CC probe overstated cost of credit hire by £26m

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.