Business

AA may have to raise prices because of tax increase

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The AA has warned that it may have to raise its prices because the government has doubled the tax rate on insurance policies in less than two years.

The breakdown service, which also reported a rise in personal memberships of 0.4% to 3,335,000 in the six months to the end of January, said it had so far absorbed the price rise.

Insurance premium tax (IPT) was 6% in 2015, but is going up to 12% from June.

The AA said it would look at its fees if the tax increased again.

'Important milestone'

"We have managed to protect our members," the AA explained. "But this is an industry-wide challenge and we will need to review our pricing policy in the context of any future increase in IPT."

The increase in memberships - an "important milestone", according to the company - halted a long-standing drop in figures.

It came after the AA signed up more members, with a 19% rise in new business year-on-year, and kept more existing customers, with its retention rate improving to 82%.

It added that there was a 5% rise in the number of breakdown call-outs in the 12 months to the end of January, again reversing a trend of gradual decline, which it described as "unhelpful for costs in the short term".

However, the company explained that this did increase the chances of people renewing their membership.

The AA has been investing in technology, with more than a fifth of its members (22%) using its app in breakdowns, while its newly-launched in-house underwriter recorded 115,000 car insurance policies in its first year, more than expected.

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