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Car insurance costs rise at 3x the pace of wages

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As the Chancellor contemplates another rise in Insurance Premium Tax (IPT) in tomorrow’s budget, research from Cuvva shows that car insurance costs have risen three times faster than wages since turn of the century.

The pay-as-you-go car insurer says annual insurance premiums have risen by 177% since 2000, compared to a rise in average wages of 65% over the same period. This has accelerated more recently, partly due to a rise in IPT from 6% to 12%.

The research showed that the average five cheapest comprehensive motor insurance premiums increased from £248.84 in Q1 2000 to £690.35 in Q2 2017. Wages have grown from £307 per week in January 2000 to £506 in June 2017.

It is rumoured that the Chancellor could announce plans to bring IPT in line with VAT in this year’s Autumn Budget, pushing it up to 20%. If this happens, the extra cost is likely to be passed onto consumers in the shape of further increases to annual premiums. The problem is particularly acute for young drivers.

Freddy Macnamara, CEO and founder of Cuvva, said: “If Insurance Premium Tax continues to increase, the cost will keep being passed onto drivers. This is especially hard for young people on lower salaries, and would appear to contradict Philip Hammond’s stance on intergenerational fairness, expected to be a key theme in Wednesday’s Budget.

“Rising costs are making driving completely unaffordable for many people, and this is likely to be contributing not only to plummeting car sales, but to more uninsured drivers on the road. In the last year we’ve seen the number of incidents involving uninsured drivers rise for the first time in a decade and it’s no coincidence that this follows huge increases to annual premiums. A further hike to IPT is likely to exasperate this, while putting a serious financial strain on many people.”

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