What Philip Hammond gave with one hand, he took away with the other – at least when it came to car insurance. We look at how the Chancellor’s plans are likely to affect the UK’s drivers.
Philp Hammond’s first Autumn Statement as Chancellor of the Exchequer was dominated by pessimistic economic forecasts, largely the result of issues that are expected to accompany the UK’s exit from the European Union.
As a consequence, there were few of the giveaways or even the gimmicks that had characterised his predecessor George Osborne’s budgets – and there was some decidedly mixed news for Britain’s motorists.
Fuel duty frozen yet again
For the seventh successive year, the government will freeze fuel duty at its current rate of 57.95p a litre in 2017: the Chancellor said this would save the average driver about £130 a year.
Analysts had largely expected the tax to be kept on hold – and the fact that the freeze has gone on for so long perhaps makes it increasingly difficult for ministers to actually increase duty at any point in the future, given the likely public backlash.
The freeze will cost the government an estimated £850 million in lost revenue in 2017, Hammond said.
Mixed messages on insurance costs
The Chancellor added that a proposed crackdown on fake whiplash claims – originally announced earlier this month – would lead to a fall in motor premiums that should typically be worth around £40 a year.
But the Autumn Statement also contained new plans to increase insurance premium tax (IPT), despite the fact that the levy has been raised twice in the past 13 months.
From next June, IPT on car insurance policies – as well as other types of cover including home insurance – will be charged at 12%.
Until November 2015, the rate was 6%. It was raised by George Osborne first to 9.5% last autumn and then to 10% in October this year.
Hammond claimed that the benefits of a stricter approach to whiplash claims would offset the impact of the higher tax rate.
But the latest hike in IPT has drawn strong criticism from the insurance industry, which says that it will result in higher premiums for drivers much sooner than they see any benefits from the whiplash crackdown.
Huw Evans, director general of the Association of British Insurers, said: “Yet another increase in IPT is a hammer blow for the hard-pressed.
“It will hit consumers and businesses alike, hurting those who buy business, motor, property, pet and health insurance.”
Evans added: “It marks a doubling of IPT since last year and to claim a consultation on whiplash reforms which hasn’t even gone before Parliament yet will offset this just won’t cut it.”
Research from business advisor EY suggested that, while motorists would be unlikely to reap any reward from the whiplash crackdown before 2018, changes to IPT meant that insurance customers will typically have to pay £13 a year more for cover from next year on top of the £33 extra they are already facing.
More money for roads
As part of a wider increase in infrastructure investment, the Chancellor said that £220 million would be put aside to deal with traffic “pinch points” on the strategic road network in England.
These are parts of the network where congestion is more likely to occur, especially at peak times, and with particularly damaging impact on the country’s productivity.
A total of £1.1 billion will be invested to make upgrades on local roads as well as to improve the public transport network.
Incentives for new vehicle technology
Another part of the increase in investment in infrastructure spending – via the new National Productivity Investment Fund – will go towards encouraging the take-up of electric cars and developing self-driving vehicles.
The government is to spend £80 million on providing more electric-vehicle charging stations, for example, while £100 million has been earmarked for testing self-driving cars.