Budget tax plans risk writing off market gains

UK automotive sector is at risk from proposals to scrap Employee Car Ownership Schemes (ECOS) and the possibility of pay-per-mile taxation, warns the SMMT’s Mike Hawes

Data published by SMMT this week shows the new car market held steady in October, just pushing into growth territory with a 0.5% uplift. In even better news, a quarter of buyers opted for electric cars, putting this year’s ZEV tally ahead  of the whole of 2024 with two months still to go. 

The overall market is also on course for annual growth with the latest industry outlook expecting it to top two million units for the first time since 2019. Such growth would be sorely needed, yet it is now at risk from proposals to scrap Employee Car Ownership Schemes (ECOS), and the possibility of pay-per-mile taxation.

ECOS is vital for industry given around 100,000 new – and increasingly zero emission – cars a year are supplied through it, equivalent to around 5% of the annual new car market. It is unsurprising, therefore, that its removal would inflict substantial damage on the new and nearly-used markets. 

As SMMT analysis shows, acute consequences for an already challenged sector would follow, costing UK Automotive some £1 billion, hamstringing future investment and putting manufacturing jobs across the country on the line.

More perversely still, ahead of an Autumn Budget that seeks to raise revenue, ending ECOS would actually incur a half-billion pound hit to the Treasury in lost VAT and Vehicle Excise Duty receipts. Such a sum, combined with the impacts on industry, would cost more than double the Electric Car Grant, a grant that was designed to stimulate sales and growth not counteract it. This risk is amplified even more by the possibility of pay-per-mile taxation for EVs reported yesterday – entirely the wrong measure at the wrong time, undermining manufacturer efforts to reach already challenging ZEV Mandate targets.

Thriving new vehicle markets are intrinsic to the UK’s appeal as a manufacturing investment destination – and to the ambition set out in the Modern Industrial Strategy to restore the UK to a 1.3 million-unit automotive manufacturing hub by 2035. Delivering that ambition requires whole-government alignment on policies that drive competitiveness and growth. The Autumn Budget is the Chancellor’s opportunity to pull the necessary fiscal levers, with measures that allow market growth, tackle the UK’s high energy costs, bolster supply chain resilience, boost skills, attract inward investment, and deliver strong, free and fair trade. All these will help set the foundations for success, not just for the automotive industry but the UK economy and society.

Mike Hawes is chief executive of the Society of Motor Manufacturers & Traders (SMMT)