Chancellor of the Exchequer

Spring Budget 2023 – response

The industry has given a cautious welcome to the Spring Budget presented by the Chancellor of the Exchequer, Jeremy Hunt. In particuler the continued freeze on fuel duty, the 100% write-off of capital expenditure expenses immediately from profits, though this has been off-set buy the hike in Corporation Tax from 19% to 25%. There was disappointment that there was no mention of electric vehicles or charging infrastructure, or on the Apprenticeship Levy.

Mike Hawes, SMMT Chief Executive, said, “We face fierce international competition so it was pleasing to hear the Chancellor directly reference industrial strategy and measures to attract investment. Tax breaks for capital expenditure, which the industry has long called for, extensions to climate change agreements plus action to alleviate the high cost of living and encourage more people into work are all much-needed. Investment zones which focus on advanced manufacturing, of which automotive is an exemplar, R&D and technology are also positive steps.

“There is little, however, that enables the UK to compete with the massive packages of support to power a green transition that are available elsewhere. Indeed, the announced fuel duty freeze contrasts with an absence of measures to boost uptake of zero emission vehicles, such as reducing VAT on public charging. We, therefore, look forward to additional policy announcements that support advanced manufacturing sectors, as the right conditions will enable the investment that drives growth across the country.”

Jeremy Hunt

Picture by Andrew Parsons / No 10 Downing Street

Nick Williams, Transport Managing Director, Lloyds Banking Group said:  “It’s disappointing that today’s Statement from the Chancellor announced no new support to strengthen the UK’s electric vehicle charging infrastructure.

“It remains impressive that electric vehicles are entering the roads at record rates, but to meet this growing demand we need a charging network that can deliver, both in terms of availability and reliability. To achieve this, rapid expansion will be key.

“With the upcoming Zero Emissions Vehicle mandate also incentivising manufactures to bring more electric vehicles to the UK market, the call for an expanded charging network will be even greater, so the lack of support in today’s Statement is a big setback.

“We’re hopeful that the government will reveal more plans ahead of its implementation next year, or we risk impacting the longer-term uptake of electric vehicles as confidence in our country’s infrastructure waivers.”

Jack Cousens, the AA’s head of roads policy, responded: “We are pleased the Chancellor has listened to the AA and frozen fuel duty. Not only will this save drivers ‘heavy duty’ pain at the pump, but will help keep the price of goods and services down as they are mainly transported by road. Crippling road fuel costs are also a major driver of inflation.”

Putting the continued 5p fuel duty cut in perspective, 28% of drivers (rising to 40% in the lower income group) buy a set amount of fuel whenever they got to a fuel station. Finances of many drivers and families are so tight that a £3.30 hike to the cost of a tank of fuel would have tipped many of those knife-edge budgets into much greater difficulty.

Although pump prices are currently stable and way down on the records of July, currently averaging 147.28p a litre for petrol and 166.05p for diesel, they remain much worse than the records pre-covid and before the Ukraine war.

In April 2012, petrol averaged 142.48p and diesel 147.93p. That was considered a ‘nightmare’ level of road fuel cost, mainly because it exceeded by far the worst that oil at $147 could throw at drivers and businesses in the summer of 2008 (petrol 119.70p a litre, diesel 133.25p).

Pothole funding

On the extra £200 million to fix potholes, Cousens said: “An additional £200m to fix potholes is welcome, but we are concerned that the cash won’t become available until next year. Years of underinvestment in our road network coupled with a cold and wet winter is already unveiling the craters. More money needs to be spent now, as well as significant long-term investment to improve our local roads.”

Jon Lawes, Managing Director, Novuna Vehicle Solutions: “The fuel duty freeze and continued 5ppl reduction will be critical in assisting the growth of business fleets across the UK. Without this action from the Chancellor today, fleet businesses would have faced significant operating costs this spring.

“The decision not to lower the VAT on public electric vehicle (EV) chargers or improve EV infrastructure, on the other hand, is disappointing. A VAT cut would level the playing field for those who are unable to charge their vehicles at home due to a lack of off-street parking or an inability to install a home charge point. Furthermore, with the current number of public charging stations unable to meet EV demand, implementing a plan to increase public chargers could have aided in overcoming some of the EV industry’s challenges.

“The Chancellor should have taken more direct action on EV infrastructure today. The current system is unfit for 2030 goals and the industry has once again been left without a clear direction.”

Philip Nothard, chair at the Vehicle Remarketing Association, said: “Really, what the remarketing sector is overwhelmingly looking for from the government after the events of the last few years – the pandemic, the war in Ukraine, the domestic economic chaos we saw late last year – is a stretch of stability that allows the relative strength that we have seen in the used car and van sector to continue. The Budget probably delivers on that. There is little drama in its contents but measures such as the retention of the £2,500 energy price guarantee should mean that the cost of living crisis will at least become no worse, if not improve. This should mean consumer confidence remains stable, something helped by the forecast of avoiding technical recession.

“For motorists in general, the freeze in fuel duty and additional help for potholes are both welcome while the childcare and pension measures designed to get people back into the workforce are good ideas which, given the labour shortages that we are seeing across remarketing, may have a positive effect.

“Finally, we have been highlighting the need for some form of support in the used market for electric vehicles and there was no news in that area today, but we remain hopeful that the government are listening to the points we are making and will take action relatively soon. This is something that is very much needed to ensure the smooth electrification of the used EV sector.”

David Bushnell, Director of Consultancy and Strategy, Fleet Operations, said: “The Treasury is contending with considerable economic challenges. Pressure to keep a tight grip on the UK fiscal environment combines with a need to help consumers and businesses navigate the cost-of-living squeeze. Add government sustainability targets into the mix and the Chancellor faced a tough balancing act with his Spring Budget.

“For fleets, the decision to freeze fuel duty and retain the 5p reduction for a further year comes as welcome news for operators struggling with a burgeoning cost crisis. Pump prices may have fallen back from their 2022 summer peak, but they remain markedly higher than in recent years. Margins, consequently, continue to be hit hard.

“The move, however, will not be well received by those looking to accelerate transport electrification. Environmentalists will be buoyed by a pledge of up to £20 billion to support carbon capture, but the lack of any significant new measures to further incentivise electric vehicle (EV) adoption and infrastructure roll out signals a missed opportunity.

“EV adoption remains in its infancy and with high energy costs continuing to impact drivers reliant on public charging networks, more must be done to achieve a timely transition to net zero transport. Cutting the public charging VAT rate, to match the rate for domestic electricity, would have been a good place to start.”

“Elsewhere, fleets buying vans and trucks will benefit from a new policy of ‘full expensing’ but the importance of leasing as an integral ingredient to cost-efficient fleet operations remains unrecognised. It is disappointing that the industry’s call for a super deduction to cover leased assets has been ignored.”

Barney Goffer, UK Product Manager at Teletrac Navman UK, commented: “The Chancellor’s Spring Budget held some interesting and welcome elements for fleet operators and construction businesses.

“As predicted, the 5p fuel tax cut that was announced as a 12-month measure was upheld and there was also a continued freeze on the increase in fuel duty. And with the announcement that the OBR is predicting inflation will fall from 10.7% to 2.9% by the end of 2023, the pain of pump prices should continue to reduce. For the general public this is a saving of £100 a year on average, so the savings for fleets and equipment operators should be comparable.

“Corporation tax rise is indeed rising, from 19% to 25% but with a tiered approach the Chancellor has suggested that only 10% of UK businesses will be paying the full 25%. This is because the Chancellor was adamant this was a budget for growth and investment is key to that.

“While the Super-Deduction tax relief is indeed going, the Chancellor is introducing a new policy of full capital expensing for the next three years, meaning every pound invested in tech, plants, or machinery is fully deductible from taxable profits.

“While ‘plant and machinery’ needs more definition – for instance, are mobile assets considered machinery – this is an extremely important point for fleets looking to expand, replace fleet, switch from ICE to EV, or digitally transform operations.

“While we await the finer details, the initial signs in the Chancellor’s speech are potentially positive for the UK’s transport and construction sectors.”

Matthew Walters, Head of Consultancy Services and Customer Value at LeasePlan UK said:

On the economic situation:

“The UK has so far avoided a recession in 2023 – and the economic forecasts in this Budget, particularly those concerning inflation, were better than we might once have feared.

“However, it’s important to emphasise that we, as a country, are not out of the woods yet. There are still the ongoing effects of Brexit and the pandemic – and growth is expected to be sluggish, at best, for some time to come. This continues to be a challenging period for many businesses and individuals.

“We also know that the fleet industry is well placed to overcome these challenges, just as we have overcome similar in the past. Not only did we account for almost half of all new car sales in 2022, but we are also leading the adoption of the cleaner motoring technologies that will define the future.”

On Fuel Duty:

“Thanks to the Chancellor’s decision to freeze Fuel Duty at 52.95p per litre until at least next year, we have all avoided what would have been a double-digit increase in the main rate.

“This is more generous than we might have expected, given that Rishi Sunak’s 5p cut to Fuel Duty – which he introduced last March – was originally timed to end this month, and the 5p added back on.

“We can only welcome this decision. Even though the future of motoring – and of motoring taxation – is electric, this is not the time to hammer the millions of people and businesses who rely on petrol and diesel vehicles and already face high costs elsewhere.”

On electricity prices:

“We know that electric vehicles (EVs) offer numerous savings for fleets and motorists, from lower maintenance bills to multiple tax advantages. However, the rising price of energy has curtailed one of the best savings – the low cost of the electricity itself compared to petrol and diesel.

“Thankfully, that energy is becoming cheaper again – as highlighted by the Office for Budget Responsibility (OBR) in its supplementary documentation. And the Budget also confirms that the government is keeping its domestic Energy Price Guarantee (EPG) at £2,500 a year for an additional three months, until June. This is a tremendous boon for EV drivers.

“However, it is also worth noting that – despite the protestations of many fleets and motorists – the government is still charging 20% VAT on electricity from public charge points. The Chancellor should prioritise bringing this down to 5%, as it is for domestic charging.”

On Vehicle Excise Duty:

“Last November, in his Autumn Statement, Jeremy Hunt announced significant changes to the Vehicle Excise Duty (VED) system for cars: as of 2025, EVs won’t just have to pay VED for the first time; they will also face the additional rate for vehicles worth over £40,000.

“Given that EVs tend to have higher sticker prices than their fossil-fuelled counterparts, this threatens to be a hefty new tax for electric motorists – and potentially even a disincentive for motorists to go electric in the first place.

“We hoped to see action in the Budget to limit this impact. Indeed, we have made representations to the Department for Transport (DfT) to have the additional rate apply to only the most expensive 20% of EVs.

“Sadly, no such action was taken today. Practically the only mention of VED in the Red Book is to confirm that the main rates will increase in line with the RPI measure of inflation in April – which is currently at historically high, double-digit levels.

“If this government really is serious about Net Zero, then it needs to rethink this policy well before 2025.”

On Road Pricing:

“The Chancellor faces quite a predicament. In the years ahead, the welcome transition to EVs will cost him and his successors £billions in lost Fuel Duty revenues.

“There has been much speculation that he’d respond to this situation by moving towards another form of motoring taxation. But the long-expected consultation into the feasibility of Road Pricing still hasn’t materialised – not even in today’s Budget.

“This is dismaying for two reasons. The first: if the biggest shake-up of motoring taxation in generations is going to happen ahead of 2030 – as it surely must – then it will need years of careful development and implementation. There is no real cause to delay that process now.

“The other reason is that there’s now an increasingly long list of legislation or potential legislation that we’re still waiting for – from the necessary detail on the ZEV Mandate for manufacturers to a new system of VED for vans. Fleets and motorists need clarity on these and other issues to properly plan for the future.”

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