Insurers, tax, whiplash victims, and how to hit back

“A hammer blow for the hard pressed” is how the Association of British Insurers characterised the Government’s decision to put another 2 per cent on insurance premium tax. It will rise to 12 per cent from June next year.

I have to admit, I felt a certain schadenfreude after reading that furious reaction to Chancellor Philip Hammond's announcement.

Insurers have just conducted an exhaustive, expensive and deeply cynical campaign aimed at denying compensation, and even legal representation, to the victims of road accidents that are not their fault.

Its executives, spin doctors and lobbyists have expressed delight with the result of that exercise, which is the tabling of proposals to sharply cut compensation to whiplash victims by the Ministry of Justice. Under them, all claims worth less than £5000 will also be pushed into small claims courts, meaning that you’ll only be able to get no win no fee legal representation if you get really badly hurt. Moreover, if you agree an early settlement (as you probably will if you even get that far) and complications later emerge (as they sometimes do with soft tissue injuries like whiplash) you’ll be stuffed.

Insurers have sought to claim that the payoff from these measures is a £40 reduction in the cost of motor insurance premiums. But, of course, the money saved could just as easily end up flattering their profits. There will be no monitoring of their promise to pass on the alleged savings.

Then the Chancellor entered stage left, with a proposal to grab them for himself.

Needless to say, my schadenfreude didn’t last for long when I started to consider the implications. Insurers might not pass the alleged savings on (having covered this industry for longer than I care to mention I have good reason for suspecting that many of them won’t), but they surely will pass the cost of the tax on.

It's not just motor insurance that will be affected, either. It’s all forms of insurance so your home and contents insurance premiums will likely go up too.

The ABI may be over stating the case a bit with its talk of a "hammer blow for the hard pressed" particularly given that its members don't have to pass the cost on. But if they do, and if you’re on an income low enough to make it a choice between insuring your home and eating, you’re probably going to end up locking the door and crossing your fingers if you can at least do so with a full stomach.

The problem with IPT is that it functions, in effect, as a tax on prudence and it hits those on low incomes hardest.

The Govenrment’s attempt to justify its rise by pointing out that it is higher in Europe doesn’t wash with me. As Mr Hammond’s mum probably told him (mine did) if your friend says he’s going to jump of a cliff it doesn't mean that you have to. And isn’t the Government pulling us out the EU because we don’t want to do things like they do in Europe?

The trade off between the whiplash reforms and the higher rate of IPT, which sees the government taking back the alleged benefits, and more besides, is disgusting. It's not too much of a stretch to see the newly increased tax as a levy on the victims of accidents that are no fault on their own. An insurance victim tax. Which is why my initial schadenfreude soon faded.

Still, there is a way of getting some payback from both the industry and Mr Hammond. Use a price comparison site. Shop around. Make insurers pay for their laziness and cynicism by injecting some extra competition into a market that could surely use it. Despite what insurers might tell you, no business welcomes extra competition. So spend a few minutes ensuring they get some? Better still, because the Government levies the tax as a percentage, it will get less if you switch to a cheap policy. The whiplash reforms probably won’t make you better off. Using a price comparison site probably will. So what are you waiting for?