Stealth Tax and Car Insurance Rise in UK

have been the subject of much scrutiny in the past few years, especially from those who have tight budgets. This is especially true when it comes to the use of stealth taxes and how they affect rates that consumers pay for goods and services like car insurance.

What is a Stealth Tax?

Stealth Tax is a Prime Reason for Increased Car Insurance PremiumEssentially, this is a tax that is applied in such a manner where it is not easily recognized as a tax by the government. Unlike most taxes that are passed which are well known and have obvious effects, a stealth tax is far more hidden in its effect and may go unnoticed by most people. The term ‘stealth tax’ came from the Conservative Party which used it to attack the behaviour of the New Labour government near the turn of the 21st century.

It is not double taxation, but instead an alternative way for the government to raise money without having to pass a new tax. For example, when the British government diverted some of the revenue raised from the National Lottery for public spending that was considered a stealth tax. The Value Added Tax (VAT) is often considered a form of stealth tax as well.

How Stealth Taxes Affect Car Insurance Rates?

One sharp rise in car insurance rates can be traced to what some people believe is a stealth tax initiated by George Osborne in his summer budget that has caused some insurance owners to pay more than £100 per year extra as a result.

The AA which monitors car insurance rates noticed that the average premium rose a substantial 10% over a three month period of time and roughly 20% in a year which resulted in the average car insurance premium to rise over £105, the largest increase since 2010.

According to the AA, the reason for the rise in rates was from the Insurance Premium Tax which went up from 6% to 9.5% over that time period. The higher rate was reflected in what was being charged to the policy owners. Overall, the tax has affected roughly 7.3 million policies and is expected to raise about £8 billion by 2021.

In addition, personal injury claims are also driving up premiums for everyone which makes paying for car insurance even more difficult. By cracking down on false injury claims, it is hoped that premiums would start to drop as well. However, the Insurance Premium Tax is noted as being the primary cause of the current rise in premiums being felt across the UK.

Until this particular stealth tax is properly dealt with, policy owners can expect their premiums to rise even more over the years especially when combined with false insurance claims. While the British government is cracking down on such claims, there is no current effort to reduce or repeal the tax that has been levied in a somewhat secret manner. Only when the Insurance Premium Tax is properly addressed with UK drivers see their car insurance rates start to subside.

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