VAT error leads to the Competition Commission restating the detrimental effect of credit hire
The detrimental effect of credit hire on the private insurance market has been overstated by the Competition Commission (CC).
A VAT error in the comparison of credit hire rates to direct hire daily rates has resulted in the increased cost of credit hire being overstated by £26m.
This means that the additional cost of credit hire to the industry has been revised down to £167m from £193m. The difference between credit hire and direct hire rates had originally been calculated as £640, but this has now been adjusted to an average of £555 per hire.
As a result of the correction, the overall net detriment from the separation of cost liability and cost control has reduced by up to £45m to between £120m and £155m instead of £150m to £200m.
This means that the additional cost to each motor policy as a result of ineffective competition is now calculated as £5 to £6 per policy, instead of the original figure of £6 to £8.
More to follow.