Autumn 2025 Budget: The impact on the automotive sector
Anthony McFarlin · Posted on: November 26th 2025 · read
Dealers would have been looking for three key things from today:
- Stimulation of EV demand
- Lower costs of business
- More money in consumer’s pockets
The stimulation of EV demand is expected to be mixed with manufacturers expected to somehow simply “lower prices” or (more likely in our view and we have already seen this) “reduce sales of non-EV vehicles” to help offset the net 310,000 reduction in EV sales as a direct result of the measures announced today. This expectation feels detached from the reality of the challenges faced by the industry.
With the announcement to National Minimum Wages yesterday and the extension of fiscal drag and a reduction in capital allowances available to businesses, some of these key hopes have clearly not been met.
The key details on EV stimulation are:
- A mileage-based charge for electric vehicles will be introduced from April 2028 in addition to current VED paid by all vehicles. The charge will be £0.03 per mile for BEVs and £0.015 per mile for plug-in hybrid cars. These will be increased annually in line with CPI.
The average driver of a BEV, driving 8,500 miles per annum, is therefore expected to be charged an additional £255 – which is still roughly equivalent to half the rate of fuel duty that would be paid by drivers of petrol and diesel vehicles doing the same mileage.
The OBR estimates that there will be 440,000 fewer EV sales across the forecast period as a result of this measure.
EV bashers will be quick to say the pay per mile will make an EV a bad buy. However, from September 2026, the 5p fuel duty cut first introduced in 2022 will be reversed through a staggered approach. Fuel duty rates will then be uprated annually by RPI. - Offsetting the 440,000 lower sales by an estimated 130,000 are an increase to the Expensive Car Supplement (“ECS”) threshold for battery vehicles from £40,000 to £50,000 in April 2026. The Government has also previously expanded the EV car grant to 2029-30.
Motability scheme changes
Changes announced to the Motability scheme will have a significant impact on dealers and their customers. Prior to the budget speech changes were announced on the Motability Scheme’s website: An update to the cars available on the Motability Scheme. Long-term (by 2035) half of all vehicles available under the scheme must be British built. That will be quite a limited choice given the declining number of vehicles built in the UK. More immediately brands such as Alfa Romeo, Audi, BMW, Lexus and Mercedes have been removed from the scheme as have all coupe and convertible cars from other manufacturers. Dealers in those premium brands will likely lose market share immediately to the benefit of competitors who specialise in vehicles which Motability describe as consistent with a focus on essential, practical mobility.
VAT changes have also been announced to the scheme which are forecast to bring in an extra £0.1bn per year from 2026/27. Top up payments to access more expensive vehicles will now attract VAT at 20%. IPT will also now apply to insurance contracts under the scheme.
Staff incentives
Some welcome news is that the Chancellor announced that the government will delay changes to benefit-in-kind rules for Employee Car Ownership Schemes (“ECOS”) until April 2030. For those still in contracts at that time, transitional arrangements will also be put in place to provide additional support.
"More widely, the introduction of NICs (employer and employee) on salary sacrifice for pension contributions over £2,000 is another blow – increasing the cost for retailers to deliver attractive packages to staff."
Autumn Budget 2025 Summary
Our quick access guide will provide you with clear and precise explanations of the new tax proposals announced in the Autumn Budget.
