The UK government's annual Budget statement has brought some cheer to the automotive sector, despite a bleak prognosis for the UK economy.

The UK economy growth forecast for 2013 has been halved to just 0.6% growth, down from a projected 1.2% growth rate made late last year. Growth is then forecast to pick up to 1.4% in 2014.

However, businesses will be helped by a reduced rate of corporation tax and other measures that will stimulate R&D and activity in the low-carbon vehicle area.

The SMMT said that the Budget "recognises the significance of developing a balanced industrial strategy, as well as taking steps to encourage research and development in the UK through enhanced tax credit rules".

The SMMT also noted that the Chancellor also introduced important and welcome changes to the Company Car Tax (CCT) regime with increased incentives for the take-up of ultra-low emission vehicles (ULEVs).

“The Chancellor’s actions to improve R&D tax credits will help trigger extra business investment, and the change to the Company Car Tax rules for ultra-low emission vehicles will be welcomed by many in the UK automotive sector”, said Mike Baunton, SMMT Interim Chief Executive.

“We look forward to further sector-specific measures which will come out later this year in the Automotive Sector Strategy, that will look deeper into protecting and enhancing the UK automotive supply chain, and boost innovation and skills within a competitive domestic business environment. This will provide a distinct rationale and incentive for companies to invest in the UK,” he added. 

John Leech, UK Head of Automotive at KPMG, also took a positive view. “Despite little room for manoeuvre, the Chancellor has delivered a number of important stimuli that will be welcomed by automotive manufacturers," he said. "By reducing corporation tax to 20% from 2015 the UK will have the most competitive tax regime amongst the automotive producing nations in Western Europe. The Chancellor also announced an increase in the rate in the above-the-line tax credit to 10%, a measure that will reward and encourage investment in R&D. New tax incentives for manufacturers of ultra-low carbon vehicles will hopefully help to cement this area of strength within the UK’s automotive industry.

“Underlining his commitment to manufacturing as a key driver of growth, the Chancellor is injecting £500 million into key sectors such as automotive as part of the Government’s Industrial Strategy.  The automotive sector is now at the forefront of the Government’s emerging industrial policy, most notably through the successful establishment of the Automotive Council, which has brought Government and the industry together to better promote the UK industry.  It is this more collaborative, hands-on style of Government which has informed today’s policy announcements and is especially valued by the industry.”

The government also said that it would cancel planned rises to fuel duty, a move that will help contain rising costs of motoring in Britain. In addition, transport infrastructure spending - including roads - will get additional funding, in part to boost Britain's economic growth from the middle of the decade. 

The SMMT also listed industry a number of measures relevant to companies in the UK automotive industry in today's Budget:

Industrial strategy

Government to provide GBP1.6 billion of funding to support sector strategies, including automotive, during the course of 2013.

Research and Development (R&D) tax credit

In the Autumn Statement 2011, government announced it would introduce an Above the Line (ATL) tax credit for large company R&D expenditure incurred on or after 1 April 2013. Today’s Budget increases the ATL credit to a rate of 10% before tax.

Company Car Tax

SMMT also said it is "delighted" with the introduction, from April 2015, of two new bands at 0-50 g/km of carbon dioxide (g/km CO2) and 51-75 g/km CO2. In its Budget submission, SMMT called for greater differentiation for those low emission vehicles.

SMMT also welcomed the change to the rules in that in future years CCT rates will be announced three years in advance. It said it looks forward to working with government to review incentives for ULEVs in light of market developments ahead of Budget 2016, which will inform decisions on CCT from 2020-21 onwards.

Vehicle Excise Duty

From 1 April 2013, VED rates will increase in line with RPI, apart from for heavy goods vehicles (HGVs) which will be frozen in 2013-14. SMMT said it is pleased that the government has said that it has no plans to make signi?cant reforms to the structure of VED for cars and vans in this Parliament.

There will also be an extension to the cut-off date from which classic vehicles are exempt from VED by one year. From 1 April 2014 a vehicle manufactured before 1 January 1974.

Reduced Pollution Certificates VED discounts for Euro VI vehicles are due to expire on 31 December 2016. The Government will replace RPC VED discounts with grants for Euro 5-6 vehicles within the HGV Road User Levy scheme, from 1 April 2014 to 31 December 2016. SMMT looks forward to seeing more detail from the Department for Transport in due course.

Capital allowances for ULEV business cars

In last year’s Budget, the Chancellor announced that the 100% First Year Allowance would be extended until 2015 for cars emitting 95 g/km CO2. The Chancellor today announced a further three year extension until 2018 for cars emitting 75 g/km CO2 or less.  This will maintain the financial incentive for businesses to purchase ULEVs.

Corporation Tax

The simplification of corporation tax is a positive move that businesses will welcome, as will the extension of the Capital Gains Tax holiday.

Employment Allowance

In supporting UK manufacturers in the supply chain, industry expects more detail later in the summer in the automotive strategy. However, many automotive suppliers will welcome the creation of an Employment Allowance of £2,000 per year towards their employer National Insurance contributions bill. This will particularly help small businesses that want to hire their first employee or expand their workforce and so is welcome news for the industry’s smallest employers.