A massive hike in fuel duties is on the cards next spring after a particularly tough winter of rising costs, said the RAC.
RAC head of roads policy Nicholas Lyes said, “As things stand, drivers will face an enormous hike in the cost of fuel next Spring due to fuel duty going up.
“The Office of Budget Responsibility expects to see 12p added to a litre of fuel, as a result of the current 5p duty cut coming to an end combined with its scheduled rise – something that’s not been seen for over a decade due to duty being frozen in successive Budgets.”
He went on, “The Government has always made a big deal of cancelling duty rises in the past and will face colossal pressure to do the same next year – after all, a rise of these proportions would heap yet more misery on the millions of households that depend on their vehicles, most of whom will just endured one of the costliest winters on record.
“Instead, we urge the Government to focus on giving serious thought to developing a fair taxation system that can eventually replace fuel duty, which is effectively on borrowed time given the numbers of zero-emission vehicles on the roads that pay no fuel duty whatsoever.
“Our research suggests drivers broadly support the principle of ‘the more you drive, the more tax you should pay’, with more than a third (36%) saying a ‘pay per mile’ system would be fairer than the current regime – although three-quarters (75%) are concerned the Government might use such a system as a way of increasing the amount they are taxed.”
Yesterday’s Autumn Statement, effectively a mini-Budget elicited mixed responses throughout the automotive sector.
Sue Robinson, Chief Executive of the National Franchised Dealers Association for franchised car and commercial vehicle dealers across the UK, said, “As a whole, the Autumn budget announced today promises growth and investment that the UK so desperately needs.
“Whilst there are positive notions in areas such as business rates and infrastructure investment, NFDA is concerned that the removal of tax exemption for EV owners could set back the objective of electrification and increasing the number of electric vehicles sold in the UK, in a bid to reach the ever-challenging 2030 targets.”
Paul Burgess, CEO, Startline Motor Finance, offered this view, “With inflation hitting 11% this week and further Bank of England interest rate rises likely in the coming months, it really does feel as though the measures in this budget are not so much part of economic headwinds as an entire storm.
“Personal finances are going to come under pressure in a way that we haven’t seen in more than a decade, perhaps initially peaking in Spring next year when support for energy bills is reduced.
“What can dealers do in the face of this? Well, many are probably examining their cost base and identifying areas where expenditure can be reduced, as well as looking to maximise sales.
“As part of this, we expect to see some rethinking of propositions, with an increased accent on safety net products such as warranties that help to protect against unexpected costs. Providing value and reassurance will be crucial.
“For lenders, there may need to be additional measures in place to ensure that existing customers are being supported where necessary. Also, the changing requirements of many new customers need to be considered, especially when it comes to ensuring that monthly payments are affordable in difficult times.”
Used cars will be affected as well, said Philip Nothard, chair, Vehicle Remarketing Association.
“Today’s big question for remarketing and the wider automotive sector, in addition to the energy crisis and general rising costs, is the risk that the government approach detailed in the fiscal statement will slow consumer spending at a time when the industry is attempting to push forward towards pre-pandemic levels of production,” he said.
“Inevitably, there is a risk of a ‘forced’ oversupply as a result of halting demand in this way which, if it materialised, would mean an about-turn from the market conditions we have seen in recent years.
“Already, recent interest rate rises in conjunction with high purchase prices and low levels of manufacturer support, are resulting in pressure on overall vehicle cost of ownership, and the impact of this is already starting to be seen in the market.”
Yesterday’s statement will have implications for years to come. From here, the key unknown factor is the degree to which this will affect sales in 2023 and beyond.
“Certainly, it should also be kept in mind that we are likely to see both further interest rate increases and a reduction in government intervention over energy bills. This is probably not the lowest point in this crisis.
“Finally, the end for low electric vehicle taxation has been signalled with their inclusion in Vehicle Excise Duty for the first time. Our experience is that the supply-and-demand situation for EVs in the used sector still remains quite volatile and their low running costs are a key attractor for consumers, so this is probably a retrograde move.”
There maybe some good news, however.
The UK Government confirmed in their Autumn Statement that their world-leading, ultra-low Benefit in Kind (BiK) tax rate will remain at 2% until April 2025 before rising by just 1% each financial year until 2028.
This minor rate increase will enable thousands of basic taxpayers across the country to access a new battery electric vehicle (EV) for the first time.
BiK rates are a form of tax an employee has to pay for receiving a perk or benefit related to their employment. HMRC requires all cars on lease through a salary sacrifice agreement to pay a certain level of BiK tax.
The vehicle’s CO2 emissions determine this rate: the higher the CO2 emissions, the higher the tax. With zero tailpipe emissions, electric cars have a substantially lower BiK rate than their petrol or diesel counterparts.
Paul Hollick, chair, Association of Fleet Professionals, said, “Clearly, there is a lot to digest in the Budget but the big news from an AFP point of view are the changes to electric vehicle taxation.
:We have been strongly expressing that the position of EVs in the UK fleet sector remains at a relatively early stage of adoption and the increases in company car taxation, of 1% per cent year, seems well-judged to us at first glance. Crucially, they will allow fleet decision makers to plan for the second half of the decade as they continue the process of electrification. This is something for which we have been campaigning in conjunction with BVRLA and it is to be welcomed.
David Lewis, Head of Electric Vehicles & Energy at Select Car Leasing, has described the move as ‘disappointing – but inevitable’.
He added, “It was always inevitable that EV owners would one day have to pay vehicle excise duty or a similar tax so this doesn’t come as a great surprise.
“Road tax generates billions for the Treasury each year – and as more and more people move to EVs, that’s a large fiscal gap to plug. In my view EV road tax has been brought in at least two, three years ahead of time, as a reaction to a challenging financial outlook.”
Ben Nelmes, CEO at New AutoMotive, added, “The Chancellor’s announcement that vehicle excise duty (VED) will be introduced for electric vehicles from 2025 was expected, and is not a bad thing in principle. However, the Chancellor’s approach is heavy-handed and risks choking off growth in EV sales.”