After a rollercoaster year resulting from COVID-19, the automotive sector responded to Chancellor Rishi Sunak’s choices on how to stimulate the economy 

In what is likely to be viewed as one of the most significant Budgets of the last few years, possibly in a generation, on 3 March Chancellor of the Exchequer Rishi Sunak unveiled his plan to help kickstart the economy.

Extension
The garage sector has been able to continue to operate through the pandemic, and thanks to the MOT Exemption was busier than usual in the second half of 2020 and the first few months of 2021. However, challenges remain.

The Chancellor’s first announcement in the Budget was the further extension of the furlough up to the end of September. The scheme had been due to wind up on 30 April. For those receiving it, terms remain the same at 80% of their usual monthly salary, but government funding will progressively reduce. Businesses will then be expected to provide the balance, contributing 10% of the total in August, and 20% through September.

Support for the self-employed is also running through until the end of September now, with a fourth grant to cover February to April providing 80% of average trading profits, followed by a fifth grant for May onwards. Claims will be able to be made for this period from late July. Support will from the summer be targeted towards those whose profits have fallen by 30% or more, who would receive 80% of the average as before. Meanwhile, those whose profits have fallen by less than 30% will receive a 30% grant. Support will be widened to include those who were previously not covered, meaning those who became self employed in 2020 will be eligible for the fourth and fifth tax returns.

Meanwhile, many businesses have been relying on Bounce Back loans and other schemes to keep operating. These expire at the end of March, and the Chancellor announced that these would be replaced with Re-Start grants from April. These will be targeted at non-essential retail initially, which will be eligible for £6,000 per premises. Hospitality and personal leisure businesses would be next, and able to receive £18,000 A Recovery Loan scheme will also be available, available to any business. They will be able to apply for loans of between £25,000 and £10m until the close of 2021, with the government providing a 80% guarantee to lenders.

Training and tax
On the training front, for businesses looking to take on apprentices, government incentives were doubled to £3,000, which would apply to all new apprentices of any age. However, unspent funding will after two years still be redrawn by government via the Apprenticeship Levy clawback mechanism.

On business rates, the 100% holiday will be continued for the first three months of the financial year, through until the end of June. For the rest of the year, business rates will be discounted by two thirds, up to a maximum £2m for closed businesses, with a lower threshold for those who have been able to continue trading through the pandemic. At the same time, the reduced rate of VAT will continue until the end of September. For the subsequent six months it will go up to 12.5%, and not return to the standard 20% rate until April 2022.

Looking at the impact on individuals, the personal tax allowance will remain at £12,750 until 2026, with the higher rate rising to £50,270 in 2022, while annual exempt allowance from capital gains tax and the VAT threshold exemption levels will also remain the same. Fuel duty will remain frozen too, scrapping a planned increase that was on the books.

On the business side, in 2023 the rate of corporation tax is now set to increase to 25%. Smaller businesses with profits lower than £50,000 will be covered by a new small profits rate at 19%. A taper above £50,000 will also be brought in, which will mean only businesses with £250,000 profits will be charged the full rate. Businesses will also be able to carry back losses of up to £2m for up to three years, making it possible for businesses to claw back up to £750,000. Next, the Chancellor announced a 130% super deduction to encourage business investment that would enable firms to reduce their taxes by up to 25p for every pound spent. This will be in force for two years. “This will be the biggest business tax cut in modern history,” said Rishi Sunak.

Recovery and growth
Looking ahead the Chancellor announced the launch of a national infrastructure bank, initially funded by £12bn from the government, as well as a green recovery bond enabling UK savers to support green projects.

Small businesses will also receive support via series of Help to Grow schemes, which are set to start with management, with an executive development programme offered to firms as well as mentoring and peer learning, with government covering 90% of the cost. This will be followed by Help to Grow Digital, with free training and a 50% discount on productivity enhancing software worth up to £5,000 each. The Chancellor encouraged interested businesses to register at gov.uk/helptogrow before the schemes launch in the early Autumn.

Essential work
Following the Budget, the industry began to react: “We are pleased that financial support for small businesses has been extended in today’s Budget, and thank the Chancellor for responding to our request to continue the retail business rate relief scheme into the 2021/22 tax year,” said IGA Chief Executive Stuart James.

He continued: “There are hard times ahead for independent garages. A significant decline in MOT work is expected from April to June, where motorists took advantage of the MOT Exemption last year. Garages have also experienced lower volumes of servicing and repair work over the past year due to motorists making fewer journeys. Extending the furlough and business rate relief schemes will provide the financial assistance needed to help independent garages through this upcoming difficult period, so they can continue their essential work keeping vehicles in their local communities safe and roadworthy.”

Investment and upskilling
SMMT Chief Executive Mike Hawes said: “The Budget provides some encouragement to an automotive sector hit hard by the pandemic and additional trading costs but it falls short of the support needed to transform the industry and market to the net zero future to which both the government and industry aspires. Confirmation that the industry’s calls for the furlough scheme to be extended until the end of September have been heeded and is extremely welcome as both the automotive manufacturing and retail sectors have suffered a massive fall in demand over the past year with showrooms still closed and supply chains disrupted.

“Measures to support investment and upskilling are of vital importance to the sector but more is needed if the government’s green recovery plan is to be a success. Ensuring the UK has the most competitive environment globally for business investment is essential so, while we welcome in principle the announcement of a super deduction for investment, it is not clear if it will work for manufacturing and plant and machinery so we now seek the fine detail and, ultimately, business rates reform to encourage investment.”

On training, Mike observed: “Anything that encourages the recruitment of apprentices would have our full support and it is encouraging to see the accompanying “Build back Better: Our Plan for Growth” commits to upskilling and the need to address some of the weaknesses of the Apprenticeship Levy which does not work for many employers.”

He added: “In this crucial year, with COP 26 in the autumn and the sector facing a mammoth task in decarbonizing within just nine years, we had hoped to see more measures to support the transition. This is an opportunity lost, so we look ahead to this year’s Comprehensive Spending Review for the commitment to the infrastructure, incentives and wider competitiveness measures that will enable the UK automotive industry to be the global leaders in the shift to net zero mobility.”

Build back
Looking at the Budget from a tyre perspective, NTDA Chief Executive Stefan Hay commented: “The new super deduction has got to be good for those companies that wish to invest in equipment. During the lockdown we also saw many individuals setting up their own mobile tyre fitting businesses, including many existing NTDA members that hitherto had only operated from a static tyre centre. For them, and many more, the new Help to Grow Scheme, providing the digital and management tools needed to innovate, grow and help drive recovery, could be useful.”

Summing up, Stefan observed: “I would say it is, especially under the difficult circumstances we find ourselves in, as an industry and nation, quite positive.”

Significant
Looking specifically at the decision to freeze fuel duty, PRA Chairman Brian Madderson said “As the PRA has campaigned heavily against any rises in fuel duty, we naturally welcome the Chancellor’s decision today. Fuel duty is a regressive tax on business and livelihoods so any attempt to increase it would have been entirely counter-productive as the economy gets back on track. It is by no means an over-exaggeration to say our members have kept this country moving during the pandemic and it is right that the government has recognised that undeniable fact.”

Looking at the Budget’s key points from the franchised perspective, NFDA Chief Executive Sue Robinson started her observations around business rates: “We have previously highlighted that the business rates holiday represented one of the most welcome forms of financial support offered by the government during the pandemic. Following our requests for a business rates holiday extension submitted ahead of the Budget, the announcement is positive, as it will continue to support retailers while the economy reopens, and we come out of the pandemic”.

On the furlough extension, she said: “It is encouraging that the furlough scheme has been extended, allowing dealers to retain staff while levels of demand remain subdued due to the current restrictions. However, dealers are looking forward to reopening and returning to full operations to be able to meet their customers’ needs.”

Looking at corporation tax and the super deduction, Sue declared: “Due to the significant challenges facing our economy, the announcement about the rise in corporation tax was not unexpected. However, the fact that the increase will not come into effect until 2023 will give businesses some time to start to recover from the current disruption. The super deduction tax relief will partly offset this increase especially as retailers need to make further investments into their sites to meet changing demand.”

On the decision to freeze the thresholds for income tax, national insurance and personal tax
Sue added: “Following months of lockdown, it is important to support consumers and instil confidence; these measures will help the economy bounce back and encourage people back into the marketplace.”

Balancing act
Noting inevitable trade-offs the Chancellor had to make, IMI CEO Steve Nash said: “The difficult balancing act Rishi Sunak faces of supporting those most in need while starting to try to recoup some of the massive spend over the last year means that there are winners and losers in today’s Budget. For some parts of the automotive sector there will certainly be relief that the furlough scheme is being extended to the end of September.

“Our latest analysis of ONS data suggests that since the beginning of November, the proportions of those in automotive on furlough has been increasing in line with the tightening restrictions across the UK. With the path out of lockdown starting in April, hopefully those numbers will start to reduce, and importantly redundancy doesn’t have to be the option for those employees for which there won’t be immediate work. The longer timescale certainly gives businesses time to start to build up their income again and perhaps gives some of the 16,000 plus individuals who have already been made redundant new opportunities in the sector. Employers may also be encouraged by the £126m funding boost offered by government for training. It remains to be seen whether this will encourage greater employer engagement with Traineeships or in offering the required on-the-job training associated with the new T Levels.”

It was not all good news as far as Steve was concerned however: “Most disappointing is the lack of any real tangible support to improve apprenticeship take up. With the government still refusing to waive the Apprenticeship Levy clawback, if funds are not used within two years, the picture for the apprenticeship route in automotive still looks bleak. While apprenticeship starts in England as a whole dropped by 9% in November 2020, for the automotive sector the fall was much more significant. Apprenticeship starts in automotive in November 2020 were 33% lower than the previous year.

“We are also deeply concerned about the impact of the fall in apprenticeship starts in key parts of our sector which play a fundamental role in keeping Britain moving. Vehicle maintenance and repair, vehicle body and paint operations and vehicle parts operations saw declines of almost 100% in apprenticeship starts in November compared to the same period last year.”

Steve concluded: “The IMI will continue to ask government to rethink its stance on the Apprenticeship Levy clawback. It seems utterly counter-intuitive to urge employers to take on apprentices, yet not give them the flexibility and understanding that in the last 12 months the ability to start new apprentices and therefore use the levy fund has been limited. We need all sectors to support our efforts to keep this issue front of mind with the Treasury and Department for Education.”