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Mixed news for motorists as Chancellor freezes fuel duty but increases tax

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Written by: Paloma Kubiak
23/11/2016
There was mixed news for motorists in today's Autumn Statement with a freeze in fuel duty and commitment to clampdown on fraudulent whiplash claims, but a hike in insurance premium tax.

The good – crackdown on whiplash claims

Last week, the government outlined proposals to scrap or cap compensation pay outs for whiplash claims in a bid to save millions of motorists a total of £1bn on their car insurance.

Today, Chancellor Philip Hammond confirmed the government’s commitment to legislate next year to end the “compensation culture surrounding whiplash claims” – a major area of insurance fraud – saving drivers an average of £40 on their annual premiums.

RAC director of insurance, Mark Godfrey said: “We are concerned that the government’s whiplash reforms, while welcomed, will not achieve savings for motorists as only a small number of insurers have so far committed to passing the savings on.”

The great – fuel duty freeze

Hammond announced the government will cancel the expected fuel duty rise for the seventh successive year.

This longest fuel duty freeze for 40 years will save the average car driver £130 a year, and the average van driver £350 a year from what they were paying pre-2010.

The Chancellor said motorists have faced “significant pressure on prices at the pump here in Britain” as a result of the oil price rising by over 60% since January, coupled with the 15% decline of sterling against the dollar.

RAC fuel spokesman, Simon Williams, said the Chancellor’s commitment to freeze fuel duty will be greeted with relief by motorists and businesses.

“The Chancellor’s decision to extend the freeze shows that he understands that motorists are the backbone of the British economy. It is vital that in such uncertain times, the government can give as much certainty to them as possible.”

The bad – Insurance Premium Tax on the up…again

Insurance Premium Tax (IPT) – a tax on insurers which is often passed down to drivers – will increase from 10% to 12% from 1 June 2017.

The Chancellor said that IPT in this country is “lower than in many other European countries” and in order to fund some of the commitments outlined in todays’ Autumn Statement, it will increase by 2%.

Motorists have been hit with a series of IPT hikes recently. On 1 October this year, it increased by 0.5% from 9.5% to 10%, after rising from 6% on 1 November 2015 – that’s three rises in about a year.

Edmund King, AA president, said the previous two IPT rises have already added an extra £100 to the annual insurance bill and this extra hike means that in 18 months, tax on insurance will have doubled.

He said: “The leap from 6% to 9.5% to 10%, and now 12%, insurance premium tax is a tax on responsible car ownership – as opposed to the lawless one million without motoring cover, mainly young male drivers, who leave the insurance industry to pick up the pieces through the Motor Insurers’ Bureau levy.

“We have seen a 100% hike in this tax on motor insurance. This is not a luxury but a legal requirement for drivers. It’s also a tax on homeowners who take the responsibility for protecting their property.

“This is a backward step which could backfire with more uninsured drivers and higher costs that will ultimately be funded by higher premiums.”

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