‘A toolkit of tax measures’ could play key role in supporting UK automotive and manufacturing sectors – EY comments ahead of Spring Budget

As the Chancellor prepares to deliver his Spring Budget, Mark Minihane, Advanced Manufacturing and Mobility Tax Leader at EY in the UK, looks at some of the measures that could help boost the UK’s manufacturing sector:

“The Chancellor will need to balance a variety of competing demands in his Budget red box this year, but the automotive and manufacturing sectors, both of which form a key part of the UK’s economic growth, would benefit from a range of measures.

“In order to support the delivery of the UK’s growth ambitions for manufacturing, a toolkit of tax measures is likely to be required with incentives and stronger regional industrial strategies as part of the levelling up agenda.

“Reassurance around the stability of the corporate tax rate and its continued competitiveness among the G7 and G20 economies is likely to be a key consideration for the Chancellor, with the UK’s appeal as an investment destination for manufacturing facing challenges following the decision to raise the rate from 19% to 25%. A long-term plan from the Chancellor is needed.

“Indeed, an increased focus on a tax regime that encourages the investment required to fund the continued transition to Net Zero, including an attractive research and development tax regime, capital allowances and business rates reform, would likely be beneficial and very welcome in the manufacturing sector.

“To make key decisions, businesses need clarity, and setting a clear path forward following the 2022 consultation on the UK Emissions Trading Scheme would likely help companies to define appropriate new objectives around sustainability and operations.

“Given the regional prominence of advanced manufacturing and mobility, businesses will likely also be eager for further details of the revised investment zones policy announced by the Chancellor in his speech on 27 January, which set out the long-term vision to grow the economy.”

Maria Bengtsson, Electric Vehicle Lead at EY in the UK, discusses some of the potential opportunities to support the UK’s EV transition as part of the Spring Budget:

“To support the government’s target of ending the sale of new internal combustion engine cars in 2030, continued and increased focus on charging infrastructure will be required. Whilst the government has previously announced several funds to support the roll out of infrastructure, these have not yet had the intended effect on the pace of the roll out.

“Given ongoing infrastructure challenges, particularly in remote areas, and the significant reliance that EV charging infrastructure currently has on private investment, further commitment in this area could only be a positive for the automotive sector and its endeavours to help the UK reach its sustainability goals.

“With a sharp focus on the UK’s EV transition, the Chancellor could look to reduce the running costs for EVs by aligning the VAT rate on public EV chargers with the lower rate that applies to power from home chargers, as recommended by Chris Skidmore in the Net Zero review.”

David Borland, EY UK&I Automotive Leader, says the Budget measures could be used to provide further support to UK automotive exports and the roll out of EV infrastructure:

“The importance of global trade in the UK’s automotive sector is undeniable. According to SMMT data, around 80% of cars made in the UK are exported, while around 90% of the cars sold in the UK are imported. With this in mind, along with the recent effects of supply chain disruption and economic headwinds on the automotive sector, innovation around tax measures and how they could benefit the UK’s international automotive trade would undoubtedly be very welcome.

“Expanding on the UK’s ambitions around the EV transition and the gaps in EV charging infrastructure, it was encouraging to see last month’s announcement that sixteen local authorities will be supported by a £56m cash injection to support the roll out of EV charging infrastructure. However, given the comparative investment in this space from the private sector, and the government’s significant ambitions to increase the number of EV charge points in the UK ten-fold from 30,000 to 300,000 by 2030, more will need to be done to help support these goals. 

“Data from the ACEA and EAFO also suggests that the number of electric cars in the UK has risen seventeen-fold since 2016, while EV chargers have only risen six-fold over the same period, amplifying the UK’s infrastructure challenge. Government support and intervention would therefore be welcomed as part of the Spring Budget announcement to help close the gap between EV take-up and the pace and growth of the charging infrastructure roll out.”