The Irish Insurance Federation has called on the Government to earmark the 2 per cent stamp duty from motor premiums for investment in road safety. In its pre-Budget 2002 submission, the trade association for insurance companies also proposed that VAT on legal fees related to personal injury cases should be abolished or substantially reduced.

The 2 per cent Government levy raised £22 million (€28 million) from motor insurance premiums in 2000. The IIF recommends that an equivalent amount should be invested in enhanced law enforcement and road safety education.

The State currently levies VAT at the rate of 20 per cent on legal fees. By abolishing or reducing that tax in personal injury cases, the State could reduce the annual claims bill by tens of millions of pounds, the IIF claims. "This would be a significant contribution to helping to control the spiralling costs of personal injury claims and would help curb increases in insurance premiums," an IIF spokesman said.

The cost of personal injury claims incurred by motor and liability insurers in 2000 was approximately £1,150 million. The IIF estimates that legal fees and disbursements now account for as much as 42 per cent of the compensation paid in personal injury cases.

The federation has also proposed that the 3 per cent surcharge on the standard rate of income tax applied on the encashment of life assurance policies should be abolished. Life assurers believe that the surcharge represents a significant disincentive to citizens to save, the IIF said.