2024 Autumn Budget

Fixing the foundations to deliver change

Heralded as a budget designed to "fix the foundations to deliver change", Rachel Reeves, the first woman to hold the office of Chancellor of the Exchequer, announced a raft of tax changes designed to raise up to £40 billion per year. In what is likely to be the highest tax raising Budget in more than a generation, the Chancellor was adamant these measures were necessary to fill the so called ‘black hole’ and to create the additional investment required to end austerity within our public services.

National investment will be partly funded by a fundamental change to the government’s definition of debt, enabling it to borrow an extra £50 billion. Pre- election commitments to add VAT to private school fees and reform ‘non-dom’ taxation, are supplemented by the expected increases to Capital Gains Tax and Inheritance Tax. And the 1.2% increase to employer’s National Insurance Contributions (“NIC”), allied with a reduced threshold from which NIC must be paid, will raise up to £25 billion per annum, though smaller employers will be cushioned by a substantial increase to the Employment Allowance.

The Office for Budget Responsibility believes the Budget is likely to be inflationary, lead to interest rates remaining higher for longer, and reduce the country’s medium term growth prospects. Whilst the Institute for Fiscal Studies and the Resolution Foundation have suggested that the employer NIC rise will ultimately lead to reduced corporation tax receipts, as profits are suppressed, and reduced 'real' wages for employees or reduced recruitment, as employers mitigate the impact on themselves.

So, with a mixed reaction to the Budget, which measures directly affect the automotive sector and fleet industry?

Incentivising the uptake of EVs

In her Budget speech Ms Reeves stated, "We want to support the take-up of electric vehicles," before announcing a number of measures, including:

Company car tax

BiK tax rates will continue to strongly incentivise the take-up of EVs with the rates increasing by only 2% per year in 2028/29 and 2029/30, reaching 9% in 2029/30.

This been welcomed by the BVRLA which said, “Government’s announcement today of two more years of certainty is much needed and their recognition of the importance of providing “long term certainty for taxpayers and industry” means that we have been heard. Although an increase of 2% per annum is more than the 1% escalator that we would have liked, at a time when fiscal head-room is limited, moderate increases, with certainty, up to 2030 is welcome. As is the continuation of salary sacrifice, a critical enabler of a fair transition.”

However, rates for plug-in hybrid electric vehicles (”PHEVs”) will be increased to align with rates for petrol and diesel cars to focus support on EVs. Accordingly, cars with emissions of 1 g/km to 50 g/km will comprise one band with the BiK% for this new band rising to 18% in 2028/29 and 19% in 2029/30. The appropriate percentage for this band will no longer be based on a car's zero emission range.

The BiK% for all other bands will increase by 1% per year in both 2028/29 and 2029/30, with the maximum BiK% also increasing by 1% to 38% in 2028/29 and 39% in 2029/30.

Capital allowances

The availability of the 100% first-year allowances for zero-emission cars and electric vehicle charge-points will be extended by 1 year to April 2026 and, as part of the corporation tax roadmap, the government has committed to maintain key features like the annual investment allowance and full expensing, albeit it has only promised to consider the extension of full expensing to assets bought to lease if financial conditions allow.

Vehicle Excise Duty (“VED”)

To help drive the transition to EVs the differentials in VED first year rates between EVs and all other cars will be widened, as follows:

EVs will pay the lowest first year rate at £10 until 2029/30;
to align with petrol and diesel cars the rates for cars emitting 1g/km to 50g/km of CO₂, will increase to £110;
the rates for cars emitting 51g/km to 75g/km of CO₂ will increase to £130; and
all other rates for cars emitting 76g/km of CO₂ and above will double from their current level.

From April 2025 VED for cars, vans and motorcycles will be uprated in line with the Retail Price Index (RPI).

Whilst recognising the disproportionate impact of the current VED expensive car supplement threshold on EVs, the government will not consider raising the threshold at this time.

Plug-in van grant

£120 million will be invested in 2025/26 to support the purchase of new electric vans, via an extension of the plug-in vehicle grant, and to support the manufacture of wheelchair accessible EVs.

Chargepoint rollout

Over £200 million will be invested in 2025/26 to accelerate EV chargepoint rollout and provide funding to support local authorities to install on-street chargepoints across England.

Industrial Strategy

Over £2 billion for advanced manufacturing will be made available to the automotive sector over the next 6 years to unlock investment across the UK. This funding will support research and development in the zero-emission vehicle manufacturing sector and supply chain - a significant investment in one of the government’s eight growth-driving sectors in its Industrial Strategy.

Salary sacrifice

No change to the optional remuneration arrangement threshold of 75 g/km, means salary sacrifice for ultra-low emission vehicles continues to be supported by the government.

Although the increased BiK tax rates from 2028 to 2030 will reduce the savings available for employees the increased rate of employer's NIC offers higher savings for employers from April 2025.

Fuel duty

A surprise announcement was the extension of the freeze of fuel duty for another 12 months to March 2026, extending the freeze to a 15th year.

Van and fuel benefits

The following van benefit charge and car and van fuel benefit charges, based on the September 2024 Consumer Prices Index (CPI), will come into effect from 6 April 2025:

van benefit charge will be £4,020;
van fuel benefit charge will be £769; and
car fuel benefit charge multiplier will be £28,200

Double cab pick-ups

Following a recent Court of Appeal judgement, double cab pick-ups (“DCPUs”) with a payload of one tonne or more will be treated as cars for certain tax purposes.

DCPUs purchased from April 2025 will be treated as cars for the purposes of capital allowances, benefits in kind, and some deductions from business profits. Transitional benefit in kind arrangements will apply for employers that have purchased, leased, or ordered a DCPU before 6 April 2025; they will be able to use the previous treatment, until the earlier of disposal, lease expiry, or 5 April 2029.

Contrived car ownership schemes

Legislation will be introduced, from 6 April 2026, to close 'loopholes' in specific employee car ownership ("ECO") schemes to prevent them from being used to circumvent the company car tax benefit in kind charge. This is likely to be an ECO scheme where an employer or a third party sells a car to an employee, often via a loan with no repayment terms and negligible interest, then buys it back after a short period.

Investment in roads

Having identified significant unfunded capital commitments in the Road Investment Strategy several low value and unaffordable programmes have been cancelled, including the A303 Stonehenge tunnel, the A27 Arundel schemes and junction improvement on the M27 near Southampton.

However, key strategic road schemes, such as the current work dualling sections of the A47 to improve connectivity between East Anglia and the North, and the work that will shortly start on the A57 to improve journey times between Sheffield and Greater Manchester, will be funded through an interim roads settlement, with the third Road Investment Strategy to be set out in the next phase of the spending review.

An additional 1 million potholes will be fixed per year with an extra £500 million for local roads maintenance in 2025/26.

National Minimum Wage (“NMW”)

The NMW is to be uplifted significantly to £12.21 per hour from 1 April 2025; a rise from £20,829 per annum to £22,222 per annum for someone working 35 hours per week or circa £23,795 to £25,397 for someone working 40 hours per week.

Whilst generally being good news for the lower paid, it could affect the ability of some employees to participate in salary sacrifice schemes.

Conclusion

During this Budget the Chancellor confirmed that transport is key to the government’s clean energy mission, and the transition to EVs crucial to decarbonising transport as well as supporting growth and productivity across the UK. With more than 1 million electric cars on our roads, the government is committed to phasing out new petrol and diesel cars by 2030, and that from 2035 all new cars and vans sold in the UK will be zero emission, with a raft of measures designed to promote the uptake of EVs announced in the Budget.

Whilst recognising that the sharp rise in first year VED for non zero-emission cars will add significant costs for many, the BVRLA has welcomed changes to VED for EVs as well as the measures taken to promote their uptake, including the extension of the plug-in van grant and the confirmation of EV BiK rates until 2030.

There is disappointment that full expensing was not extended to the rental and leasing sector, and the VED expensive car supplement threshold for EVs will not be increased at this time.

Taking into account the challenging economic climate facing the nation, BVRLA Chief Executive, Gerry Keaney, said:

“This was a complex Budget at a difficult time. The increase to employers’ National Insurance will have a substantial impact on businesses and their customers. The full scale of its impact will only be seen in time.

“For our sector, the Chancellor has left many challenges unresolved. As penalties to stay in ICE vehicles ramp up in line with the ZEV mandate, more needs to be done. The barriers relating to the rental sector, charging infrastructure, consumer education and the used EV market, all need close attention.

“The Budget did bring some green shoots of positivity, suggesting that the government is taking the UK’s transition to cleaner, greener vehicles seriously. The confirmation that the fair EV company car tax regime will be continued at least to 2030 is a positive step, supporting a vital contributor to the transition and a bright spot of success up to now. Extending the Plug-in Van Grant provides the sector with a much-needed boost.”

Meanwhile, commenting on the changes to BIK tax rates, Paul Hollick, chair of the Association of Fleet Professionals, added: “This new certainty around tax will, in our opinion, maintain the ongoing electrification of car fleets, especially in establishing a marked differential compared to hybrids. Similarly, the increased differential in first-year tax rates for electric cars is to be welcomed although, being a one-off cost, will have a much more limited impact.”

Also welcoming the surprise ongoing freeze in fuel duty he added, “With these two measures, it does seem like a potentially promising start for this government and its policy towards fleets. However, there remains quite a long list of issues that we would like to see resolved in the short-medium term — ranging from 4.25 tonne electric van derogation through to ongoing difficulties surrounding the ZEV Mandate. Conversations covering at least some of these problems are underway and we await their outcome with interest.”