise efforts to reduce claims costs, including tackling fraud, car theft and repair backlogs.
Despite a 7% fall in average premiums in the first quarter of 2025, industry figures point to ongoing inflationary pressures. Total claims payouts in 2024 rose 17%, according to the ABI.
A Treasury and Department for Transport taskforce was launched last October to explore ways to curb insurance costs. Its findings are due this autumn, the report noted.
A Treasury spokesperson said IPT was just one factor influencing pricing and defended its role in supporting public services. “Our cross-government taskforce is focused on identifying ways to ease the cost burden on drivers,” the spokesperson added.
According to the report, insurers will be watching closely for any movement on IPT or other policy measures ahead of the report’s release.
