AA chief slams insurance tax rise as profits go into reverse

The boss of the AA has slammed new Budget hikes to insurance premium tax as “incredibly unhelpful and incredibly unexpected”.

Asked about the shock 58% increase in the tax, announced in the July Budget, AA executive chairman Bob Mackenzie said: “Where to start? We will, of course, have to try and pass this on to the customer. It is yet another imposition on British motorists.

“Motoring is now the second highest impact on household spending.”

A 30% increase in car insurance rates in AA’s Irish business saw customers move in droves to shop around for better prices, increasing the churn rates of all insurers — mostly by phone rather than online.

Mackenzie predicted similar disruption in the UK.

He added that EU legislation on holiday pay might also increase its operating costs.

Mackenzie has been leading a turnaround of the AA since taking over and floating it on the stock market last year.

After years of its former private equity owners underinvesting in marketing, a TV ad campaign that launched in the summer has begun putting the brakes on the numbers of customers leaving, with the annualised rate of 3.9% falling to nearly zero in the last quarter to the end of July.

However, overall revenue fell 1.4% to £484.6 million in the half-year as insurance and financial services revenues fell and fewer people took its driving courses.

Pre-tax losses were £63.6 million against a profit of £10.2 million last time, although underlying earnings before interest, tax, depreciation and amortisation was £199.2 million, down from £211.8 million before.

An interim dividend of 3.5p will be paid.

Net debt remains high, at £2.81 billion, but Mackenzie stressed the company had refinanced those loans to save £45 million a year on repayments.

He said that he was on track with his biggest project — the £130 million three-year investment to bring the AA’s IT and digital systems up to date.

AA shares fell 27.7p to 305.6p.