Autumn Budget 2021: The sector reacts

Published:  27 October, 2021

The automotive sector had a mixed reaction to the Autumn Budget.

In his second Budget of the year, Chancellor Rishi Sunak announced a number of measures that will affect businesses in the aftermarket. Looking broadly, fuel duty was frozen for another year, while road infrastructure is set to receive a £21 billion investment. On the training front, overall skills spending will see a £3.8 billion rise, with apprenticeship funding receiving a £2.7 billion increase across 2024-2025.

Looking at wages and taxation there, National Insurance will increase by 1.25% from April 2022, while the National Minimum Wage will go up to £9.50 per hour for those over 23.

On the Business Rate front, next year’s Multiplier has been cancelled, and the £1 million Annual Investment Allowance will now end in March 2023. This had been due to end this December. Longer term, the whole system will be evaluated every three years from now on. There is also a one-year 50% discount, up to £110,000, on business rates for retail, leisure and hospitality businesses, as well as an improvement relief for investment in green tech.

Eligibility

Where exactly the 50% Business Rates discount applies is still unclear however, and the IGA has urged the Chancellor to clarify whether independent garages will be eligible. IGA Chief Executive Stuart James observed: “Last year, independent garages struggled to claim business rate relief despite being retail outlets, as they were not specifically included on the list of eligible businesses for local authorities. This caused garages much confusion and distress, and left them with little support.Garage businesses need financial aid, as they are still recouping from financial losses incurred throughout the COVID-19 lockdowns, and are experiencing reduced incomes due to ongoing fluctuations in demand for MOTs caused by last year’s six-month MOT extension.”

He added: “It is vital that garages can claim this new discount to help them to stay afloat and retain their staff, so they can continue their vital work keeping vehicles safe and roadworthy. We urge the Chancellor to ensure that independent garages are specifically included on the list of businesses eligible for the new business rates discount.”

Updating

There also needs to be more clarity around the allocations for training and apprenticeships according to IMI CEO Steve Nash: “The Chancellor’s promises for training and development, to build a stronger economy, should be commended. The £3.8 billion investment over the course of the current parliament in training is good news for the UK as a whole. However, there was a lack of detail around how the additional £2.7 billion for apprenticeships up to 2025 will be applied. In particular we believe that there needs to be an acceleration in the updating of apprenticeship models to reflect the new innovations in automotive, which currently relies very heavily on employer input. Those employer panels would certainly benefit from some additional resources to support their important work. Without this, the government’s own ambitions in Decarbonisation could be seriously undermined.

“Currently the apprenticeship models are not fully aligned to the evolution of electric vehicles and other new and rapidly evolving automotive technologies. Yet the pace of growth in sales of EVs in particular has increased enormously in the last 12 months. Without a properly qualified workforce, the EV revolution – which is fundamental to the government’s Decarbonisation plan - could stall.”

Steve added: “As important as it is to grow the pipeline of new talent through apprenticeships, we would also like to have seen some more funds directed towards helping the existing workforce gain new skills to deal with electric vehicles in particular, to avoid an impending skills gap that we have already identified.”

Resource

Staying with apprenticeships, NFDA Chief Executive Sue Robinson pointed out some areas where changes still need to be made on access to funding: “Apprentices are an essential resource for the automotive industry, one that continuously invests to create opportunities for the workforce of the future and upskill current staff. It is encouraging to see that the government is committed to supporting the development of apprenticeships in response to the demand for new skills. However, we are disappointed that the government has not considered our recommendation to extend the window in which employers can use unspent levy funds by 18 months.”

Fundamental change

SMMT Chief Executive Mike Hawes welcomed the measures to support businesses, such as the aforementioned changes to Business Rates, but believed this could have gone further, particularly in the context of the ongoing disruption caused by COVID-19: “The effects of the pandemic continue to hurt businesses across the sector; Supply chain disruption, skills shortages and punitive energy costs. The Budget included some significant steps, most notably in adjusting Business Rates to allow relief on renewable energy and the extension of the super-deduction. Together with the Global Britain Investment Fund which provides £817m to support the transition of automotive manufacturing and the £620m announced last week for incentives, as well as investment in charging infrastructure, these are a recognition of the importance of the automotive sector and its ability to drive innovation and exports, and to create well-paid, highly skilled, green jobs across the country.

"However, if we are to attract the investment in plant and machinery that a modern, competitive and decarbonised industry needs, a more fundamental change in Business Rates is still necessary, one that actually incentivises the continued investment that factories need to be at the cutting edge of operational efficiency. The Budget was also a missed opportunity to support the many supply chain businesses which are suffering cash flow shortages due to stoppages arising from the semiconductor shortages.”

Significant

Also commenting on the overall impact on the automotive sector, Philip Nothard, Chair at the Vehicle Remarketing Association, said: “This was not a Budget in which the motor industry featured heavily but there are some points of interest. The fuel duty freeze, vehicle excise duty freeze on HGVs and investment in better facilities for truck drivers, are all welcome, even if they are unlikely to have significant impacts. Really, what is more interesting is the government’s overall efforts to keep the economy on an even keel as we hopefully emerge from the pandemic. Certainly, we are in a better place than would once have been forecast but there remain a number of factors that continue to create headwinds, ranging from inflation to supply chain issues, that are now probably bigger threats to the used car and remarketing sectors. There are reasons to be relatively optimistic but it shouldn’t detract from the fact that significant problems remain and government might have to do more to help business deal with these in the near future.”

Specific threats

The used car market should remain buoyant according to Paul Burgess, CEO at Startline Motor Finance, which should be good news for independent garages: “There’s quite a lot of economic news in the Budget that, even looking back just a year, we would very much have welcomed in the midst of the pandemic. Growth is higher than expected, unemployment has remained relatively low, and government debt appears to be high but under control. On the other hand, there is no denying that the economy continues to suffer from the effects of COVID-19, Brexit, the semiconductor shortage and more. The impact of all of these factors is difficult to predict over time and, in addition, it seems very likely that many people will find their personal spending power noticeably reduced over the coming year and longer, especially given that inflation is expected to be higher than 4%. From a motor finance point of view, we don’t believe these represent specific threats to the current buoyancy of the used car market and expect a strong 2022, but it should definitely be noted that the road ahead for the general economy could be pretty bumpy.”

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