The upcoming budget will be the first under a Labour government since 2010 and it couldn’t be more critical for the automotive sector.
The industry is navigating a period of profound transformation, and the Chancellor has the opportunity to accelerate change positively.
Faced with challenges such as the Zero Emission Vehicle (ZEV) mandate, fluctuating consumer demand, and evolving regulatory landscapes, the sector requires targeted fiscal policies to ensure its continued growth and competitiveness.
OEMs and dealers certainly need assistance from government policy to balance the market and drive change.
One of the most pressing issues for the automotive sector is the ZEV mandate, which requires that 22% of new car sales in 2024 be zero-emission vehicles, with this figure rising in subsequent years. While the mandate is vital to reducing carbon emissions and meeting the UK’s environmental goals, it presents significant challenges for OEMs and dealers.
Manufacturers are in a difficult position, balancing the production of electric vehicles (EVs) with continued demand for petrol and hybrid cars. To avoid steep fines, some carmakers, including Ford, Vauxhall, Peugeot, and Citroën, are reducing the supply of petrol vehicles. While necessary to comply with the mandate, this strategy risks alienating consumers who are not yet ready or able to transition to EVs due to high prices and insufficient charging infrastructure.
For dealers, the ZEV mandate has created an environment of uncertainty. Vertu Motors, one of the UK’s largest motor retailers, has reported declining new car sales due to regulatory changes and market volatility.
The mismatch between what consumers want and what manufacturers can supply leads to a weakening retail market, particularly for new vehicles. This is compounded by the need for more government financial incentives to support the purchase of EVs, which remains a significant barrier to broader adoption.
Another crucial area where the automotive sector requires clarity is the tax environment, particularly regarding Capital Gains Tax (CGT).
The potential for increased CGT rates could cast uncertainty over mergers and acquisitions (M&A) within the sector.
Given the scale of transformation the industry is undergoing, with shifts towards electrification, new distribution models, and changing consumer preferences, stable and predictable tax policies are essential to foster investment and encourage innovation.
The Budget should ensure that CGT is not raised significantly, as such a move could deter much-needed investment in the sector.
This is especially relevant for smaller players and startups in the EV market, who rely on investor confidence to scale their operations.
By maintaining a favourable tax environment, the government can support the sector’s growth and ability to meet the ambitious targets set by the ZEV mandate.
Consumer demand for vehicles remains a critical factor in the health of the automotive sector. The current economic climate, high inflation, and rising interest rates have dampened consumer confidence, particularly in the new car market. The Budget should consider measures to stimulate demand, such as reintroducing or expanding incentives for EV purchases, which have proven effective in other markets.
Moreover, the used car market, which has seen growth amid the decline in new car sales, could benefit from policies that support its continued stability. Vertu Motors has indicated that used car pricing will likely remain stable due to reduced supply, but affordability remains a concern. Any measures that could help reduce interest rates further or offer financial incentives for used car purchases would be beneficial in maintaining this market segment.
To successfully navigate the transition to electrification, the automotive sector needs more than mandates—it requires infrastructure and support. The Budget should prioritise investment in EV charging infrastructure, particularly in areas outside major urban centres with limited access. This would help alleviate consumer concerns about the practicality of owning an EV and support broader adoption.
Additionally, investment in research and development (R&D) for new battery technologies and sustainable materials should be a priority. Such initiatives would help the UK remain competitive in the global automotive market and support the creation of high-skilled jobs in the sector.
The October Budget presents a pivotal opportunity for the UK government to support the automotive sector as it navigates a challenging period of transformation. By addressing the impacts of the ZEV mandate, ensuring a stable tax environment, stimulating consumer demand, and investing in the necessary infrastructure and R&D, the government can help the sector meet its ambitious goals.
The right policies could ensure that the UK automotive industry survives and thrives in the coming years, maintaining its position as a critical player in the global market. Of course, whether we get all of this, and whether the UK Government understands the importance of the sector and the challenges it faces is another matter.
Mike Allen is the managing director of Cambria Private Capital, a firm that invests in and provides advisory services to automotive startups and scaleups.