21 Jun 2024
The voice of the independent garage sector

Spring Budget 2024 “missed opportunity” says sector

The Budget from Chancellor Jeremy Hunt disappointed many in the automotive sector with a number of hoped-for measures not enacted

 

On Wednesday 6 March, Chancellor of the Exchequer Jeremy Hunt delivered his Spring Budget. With it sure to be the final full Budget before a General Election, it was expected to offer much for the wider voting public.
For motorists, the headline measure was the fact that the 5 pence per litre fuel duty cut has been maintained and is set to continue for a further 12 months until March 2025. PRA Chief Executive Gordon Balmer said: “I am pleased that the Chancellor has listened to us and extended the fuel duty freeze and the 5 pence per litre cut. This move is poised to ease the financial burden on motorists when they refuel and is likely to be well-received.”

For businesses, more significant was the news that full expensing is being extended to leased assets, with the VAT threshold rising from £85,000 to £90,000.

However, the automotive sector was looking for more from this set-piece Budget. This included hoped-for changes to the Apprenticeship Levy, proposed by the IGA in its Budget Submission. These did not come to pass. There had also been calls across the industry for wider support for the transition to EVs, taking in VAT and VED changes. This too did not transpire.

Key concerns
IGA Chief Executive Stuart James was disappointed by the Budget: “The independent garage sector had hoped for strategic support from the Government in this critical year of change. Unfortunately, the Budget missed several opportunities to address key concerns. Whilst we appreciate that this budget announcement has been heavily weighted to support consumers ahead of the impending general election, it is disappointing that very little has been mentioned regarding supporting SME’s, the backbone of the UK economy.”

On changes to the VAT threshold and full expensing on leasing, Stuart said: “While we appreciate certain fiscal adjustments, the lack of business rates reform is disappointing, particularly given its adverse effects on independent repairers.” On the fuel duty freeze, he said: “Extending the fuel duty cut provides relief to consumers amidst global instability. However, more comprehensive support is needed to navigate ongoing challenges.”

Looking towards what was not mentioned, Stuart started with hoped-for reform of the Apprenticeship Levy, something on which the IGA had made a submission on some weeks prior to the budget. He said: “The oversight of apprenticeship reform exacerbates the skills shortage in the independent repair sector.
Simplifying the Apprenticeship Levy is crucial for recruitment and skills development. This is an area for concern, and following recent communication between the IGA and The Rt Hon Robert Halfon, Minister for Skills, Apprenticeships and Higher Education, we had expected this to be addressed in the Spring Budget.”
On the failure to offer private EV price incentives, Stuart observed: “The absence of incentives for private EV buyers is concerning, as the UK falls behind other European markets.”

He added: “The Spring Budget missed opportunities to support the SME sector as a whole and address the skills gap in the industry, delaying the intake of young apprentices actively seeking employment. We hope to hear more from the Government on these important issues in the coming weeks.”

Missed opportunity
As recently as the day before the Spring Budget, the SMMT had continued to call on the Government to offer more support for the transition to zero emission vehicles by halving VAT on new EVs for three years, amending proposed VED changes, and cutting VAT on public charging to bring it level with home charging. On that basis, SMMT Chief Executive Mike Hawes saw what was actually laid out as missing the chance to give EVs a boost: “Government has been keen to assure the UK automotive industry’s competitiveness, with support for EV development and manufacturing – including £2.1 billion in autumn’s Advanced Manufacturing Plan – but there is little to help consumer demand. The Budget is, therefore, a missed opportunity to deliver fairer tax for a fair transition.

“Reducing VAT on new EVs, revising vehicle taxation to promote rather than punish going electric, and an end to the VAT pavement penalty on public charging would have energised the market. With both Government and industry having statutory requirements to deliver net zero, more still needs to be done to help consumers make the switch.”

Significance
IMI CEO Steve Nash agreed with this view: “Despite talking about encouraging investment in future technologies, today’s Spring Budget seemed to miss the opportunity to make some small changes that would support the widest automotive sector as it faces a continuing skills gap while trying to future-proof itself. There was also nothing done to encourage more people to move to lower and zero emissions vehicles. For the UK to achieve its green ambitions every part of the automotive sector must be supported and that includes the aftermarket.”

Looking towards businesses looking to invest, Steve lamented the end of the Super Deduction: “Whilst the addition of leased assets in the Full Expensing 100% first year capital allowance may provide some businesses with help, it’s disappointing that the Super Deduction was not reintroduced. This would have provided the wider aftermarket with essential help to ensure it is adequately equipped and trained to support EV drivers.”

He believed moves on childcare provision could have a positive impact on skills shortages, so long as the move towards more diverse hiring in the sector continues: “It was however encouraging to hear that the Chancellor intends to maintain the Back to Work plan and improve the Childcare offer to give more people who may have felt they couldn’t get back to work, back into the workplace. The IMI is working with automotive employers to ensure they can attract the most diverse workforce through our Diversity Task Force and the ‘There’s More to Motor’ campaign and we hope the government’s actions, including its intention for the National Insurance cut to encourage more people into the workforce, will help.”
He added: “Cynics might say it was a Budget for an election – sadly it seemed to miss the significance of how important the automotive sector is to the UK’s economic and social infrastructure as a whole.”

Widening skills gap
The growing EV car parc and the lack of trained technicians should both have been addressed by the Budget as far as Autodata Technical Director James Lett was concerned: “Across the UK there’s a widening skills gap amongst car technicians not having the skills or tools to repair EVs. Without Government support, garages and auto technicians are being left behind in the EV revolution.

“The IMI predicts a shortfall of over 29,767 technicians in 2035, the same year the ban on new combustion engine vehicles being sold has been extended to. Like many in the industry, we had high hopes that the Spring Budget would recognise the need for critical investment and support.

“A million EVs are already on the road, but they can only be serviced or repaired by technicians with specialist training and tools. Neither of these are cheap nor do we see any government investment to change that. Not only are garages losing money by turning down business, EV drivers can’t access the services they need to safely be on the road. It’s a catch-22 situation that cannot continue. “

Mixed feelings
Despite the fact that businesses and fleets make up the majority of buyers for zero emission vehicles, Association of Fleet Professionals Chair Paul Hollick said more still needs to be done with regards to infrastructure: “There’s some mixed feelings here. In a lot of ways, one of the wins this Government can claim over the last 14 years is its commitment to electrification, and the impact that its policies have had on the fleet sector in terms of moving to zero carbon emissions have been marked and dramatic.
“The truth is that more assistance in this area is now required – especially when it comes to van electrification where there are fundamental issues to overcome as well the need for a further increased rollout of charging infrastructure – and there was no sign of that help arriving at any time soon.”
While he noted the positives, Vehicle Remarketing Association Chair Philip Nothard said it was what was left undone that counted for this Budget: “What we really wanted to see from the Government was help to underpin the proper functioning of the used car market as it moves to electrification. There are clearly issues with levels of demand and residual values that need to be resolved as supply of EVs into the sector continues to rise quite rapidly. There are a range of possible solutions that have proven successful in other countries – from zero interest loans to subsidies. Unfortunately, there was nothing forthcoming in this area and this was a Budget that was very much about the politics of the forthcoming general election.”

Startline Motor Finance CEO Paul Burgess said: “Overwhelmingly, this was a Budget aimed at voters rather than businesses, with the general election only a matter of months away. We carried out some research a couple of weeks ago that showed what motorists overwhelmingly want from the next Government – whoever that turns out to be – is to resolve the pothole crisis and bring down fuel costs.”

James Tew, CEO at iVendi, said: “With the used car market in reasonably strong health and figures showing that the new car market had its best February for 20 years, it’s probably unlikely that the Government was ever going to provide any new forms of support for our sector in this Budget, even if there are various voices asking for more help during the process of electrification. While the reduction in National Insurance might make a few people more likely to swap their car, the truth is that we appear to be in the middle of a long period when growth is flatlining, and general consumer and economic confidence is similarly, largely in check. Whether the general election later this year will start to change that situation and bring a degree of optimism is an unknown.”

Unnecessary costs
The AA saw the fuel duty freeze as a positive move, but thought more could have been done to help motorists, as AA Head of Roads Policy Jack Cousens observed: “The AA is disappointed that the Chancellor did not review Insurance Premium Tax (IPT). This levy on responsible motoring, has added such a financial burden on car ownership, especially younger drivers, that it’s estimated that a million people drive without insurance. It’s not only illegal but it adds unnecessary costs and worry to every law-abiding driver. Similarly, not equalising the VAT on public charging of EVs with domestic charging is a missed opportunity to encourage more car owners to switch to an EV and contribute towards the UK goal of Net Zero.”

Critical year
Continuing the chorus of sector disappointment on the lack of support for the shift to EVs, NFDA Chief Executive Sue Robinson said: “2024 is a critical year for the automotive retail industry. As such, the Budget provided a significant moment for the Government to provide a strategic and clear vision to support the sector but that opportunity has largely been missed. With the Chancellor’s Spring Budget failing to mention private EV price incentives, the UK remains one of the major markets in Europe with little to offer in terms of price incentives for private buyers of electric vehicles.”

Commenting on the business rates side, Sue noted: “These rates are now at the highest level ever at 54p in the pound, a drastic increase compared to 34p in the pound when they were first introduced in 1990.”
On the lack of measure to reform the Apprenticeship Levy, Sue said: “It is concerning that once again the Chancellor has failed to fix the existing, unworkable Apprenticeship Levy in this latest fiscal event. The motor retail sector experienced its highest vacancy rate in 2023.”

Prudent
Coming back to the potential impact on garages, Kevan Wooden, CEO at LKQ UK & Ireland, said: “Garages and workshops will find few gifts for them in the Spring Budget – with the Chancellor largely focused on addressing the consumer tax burden, while continuing to toe a cautious line on public spending as the economy gets back on track.

“A handful of the industry’s smallest players will benefit from the threshold for VAT registration increasing from £85,000 to £90,000. This could help to free-up vital cash for investment in the skills and equipment needed to supercharge growth. But the rise falls short of the £100,000 threshold that many small businesses had hoped the Chancellor would stretch to.

“The decision to make full expensing permanent, representing a £10 billion tax cut for businesses looking to invest in equipment and machinery, was warmly received in last November’s Autumn Statement. So, new intention to extend full expensing to leased assets will be similarly welcomed by garages and workshops wanting to invest in new EV or ADAS servicing equipment.”

Kevan added: “However, it was a budget that felt more in favour of ICE then EV, with fuel duty frozen and no new incentives to help motorists to switch to plug-ins. Despite this, the transition to electric vehicles continues to be the direction of travel for the industry. It will still be prudent for the industry to invest in the skills and equipment to service electric vehicles sooner rather than later to ensure their long-term success.”