NAA Member News: Brabners – Autumn Budget 2025: Key changes for automotive businesses
Caroline Litchfield, partner and head of Manufacturing & Supply Chain at independent law firm Brabners, sets out the priority areas that automotive companies should consider as they assess the Budget’s impact on their operations and planning.
The Autumn Budget has brought regulatory and tax changes that will significantly impact the automotive landscape. While the government’s direction remains clear – pushing the transition to electric vehicles – the detail reveals both new challenges and opportunities for businesses.
Pay-per-mile tax
The Budget confirms plans for Electric Vehicle Excise Duty, a pay-per-mile tax for electric vehicle drivers, designed to create a ‘fairer’ baseline compared to fuel duty paid by petrol and diesel drivers.
Implementation begins in April 2028, with the average EV driver paying around £240 a year. However, implications for high-mileage drivers and fleet operators could be substantial. Combined with falling residual values, this constitutes an additional tax burden that may influence purchasing decisions.
While immediate operational changes aren’t necessary, businesses should track shifting customer behaviour closely, particularly in fleet and business sectors.
Ongoing challenges
EVs typically remain more expensive than petrol or diesel equivalents at purchase, though government guidance notes an increasing number of used EVs are now “similar in price” to internal-combustion equivalents. Additionally, the Electric Car Grant Scheme, launched in July, has already helped over 35,000 drivers switch to EVs with up to £3,750 off eligible models.
However, VAT disparities continue to disadvantage those without home charging. Home-charging electricity faces five per cent VAT, while public charging points face 20 per cent, driving higher costs for renters and urban dwellers without off-street parking.
For automotive manufacturers – many of whom are large employers – the continued freezing of income tax thresholds presents additional challenges. This fiscal drag creates pressure to increase pay above inflation to retain skilled workers. This comes as some manufacturers face significant operational challenges, including cyber-attacks like the one that severely impacted JLR and its supply chain. Balancing fair remuneration for employees with business resilience becomes increasingly complex.
These challenges have broader implications for businesses managing large workforces and diverse customer bases, making compensation strategy reviews and customer support increasingly important.
New incentives
Despite headwinds, incentives still make EVs attractive for many buyers. Low Benefit-in-Kind rates remain unchanged by the Budget, maintaining their appeal as company cars. Additionally, the commitment of an additional £1.3bn for the Electric Car Grant Scheme by the Chancellor demonstrates continued government support.
Other new policies include £100 million for charging infrastructure and 10-year business rates relief for charging points. The 100% rates relief is particularly significant, directly reducing operating costs for businesses investing in infrastructure and tackling range anxiety – one of the biggest adoption obstacles.
To prepare, employers should review supplier contracts and procurement timetables to align with EV fleet growth, and update employment contracts and mobility-benefit policies to ensure compliance, including provisions for charging access and warranties for EV components.
Economic factors
Petrol and diesel vehicles face mounting pressures from tightening emissions regulations and rising running costs. EVs offer lower running costs – with servicing and maintenance costs roughly half those of ICE vehicles in the third year.
However, leasing companies face additional considerations. Changes in used electric car values have impacted the sector financially, with used electric vehicles often fetching similar prices to petrol and diesel equivalents despite higher initial costs, creating financial gaps that require careful management.
With zero-emission vehicle mandates in force, car manufacturers face contractual pressure to deliver electric models, which creates subsequent obligations around materials sourcing and battery compliance. Environmental and governance reporting frameworks mean manufacturers and suppliers must ensure contracts allocate responsibilities and risks appropriately.
The transition accelerates through regulatory requirements and competitive pricing. Managing expectations around how well electric vehicles hold their value remains important as the second-hand market matures. For businesses, the question isn’t whether the EV transition will happen, but how to build sustainable business models around it.
Next steps
Despite these challenges, policy direction remains clear – the UK is committed to the electric vehicle transition. The Budget introduces new considerations, particularly around future tax treatment and the financial risks currently facing leasing companies.
What matters now is staying informed and managing risk carefully. Automotive businesses should monitor residual value trends, review contract terms to allocate risk appropriately, and adapt their strategies as both incentives and market conditions evolve. Understanding the full financial picture – not just upfront costs, but long-term value retention – will be critical for success
For more information on how you can be prepared for upcoming changes, particularly as we draw towards 2028 and the introduction of pay-per-mile taxation, you can contact Brabners’ manufacturing and supply chain team: caroline.litchfield@brabners.com
