The automotive industry has given a cautious welcome to Chancellor Kwasi Kwarteng’s Growth Plan, unveiled on Friday, but called for more detail and longer-term action to support the sector.
As high energy users, vehicle manufacturers breathed a sigh of relief the day before the Chancellor’s statement at their temporary reprieve from soaring electricity and gas prices this winter. They warned, however, that the short-term price cap must be backed by a full package of measures to sustain the sector and “avoid a cliff-edge in six months’ time,” said Mike Hawes, SMMT Chief Executive.
“Manufacturers have consistently invested to drive down energy use but it remains one of their biggest costs, threatening competitiveness and viability,” he said. “Government must now seize this opportunity to deliver a long-term, affordable and secure supply of low carbon energy to ensure the industry is globally competitive and can deliver the jobs, economic growth and net zero gains the UK needs.”
With the UK’s commercial vehicle manufacturers enjoying their best year-to-date production performance in a decade, up 46.9% year on year, the SMMT wanted to see the Growth Plan include more support to secure the future of manufacturing in the UK.
“We look forward to further action in the months ahead to tackle wider, long-term reform to enhance the automotive industry's international competitiveness, including a review on business rates, tackling long term energy costs and encouraging investment in new skills - enabling the sector to deliver growth in trade, jobs, and decarbonisation,” said Hawes.
The BVRLA, which represents leasing and rental companies responsible for buying about half of the new cars and vans sold annually in the UK, said the Growth Plan had left many key questions unanswered, including the burning question of benefit in kind tax rates beyond the 2024-25 tax year. The ultra-low (2%) company car tax levied on zero emission vehicles has led to a dramatic uptake in electric company cars, and is driving a surge in demand for salary sacrifice car schemes for battery electric models.
The fleet sector would also like to see a review of the Advisory Electric Rate that employers can use to reimburse company car drivers tax free for miles driven in an electric car. The Association of Fleet Professionals says the current 5 pence per mile rate grossly underestimates the true cost of charging following Ofgem’s recent increases to the energy price cap; while the discrepancy between the 5% VAT rate for domestic energy and the 20% VAT rate for public charging is leaving drivers without off-street parking (where they could install a home charge point) at a serious disadvantage.
On the plus side, the reductions in income tax and the reversal of April’s National Insurance rises announced by the Chancellor will save company car drivers and their employers money, while the Government’s commitment to accelerate a number of key infrastructure projects, including the Local EV Infrastructure Fund and the Rapid Charging Fund, should spur demand for electric vehicles.
“Motorists across the UK will benefit from an upgraded road system and will be essential towards speeding up improved infrastructure for the electric revolution,” said Sue Robinson, chief executive of the National Franchised Dealers Association.
She also welcomed the Chancellor’s decision to reverse the proposed the proposed corporation tax hike from 19% to 25%.
“Scrapping the proposed corporation tax hike is an encouraging move for businesses across the automotive retail sector, helping reduce the tax liabilities of firms during a period of time where finances are stretched. This is a positive move,” said Robinson.
In times of economic uncertainty when businesses want to hold on to their cash reserves, leasing new plant and equipment should hold significant advantages over purchasing it, said Stephen Haddrill, director general of the FLA, although he said the Government needed to control inflation in order to keep interest rates down.
“The Government’s commitment to growth and investment is good news, in particular the decision to make permanent the Annual Investment Allowance at £1m which the FLA has been pressing for. However, to maximise investment growth, the type of capital investment that qualifies for relief must take account of the prevailing economic conditions,” he said.
“Government borrowing tends to put upward pressure on interest rates, so while the measures announced today will be welcomed in business circles, the future health of the economy will rely on keeping inflation, which is outstripping that of our international competitors such as the US, under control.”