Who does it hurt most?
Governments use two types of tax to raise money. The first type is taxes that hit money we receive, taxes such as income tax, inheritance tax or taxes on savings and dividends for example. The second type hits what the government would call ‘consumption’, to you and us, ‘spending’.
IPT is in this latter group of taxes. It’s fairly crude in how it works, if you spend £100 on your premium, you’ll pay £10 IPT from October. If your premiums go up, your IPT goes up too.
In this way, it is similar to VAT, the more you spend, the more VAT you pay. However, there’s a difference between IPT on car insurance and VAT though.
Aside from the essentials such as electricity, we can choose not to buy items and in doing so, avoid paying so much VAT. In contrast, car insurance is compulsory so the consumer has no way of avoiding the tax.
Who pays the highest car insurance premiums? The young and first time drivers predominantly.
Unfortunately then, where car tax is concerned, this tax falls disproportionately on this group of drivers. You could be a millionaire driving a Rolls Royce and pay less IPT than a student driving a Fiat Punto.
Fair or not fair, it is unfortunately the law.