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What does the new Budget mean for motorists?

Chancellor Rachael Reeve’s recent budget announcement was anticipated and dreaded in equal measure, with the nascent Labour government conceding on many occasions that it would not be pleasant, particularly for higher earners. The budget has had a sweeping impact on all areas of society from businesses and individuals to housing and education and ushered in £40 billion in tax rises to fund struggling public services such as the NHS. For better or worse, the motoring world has not been spared from the changes brought in by Keir Starmer’s cabinet.

In the build-up to the election, Labour unveiled several policies to entice motorists, namely their vows to “maintain and renew our road networks” and address the increasing expense of car insurance. For the environmentally conscious, they also pledged to reinstate the initial 2030 ban on ICE vehicle, although this has proved far more polarising than their other motoring policies.

In what may seem a miracle, Labour’s budget extended the freeze on fuel duty for the next year and will preserve the 5p per lite “cost of living” concession introduced under Sunak’s Conservative government. As a result, drivers across the country have been pardoned from what was forecast to be a miserable price rise for fuel.

However, in order to raise the immense figure which the government have earmarked for public funding, road tax (VED) has been increased across the board and, for the first time, electric vehicles have not been granted amnesty. Vehicles emitting more than 75 g/km of carbon dioxide have been hit with a doubled first year rate. Meanwhile, on the sustainable side, EV owners will pay £30 in road tax from January, which is lower than the amount required for ICE vehicles. Additionally, company car tax rates for hybrids will be raised considerably from 2028.

While this is likely to arouse some discontent, Labour have committed to ploughing £500 million into removing potholes in 2025, something that has become a key issue for motorists as British roads have become increasingly blighted with them in recent years.

Furthermore, to accelerate the UK’s transition to clean fuel sources and sustainable motoring, Reeves has dedicated an alleged £200 million over 2025 to expanding the country’s relatively lacklustre charging infrastructure in a bid to achieve the scale that is required. The budget also reserved £120 million for pushing the sale of more electric vans and the manufacturer of EVs that are accessible for people in wheelchairs via the plug-in vehicle grant.

To further assist the realisation of the restored 2030 deadline on the purchase of new petrol and diesel vehicles, Labour will continue to provide tax incentives for EVs, which will steadily rise from 2 to 9% by 2030, while tax rates for both ICE and hybrid vehicles will increase in a bid to wean the population of them. However, these measures on their own may not be enough to satisfy the new government’s ambitions, and it is likely that further incentives for private owners will be required soon.

In response to the budget, the motor industry has been quick to voice their scepticism over whether the UK can remain a competitive market with the 1.2% rise in employer contribution to National Insurance, which will come into action in April 2025. Although Society of Motor Manufacturers and Traders chief Mike Hawes applauded the government’s £2 billion injection into an automotive transformation fund, he did not hold back his concern for the UK market. “Additional National Insurance Contributions will put massive pressure on the automotive supply chain which is predominantly SMEs [small and medium enterprises]”. To stimulate companies to invest in the UK and allow for job creation and prosperity, Hawes emphasised the urgent need for measures to help those looking to purchase new, and new electric, vehicles.

Consequently, while the budget has not been nearly as detrimental for motorists as initially feared and has arguably done its best to mitigate the financial impact of Labour’s fundraising for road improvements and sustainable initiatives, more is needed from the government. Especially, they will need to find ways of working with the industry and manufacturers to protect jobs and attract investment to fund further projects that will facilitate the shift to electric.

On other transport related news, the budget has set aside £650 million for improving public transport in small towns and rural locations, although bus fares have been increased to £3 for a single journey. Finally, by the end of 2025, petrol stations will be obligated to announce any fuel shortages or fluctuations in price within 30 minutes as part of a scheme to increase transparency referred to as “Fuel Finder”.