Sue Robinson - RMI Director VAT - Short Term Relief, But Longer Term Pain Today’s Budget announcement poses new challenges for the retail motor industry.

Business Measures

“The reduction of the small business rate to 20% will encourage enterprise. Furthermore, the gradual reduction of the main rate of corporation tax over the next four years will act as a welcome stimulus for business. However, we are disappointed that the Chancellor has chosen to reduce the annual investment allowances for capital investment to £25k per annum. This will dissuade businesses from making large capital investments, such as replacing heavy truck fleets.”

VAT

“The RMI are pleased that the rise in VAT is to be deferred until 4 January 2011, this will produce a short term stimulus in sales, with buyers bringing forward purchases, which presents an opportunity for consumers and dealers to beat the rise by purchasing or selling over the coming months.

However, today’s announcement will, in the longer term, damage the recovery and dent consumer confidence. The retail motor industry is only just emerging from one of the most difficult periods in recent times and to increase the VAT rate does nothing to help either the consumer or the retail motor sector. Car buying patterns reflect the state of the economy and business will be forced to pass on the VAT increase to the consumer.

Today’s increase will raise the cost of the average family car by approx £375 (£15k car)”

Insurance Premium Tax

“The increase in this tax is disappointing. With one in ten of the cars on the road uninsured, this additional rise will inevitably lead to an increase in the number of drivers flouting the law as it will increase the cost of insuring a vehicle.”