Spring Statement 2022: Automotive sector reacts

Published:  24 March, 2022

The automotive sector offered a range of opinions following the Spring Statement from Chancellor of the Exchequer Rishi Sunak 

With inflation soaring, and multiple pressures affecting the automotive sector and many others, the Spring Statement from the Chancellor of the Exchequer offered some clarity on what changes from government businesses would have to deal with over the next few months.

Rishi Sunak needed to perform a balancing act, as he looked to help individuals and businesses, while also dealing with a precarious economic situation, with inflation back in away not seen for decades.

Critical
Ahead of the Spring statement, IMI CEO Steve Nash CEO urged the Chancellor to address funding for skills training, with a particular focus on EVs: “There’s no question the Chancellor has a number of pressing issues, but the IMI’s latest analysis of vacancies in the automotive sector highlights just how critical the skills situation is. We have been calling for the Government to inject funding specifically into training to work on electric vehicles; but frankly right now businesses need help to bring on talent right across all areas of skills.

“More needs to be done to help employers upskill their workforce. Retraining those currently out of work also needs to be addressed as a matter of priority. The massive advances in technology in automotive offer a wealth of opportunity; it’s critical therefore that the training is available for individuals who want to be part of what is an incredibly exciting sector.”

“New analysis from the IMI has found that automotive vacancies are at their highest level for 20 years – at more than 23,000 - accounting for approximately 4% of the workforce. Motor trades had the sixth highest vacancy rate of all industry sectors.”


Decision
The Chancellor did indeed have a lot to deal with when he stood up in Parliament on Wednesday 23 March to deliver his Spring Statement. The headline feature was the fuel duty reduction. Fuel prices have soared in recent weeks as oil prices spiked due to the war in Ukraine. Diesel has gone up by 21 pence per litre since the start of 2022, with petrol not far behind. In response, the Chancellor announced that fuel duty was being cut by 5 pence per litre. Fuel duty had been frozen for the last 11 years. According to the AA, the 5 pence fuel duty cut works out at a saving of £2.75 on a 55-litre tank. The cut was also only the second cut in 20 years.

While Business Rates Relief is staying in place, from 1 April the allowance will drop from 66% to 50%. At the same time, the most a business will be able claim will fall from £2m to £110,000..

The Chancellor also said he would put up Employment Allowance for small businesses. This allows eligible businesses to reduce their annual National Insurance liability, paying less employers’ Class 1 national insurance with every payroll run until the total has disappeared or the end of the tax year arrives. Businesses can claim Employment Allowance if its employers’ Class 1 national insurance liabilities were less than £100,000 in the previous tax year. The maximum was £4,000, but the Chancellor has increased it to £5,000.

The Chancellor said: “From April, the employment allowance will increase to £5,000. That’s a new tax cut worth up to £1,000 for half a million small businesses, starting in just two weeks’ time.”

As previously planned, National Insurance for employers and employees increases by a combined 2.5% from April 2022. On the plus side, the Chancellor has also revealed that the threshold for employees to start paying national insurance would increase from £3,000 to £12,570.

Looking at training, and reflecting on the IMI’s concerns, the Chancellor said the government will reflect on whether or not the Apprenticeship Levy is doing enough to “incentivise businesses to invest in the right kinds of training”.

Lastly, while it will not apply until next year, the Chancellor also revealed that the basic rate of income tax would be cut by 1% in 2024, dropping from 20% to 19%. There will also be an increase in Employment Allowance to £5,000.


The Chancellor added: " “This statement puts billions back into the pockets of people across the UK and delivers the biggest net cut to personal taxes in over a quarter of a century. Like our actions against Russia, I have been able to do this because of our strong economy and the difficult but responsible decisions I have had to make to rebuild our finances following the pandemic.

“Cutting taxes means people have immediate help with the rising cost of living, businesses have better conditions to invest and grow tomorrow, and people keep more of what they earn for years to come.”


Challenges
Once the Spring Statement had been delivered, the automotive sector offered its reactions.
Sue Robinson, NFDA Chief Executive, said: “In the Spring Statement, the Chancellor has taken a number of positive steps, however, the measures announced fall short of supporting businesses as they recover from the pandemic and face current challenges such as soaring costs.”

On the Business Rate Holiday total being reduced, Sue said: “While it is positive that the government recognised the need to extend the Business Rates Holiday, it is extremely disappointing that the claim rate has been reduced as this will exclude most dealer groups”.

On the roll-out of the already announced National Insurance increase, she observed: “As the cost of living increases for households across the UK, it is welcome news that the national insurance threshold will be raised. However, confirming the previously planned increase in National Insurance is unhelpful and will add further strain to people’s disposable income. This inevitably also has an impact on businesses: “Increasing the tax burden on businesses sends the wrong message at the wrong time.”

With regards to the Apprenticeship Levy review, she observed: “The automotive industry is fully committed to investing in apprenticeships and it is encouraging that the government will review the current apprenticeship levy in line with NFDA’s recommendations. In particular, in our submission and at previous meetings we have called on the government to extend the Apprenticeship Levy clawback period by 18 months to support the recovery of automotive apprentices’ recruitment”.

On the potential impact of the Levelling Up Fund on EV infrastructure investment as its second round kicked in, Sue added: “Positively, the government has previously allocated a part the first round of Levelling Up Fund to upgrading EV charging networks in Northern Ireland. With the second round of the Fund, we encourage the government go further and adopt a similar approach with the rest of the UK”.

Sue Robinson concluded: “It is crucial that the government does all in its powers to support businesses and consumers to counterbalance the cost-of-living strain facing the country. As an industry, this is coupled with the challenging deadlines we are striving to meet to successfully transition to zero emission transportation.”


[sh] Disadvantage
On the 5 pence fuel duty cut. Gordon Balmer, Executive Director of the PRA said: “The fuel duty announcement is a step in the right direction, but it does not go far enough to ease the burden on motorists.

“Other European countries have gone further: for example, Ireland has cut duty by 17 pence, leaving our members in Northern Ireland at a competitive disadvantage as they are unable to compete with prices across the border.

“While the Chancellor was speaking, the price of Brent Crude went up by $6 a barrel, meaning that rising prices will see the 5 pence cut cancelled out almost immediately. Retailers are holding duty-paid stock which will be sold before the fuel duty cuts come in. To give the motorist an immediate discount at the pumps, the Chancellor would have to backdate the fuel duty cut to 1 March.”

Pressure
On the overall impact the measures might have on the prevailing economic situation, Philip Nothard, Chair of the Vehicle Remarketing Association (VRA), said: “In the same week as this Spring Statement, inflation reached a high not seen in 30 years while fuel prices hit record levels. We are seeing pressure on costs across the economy on a scale that has not been present in decades.


“In the face of such major forces, the Chancellor has taken some action – and promised more in the future in the shape of his tax plan - but really nothing that is going to have a significant effect. It’s fairly clear that vehicle buyers and the remarketing businesses that serve them are only going to received limited help from government when it comes to coping with these pressures. After the high levels of Government intervention seen during lockdowns, we’re back to something resembling business as usual.”
Philip added: “While there appears to be general agreement within remarketing that the used vehicle sector is sufficiently resilient to resist these issues at this point in time, it remains unknown what will happen if economic conditions continue to worsen over time, especially given downgraded forecasts covering growth and inflation, and in the face of issues that are difficult to call, such as we are seeing in Ukraine.”
Paul Burgess, CEO at Startline Motor Finance, said that the measures did not go far enough, particularly considering the economic outlook: “The Chancellor has made some effort in his statement to stave off the effects of the rapidly rising cost of living but these are largely marginal. Reducing fuel duty by 5 pence when petrol and diesel has risen 30-40 pence per litre over the last year is only going to bring slight relief while the National Insurance alignment means just a few hundred pounds and the cut in income tax won’t arrive for another two years.

“Whilst recognising the human tragedy unfolding in Ukraine, the underlying question for the used car sector in general is whether low growth, high inflation, now forecast to beat 7%, and other factors likely to impact on consumer confidence such as the situation in Ukraine are going to have a negative effect on sales and values. Our view is that the market is sufficiently buoyant and stock in such short supply that it will remain relatively strong.”

 Significant
According to Nick Zapolski from used car buying service ChooseMyCar.com, the 5 pence fuel duty reduction is not enough: “While we all expected a decrease in fuel duty, the 5 pence trim is a mere drop in the ocean and will not be a significant help for most of us. The 5 pence reduction in fuel duty will see about a £2 saving for most people when they fill the tank. It’s lucky so many of us are still remote working as people can’t afford to work. Our research released this week showed that 45% of people admitted they are struggling to afford to run their cars to get to work.”

For garages that provide servicing and repairs to businesses with small fleets, the measures may be welcomed by these customers, as Nick McClellan, Managing Director at vehicle tracking, dash cam and fleet management company RAM Tracking, said: “The cut in fuel duties by 5 pence per litre announced in today’s spring statement is welcome news and could amount to saving of around £87 per vehicle per year or over £600 per year for an SME fleet of seven vehicles.

“Fuel duty adds almost 58 pence per litre to the price of fuel and with prices in the UK having recently hitting a new record high, with the average cost of petrol at £1.65 a litre and diesel £1.76 a litre, this reduction is badly needed for drivers and is unsustainable for many small and medium sized business.

Nick also suggested that simple vehicle maintenance application and behaviour changes could make a real difference at the moment: “At a time of high costs of living and rising energy prices, it’s worth changing driver behaviour to minimise burning precious fuel, such as avoid idling for too long, keeping tyres pumped up, not going too fast or too slow, avoiding braking aggressively and better route optimisation.”


Transformation
Summing up, according to Mike Hawes, SMMT Chief Executive, while the Chancellor’s measures may offer a degree of pressure alleviation for individuals and families, more could have been done to offer support to business at a difficult moment: “Measures to help address the accelerating cost of living are welcome but business also needs support, especially on energy, investment and skills. Time is of the essence as the industry is not yet in recovery but costs are increasing rapidly, undermining U.K. competitiveness. government could have acted to help automotive manufacturers alleviate soaring business energy costs and encourage investment.”

The move to EVs will require ongoing support too: “We look forward to working with government on its proposals for business investment and, especially, super deductions which are highly valued. Manufacturers have committed £10.8 billion to UK EV and battery R&D and production in our first ‘electric decade’.”

Mike added: “Driving even more investment will be essential if we are to supercharge automotive manufacturing, and the jobs and economic growth it creates, during its biggest transformation in 100 years.”

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