Nuts and bolts analysis of Budget for motor industry

23 March 2006 #SMMT News

With so much focus on the Chancellor’s changes to vehicle excise duty, many will have missed some of the other issues affecting vehicle manufacturers and companies operating in the component supply chain. Here SMMT presents a selection of key issues, as well as the industry’s position on each.


Overall, the budget contained little to boost competitiveness in automotive manufacturing. Sustained rises in costs, particularly for component suppliers, and red tape concerns will not have been assuaged by the Chancellor’s speech. The Chancellor will have done little to persuade the industry that government is serious about supporting this value-add sector.1

Better regulation

SMMT supports the introduction of a Code of Practice for regulators and targets to reduce gold-plated UK regulation. The industry also looks forward to submitting a response to the Davidson Review on over-implementation of European rules. However, the industry believes the government should go further; it must introduce cross-department guidelines to co-ordinate government’s approach, preventing competing aims from translating into higher costs for industry.

Climate change levy and emissions trading scheme (CCL and EU ETS)

Climate change levy rates are due to be indexed in line with inflation from 2007. The motor industry had been looking for a steer on government direction post 2010, once the current CCL agreements are due to conclude. Furthermore, industry would have welcomed a review of CCL agreements and its relation to EU ETS. A single scheme that sets realistic targets while being transparent, simple and easy to monitor, would prevent this important initiative from creating conflicting aims, adding cost and further eroding UK manufacturing competitiveness.


Many SMEs struggle to find time to engage fully on better regulation, partly due to the increasing levels of associated administration. SMMT will continue to represent its members on better regulation through the Vehicle Industry Policy and European Regulation committee. This comprises industry representatives and officials from all relevant government departments. SMMT looks forward to seeing more detail on how the Small Business Service plan to support SMEs, particularly with a new focus on European legislation. We support the targets set for HM Revenue and Customs to reduce its administrative burden which affects small businesses throughout the motor industry.

R&D tax credits

Subject to state aid review with the European Commission, the government will extend R&D tax credit relief to companies with fewer than 500 employees. This is welcomed as the incentive ensures that firms can continue to grow as a result of their success. SMMT remains concerned, however, that it does not encourage R&D within larger firms with low profit margins.

Green labels

SMMT believes that the stick of taxation is not the only way to encourage buyers to think green. As well as incentives at the point of sale, better consumer information is important. Just six months ago, SMMT members introduced a new colour-coded label in new car showrooms. The introduction of a new band of VED overnight means these will have to be ripped up, re-configured and replaced at an estimated cost of £3 million to industry.

Road pricing

While extolling the benefits of road pricing in terms of congestion reduction, Budget 2006 gave no further insight into a clear national framework for road pricing. Lack of direction continues to concern the industry.

Euro 5 incentives for trucks

Commercial vehicle manufacturers were disappointed with the absence of measures to incentivise the early up-take of cleaner engines. SMMT was pleased to see that government will consider such incentives for Euro 5 technologies, but the delay is a missed opportunity to encourage buyers into cleaner trucks at the earliest opportunity. We would expect the early adoption of any such incentives to be robustly monitored and assessed by government to help set future policy.


The automotive industry is promoting and raising the UK’s manufacturing skills through the Automotive Academy which remains actively involved with sector skills councils in ensuring training programmes meet the sector’s needs.

The automotive sector’s priorities are raising the standard of basic skills, improving the role of vocational education and increasing the guidance available to young people about careers in the industry. The announcement of new money to support older students, up to the age of 25, in gaining A Levels is welcomed, particularly with the new range of vocational qualifications now available.

Renewable Transport Fuels Obligation

SMMT supports moves to set graduated targets on the road to a five per cent bio-fuel obligation by 2012 and penalties for fuel suppliers who fail to deliver. However, a guarantee of fuel quality remains imperative to driving forward market acceptance, particularly in blends beyond five per cent.

Sulphur free fuels

Government has finally given some direction on the introduction of sulphur-free fuels. It expects sulphur free fuels to be available on forecourts from early 2007, and SMMT urges for early publication of the draft regulations.

1. SMMT’s third annual issues survey, which canvassed the views of 80 senior industry executives, showed that 97 per cent believe government is not committed to the automotive sector and that this position is unlikely to change. Results of the survey were published in November 2005 and are available on /

Filter News

Update Newsletter