Tax hike will force up breakdown premiums
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• Hauliers will have to pay higher premiums on breakdown insurance policies bought from used truck dealers after Chancellor Kenneth Clarke raised insurance tax on such policies from 4% to 17.5%.
Hauliers are free to buy breakdown insurance from independent brokers who still pay only 4% Insurance Premium Tax (IPT)—the insurance equivalent of VAT—but they will have to shop around to find brokers.
Clarke announced the move among several changes in last week's Budget which were designed to block tax loopholes. Some dealers had been legally selling vehicles at knockdown rates to avoid 17.5% VAT and making up the difference on higher, but more lightly taxed insurance premiums.
The hike brought a howl of outrage from the Society of Motor Manufacturers and Traders, which says dealer insurance gives vehicle buyers a better "bond" with their dealer.
The SMMT says it will ask the Government to think again, but it admits some dealers were using lower taxes on insurance premiums to avoid VAT by selling vehicles cheaply and recovering the difference from artificially high premiums.
A Treasury spokesman responded that Clarke was determined to close tax loopholes. But the SMMT will also face the Government's continuing determination to encourage competition.