The Chancellor has moved to boost advanced automotive manufacturing and industry apprenticeships as part of the UK’s latest budget review although there were slim pickings for the dealership community.

Speaking in the House of Commons while delivering his Autumn Statement, Chancellor Jeremy Hunt reported that £2 billion will be directed to developing the zero-emissions automotive sector.

“International investors say the biggest thing we could do is to announce a longer term strategy for their industries. So with the Secretary of State for business and trade, and energy security, I'm today publishing those plans and confirm that I will make available £4.5 billion of support over the five years to 2030 to attract investment into strategic manufacturing sectors. That includes support of £2 billion for zero-emission investments in the automotive sector, something that's been warmly welcomed by Nissan and Toyota.”

Commenting, Ian Plummer, commercial director at Auto Trader said the fact that the Treasury had earmarked £2 billion in grants and loans for the automotive industry should help it get more 'bang for their buck' through the Chancellor's commitment to full expensing without which incentives to invest in building battery capacity for the UK’s much-heralded transition to electric vehicles would be much harder to achieve.

"Warnings from MPs this week of a "gigafactory gap" which could cost 160,000 jobs in the automotive industry only underline the urgency of the problem," he said. "Producing batteries at home will also bring down the cost of electric vehicles for consumers which is critical as the current upfront cost of the cars is stifling any meaningful levels of adoption."

The planned investment in electric car manufacturing did not appear to address the need for infrastructure however, noted Lisa Watson, director of sales at Close Brothers Motor Finance, who said: “More than two thirds of dealers stated earlier this year that a lack of charging infrastructure is the biggest barrier to drivers buying an electric or hybrid vehicle, so while the Chancellor’s planned investment in electric car manufacturing will be welcome news to dealers and motorists, it doesn’t appear to address the need for infrastructure.

“Adequate investment is needed for the UK to finally step-up its efforts to cater for a shift to alternative fuel vehicles (AFVs)," she said. "With the 2030 ban having to be pushed back, this will be critical to reaching the revised 2035 target. Despite barriers in place, two-in-three motorists surveyed would consider buying an electric vehicle, so demand is there should the infrastructure be in place.”

Sue Robinson, chief executive of the National Franchised Dealers Association (NFDA) agreed, branding today’s fiscal budget as a 'largely squandered' opportunity for the Government to outline a clear and strategic vision to support the automotive sector in its transition to net-zero while it struggles to manage challenging trading conditions.

Indeed, Jeremy Hunt reported that the Office of Budget Responsibility (OBR) now estimates that headline inflation will fall to 2.8% by the end of 2024, before falling to the 2% target in 2025. Like other forecasters, the OBR is admitting that inflation falling to the 2% target will take longer than previously thought – and will likely delay any early interest rate cuts.

Robinson pointed out that the recent decision by government to delay the banning of new petrol and diesel vehicles has created uncertainty among dealers and consumers adding that, with the Zero-Emission Vehicle Mandate scheduled to be introduced in under five weeks, the NFDA is severely disappointed that government had not taken the opportunity to increase the accessibility of electric vehicles and aid the sector in making them more affordable.

“While today's announcements by the Chancellor offer some reason for cautious optimism, it also highlights the necessity for additional efforts by the Government to support the sector. The Chancellor missed the opportunity to provide incentives for prospective EV buyers and to address wider employment concerns within the industry.” 

Anthony McFarlin, tax director at MHA told AM that overall, the budget review would have little positive impact on the car retail community: "Our initial reaction is that it's probably fair to say that in a lot of areas dealers will be disappointed by the announcement today. The news of investment of £2 billion in zero-emission automotive sector obviously does not directly impact dealers but we should see some benefit from that in time."

The Chancellor also announced the widely anticipated decision to make permanent “full expensing” for businesses where for every £1 invested in IT, machinery and equipment, a business will now be able to claim back 25p in corporation tax.

Companies can do this in one go as opposed to having to offset the cost against corporation tax over a longer period which represents a siginificant benefit for companies which invest heavily in equipment, such as manufacturers. Companies which aren't profitable, or which mainly invest in people and equipment, will not stand to benefit however. 

As McFarlin noted, full expensing relief being made permanent, while it gives certainty to dealers only impacts those who plan on investing in qualifying plant and machinery over and above the 100% relief that the £1 million Annual Investment Allowance offers.

Business rate relief for retail will also be extended with the standard rate multiplier uprated in line with CPI inflation. This will increase business rates bills for some, however, large retailers are expected to benefit from tax relief through full expensing.  

NFDA's Sue Robinson said: “It is promising that retailers will benefit from a tax relief through full expensing being made permanent, but we are disappointed that the long-awaited business rates reform has been kicked into the long grass once again and these rates are now at the highest level ever for the beginning of a revaluation cycle.” 

Many Tory MPs had been pushing for tax cuts which are at their highest level since records began 70 years ago, according to the Institute for Fiscal Studies.

The budget review had been expected to impact the take-home pay and household budgets of those on the lowest incomes and support for those on low incomes featured highly.

While the Chancellor took the credit for raising the National Minimum wage (NMW), Anthony McFarlin at MHA pointed out that it would be the dealers who will have to find the funds to pay the workers at a time when they are already battling rising costs.

"In addition," he said, "HMRC have already increased pressure on the Motor Retail Industry to ensure that they are compliant with Minimum Wage regulations. Historically, this has been a big issue in the sector. The main issue being that the sales force are usually on a low base salary, with a commission top up. Where these staff work their contracted hours in a period where little to no commission is paid this could present an issue from a minimum wage perspective."

He said there was also a risk in relation to valets and drivers, who represent a risk based on their lower rate of pay, adding that the Autumn Statement increase in the National Living Wage to £11.44p/h, which will now include 21- and 22-year-olds (previously only 23 and over) represents further risk and increased pressure to ensure regulations are being met.

The widely expected cut in National Insurance was bigger cut than some had thought - a cut of two percentage points which will take effect in early January. The decrease in employee NIC (from 12% to 10%), for those earning between £12,570 and £50,270, will require dealers to check that their software is accurately processing the updated rates.

The Chancellor also boosted engineering apprenticeships as part of future government's tax and spending plans, announcing £50 million in funding over the next two years to increase the number of apprentices in engineering and "other key growth sectors".

The news will be welcome by automotive professional body IMI which had hoped that the budget review would be the opportunity for the government to give employers more confidence about future support for recruitment, training and growth.

NFDA's Sue Robinson said the additional funding was a step in the right direction to supporting automotive businesses, stimulating growth for the sector and closing the skills gap.

“However," she noted, "the Chancellor has missed a great opportunity to address the Apprenticeship Levy in his statement today. The current system does not fulfil the potential needs of the automotive industry, especially in the transition to electric. The NFDA has urged the Chancellor for the claw-back cap to be removed and for the application process to be simplified.”

The NFDA has put together a summary document including all the most relevant policy updates for franchised dealers. Read it here.

 

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