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The 4 January rise in UK value added tax (VAT, effectively a sales tax) from 17.5% to 20% imposed in today’s emergency post-election budget will add about GBP300 to the average price of a new car, the Society of Motor Manufacturers and Traders (SMMT) told just-auto on Tuesday.

But spokesman Jonathan Visscher said the delayed introduction would give both businesses (who can claim the tax back) and consumers “time to plan their spending”. He suggested some buyers would bring forward their planned purchases into 2010 to avoid the 2011 rise.

“That would be welcome in a market still working its way out of recession,” Visscher noted.

The chancellor also announced measures affecting businesses – corporation tax cut to 27% next year and by one percentage point a year for the next three years to 24% while the small companies tax rate will be trimmed to 20%.

“The corporation tax measures are a good thing in general though there is concern over capital allowances and how they’ll impact,” Visscher added.

“There’s a bit of give and take but, for those companies making a profit, the five-year reduction in corporation tax offers some means of forward planning which is one thing we called for. A bit of certainty and stability to allow businesses to come to terms with where they are and look a bit further ahead.”

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The SMMT also praised government support for digital radio – it is facing growing calls for automakers to standardise new-technology DAB rather than FM radios. DAB is available but only as a pricey option on mostly high-end models.

In a statement, the SMMT said the UK auto industry “recognises that these will continue to be challenging times for the economy and our members’ businesses as we emerge cautiously from recession”.
“Today’s emergency budget sets out painful measures for individuals and businesses. Industry hopes the certainty they provide will create financial stability, confidence and growth,” said chief executive Paul Everitt said. “The determination to increase bank lending and investment in new low carbon technologies is welcome, but effective measures are urgently required to help sustain a still fragile recovery.”
Government action to ease access to affordable finance can only help support private sector investment in skills, innovation and technologies at a crucial period of recovery, the automakers’ advocate added.

“Support for manufacturing, the digital upgrade, no further changes to fuel duty or VED rates and the confirmation of plans to establish a green investment bank are also welcome measures that will support our businesses commitments to the UK.”