AA attacks insurance tax rise as profits hit reverse

The roadside recovery group AA has warned it will be hit by the Government’s increased tax on insurance and by new European laws on holiday pay. Shares in AA tumbled 43.7p to 289.6p – a fall of 13 per cent – as investors reacted to the disappointing outlook.

Bob Mackenzie, the executive chairman, said: “The increase in IPT [insurance premium tax] was incredibly unhelpful and incredibly unexpected.”

In his July Budget George Osborne announced that he would increase the tax from 6 per cent to 9.5 per cent from November in a move that will bring in an estimated £1.5bn a year to the Exchequer.

Asked for his view on the rise, Mr Mackenzie said: “Where to start? We will, of course, have to try to pass it on to the customer. It is yet another imposition on British motorists.”

The Government has said the change would have a “negligible” impact on companies, but Mr Mackenzie said that had not been the case in Ireland, where a big price rise had led customers to shop around for better prices. Customers tended to do this by phone rather on automated online systems, adding to the disruption to insurance businesses.

Mr Mackenzie has been attempting a turnaround of the AA since buying it last year and floating it on the stock market. Previous owners had failed to invest in the company, he has said, and it now needs big upgrades in IT and marketing to stem the drift of customers to rival firms.

He plans to spend £130m on new IT systems to boost its digital offering and has invested in a TV advertising campaign that has helped it hang on to customers.

Half-year figures to the end of July showed the annualised rate of customers leaving had fallen from 3.9 per cent to nearly zero in May, June and July. But overall revenue fell 1.4 per cent to £484.7m in the period as insurance and financial services revenues fell and fewer people took its driving lessons.

Pre-tax losses were £63.6m against a profit of £10.2m last time though underlying earnings before tax, depreciation and amortisation were £199.2m, down from £211.8m. Net debt was £2.8bn.