Car insurance customers face a "bumpy ride" in the New Year when the VAT increase hits them at the pumps, according to the AA. Responding to yesterday's pre-Budget report, the organisation's representatives also welcomed the chancellor's decision not to bring forward April 2010's increase in fuel duty.

Based on current prices paid by car insurance customers across the UK, the 17.5% VAT increase from 1st January will add 2.36p to the price of a litre of unleaded petrol (from 108.91p to 111.27p), and 2.4p to a litre of diesel (from 110.17p to 112.57p). For the average family with two petrol cars, that means an extra £61.41 will be added to their annual fuel costs.

AA president Edmund King commented that Alistair Darling's pre-Budget report "brings some relief but no Christmas cheer" for car insurance customers.

"We are pleased that the chancellor has not brought forward the projected increase in fuel duty from April," he confirmed. "Petrol and diesel in the UK are already heavily taxed so the VAT increase will hit drivers."

Initiatives to promote low-carbon technology and exempt electric vehicles from company car tax for five years were also welcomed by the AA.

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