This budget is crucial for dealers and the automotive sector

The upcoming budget will be the first for a Labour government since 2010 and it could hardly be more significant for the automotive sector.

The industry is currently undergoing a period of profound transformation and the Chancellor has the opportunity to accelerate change.

Faced with challenges such as mandatory zero emission vehicles (ZEV), fluctuating consumer demand and a changing regulatory environment, the sector needs targeted fiscal policies to ensure its continued growth and competitiveness.

OEMs and dealers certainly need support from government policies to balance the market and implement change.

One of the most pressing issues facing the automotive sector is the ZEV mandate, which requires 22% of new car sales to be zero emission vehicles by 2024, with this number set to rise in the years to come. While the mandate is essential to reducing carbon emissions and meeting the UK’s environmental targets, it poses a significant challenge for OEMs and dealers.

Manufacturers are in a difficult position, balancing electric vehicle (EV) production with continued demand for petrol and hybrid cars. To avoid heavy fines, some carmakers, including Ford, Vauxhall, Peugeot and Citroën, are reducing the supply of petrol vehicles. While this is necessary to comply with the order, this strategy risks discouraging consumers who are not yet ready or able to switch to electric vehicles due to high prices and insufficient charging infrastructure.

For dealers, the ZEV mandate has created an environment of uncertainty. Vertu Motors, one of the UK’s largest car retailers, has seen its new car sales fall due to regulatory changes and market volatility.

The mismatch between what consumers want and what manufacturers can deliver is leading to a weakening retail market, particularly for new vehicles. This is compounded by the need for more government financial incentives to support EV purchases, which remains a significant barrier to wider adoption.

Another significant area where the automotive sector needs clarity is the tax environment, particularly in relation to Capital Gains Tax (CGT).

The possibility of increases in CGT rates could create uncertainty around mergers and acquisitions (M&A) in the sector.

Given the scale of the transformation taking place in the industry, including the shift to electrification, new distribution models and changing consumer preferences, stable and predictable tax policy is essential to support investment and encourage innovation.

The Budget should ensure that CGT is not significantly increased as this could discourage much-needed investment in the sector.

This is especially important for smaller players and startups in the electric vehicle market that rely on investor trust to scale their operations.

By maintaining a favourable tax environment, the government can support the development of the sector and its ability to achieve the ambitious goals set out in the ZEV mandate.

Consumer demand for vehicles remains a key factor in the health of the automotive sector. The current economic climate, high inflation and rising interest rates have undermined consumer confidence, particularly in the new car market. The budget should include measures to stimulate demand, such as reintroducing or extending incentives for electric vehicles that have proven effective in other markets.

In addition, the used car market, which has seen growth amid a decline in new car sales, could benefit from policies that support its continued stability. Vertu Motors indicated that used car prices are likely to remain stable due to reduced supply, but affordability remains a concern. Any measures that could help lower interest rates further or offer financial incentives for buying used cars would be beneficial to sustain this market segment.

To successfully transition to electrification, the automotive sector needs more than mandates—it needs infrastructure and support. The budget should prioritize investment in EV charging infrastructure, especially in areas outside major urban centers with limited access. This would help ease consumer concerns about the practicality of owning an EV and support wider adoption.

In addition, investment in research and development (R&D) for new battery technologies and sustainable materials should be a priority. Such initiatives would help the UK remain competitive in the global automotive market and support the creation of highly skilled jobs in the sector.

The October Budget is a key opportunity for the UK Government to support the automotive sector, which is going through a difficult period of transformation. By addressing the impact of the ZEV mandate, ensuring a stable tax environment, stimulating consumer demand and investing in essential infrastructure and R&D, the Government can help the sector achieve its ambitious targets.

The right policies can ensure the survival and growth of the UK car industry for years to come, maintaining its position as a key player in the global market. Whether we get all this, and whether the UK government understands the importance of the sector and the challenges it faces, is another matter.

Mike Allen is Managing Director of Cambria Private Capital, a firm that invests in and advises automotive startups and scale-ups.