Automakers say Rachel Reeves’ plan to tax employee vehicle ownership will backfire – leading to lost sales, jobs and Treasury revenue.
Britain’s leading carmakers have warned that a Treasury plan to impose a company car tax on employee car ownership schemes (ECOs) could cost the exchequer £500m in lost revenue and put thousands of manufacturing jobs at risk.
The Society of Motor Manufacturers and Traders (SMMT) said the proposed tax changes, due to come into effect in October 2026, would have a “serious impact” on new car sales, penalizing workers and undermining investment in the UK’s green transport transition.
The move, announced by Chancellor Rachel Reeves last fall, will see Ecos vehicles taxed as benefits in kind. This will remove their exemption and align them with salary sacrifice regulations that are already subject to company car tax.
In the current system, Ecos allow their employees to buy new cars from their employer through a credit agreement, saving employers and employees millions in social security contributions. The programs are particularly popular with automaker employees, who can drive new models at discounted prices for about six months before the vehicles are resold as “near-new” inventory.
According to SMMT analysis, around 100,000 cars are currently made available to workers through Ecos each year – around 5 percent of the UK new car market. The group predicts that number would fall to just 20,000 if the tax were introduced, resulting in a £1bn loss in sales for car manufacturers, 5,000 jobs at risk and a £500m drop in VAT and vehicle excise revenue.
The Treasury estimates the change would raise £275m in the first year, falling to £175m by 2030 as the market adjusts. However, industry leaders argue that the real impact would be quite the opposite.
Mike Hawes, chief executive of SMMT, said: “The Government has supported the automotive sector through electric vehicle incentives and trade deals, driving growth and decarbonisation. But scrapping Ecos would undermine that progress – penalizing workers, cutting treasury revenues and putting green investments at risk. At a time when the Budget should boost growth, this move will do exactly the opposite. It’s time to think again.”
Robert Forrester, chief executive of Vertu Motors, previously warned that the policy was “likely to reduce, not increase, revenues to the exchequer”.
An industry insider described Ecos as a “win-win situation” for workers and manufacturers: “It’s a good program for employees – they can drive the latest cars at a discount – but the system also supports sales and the used car market.”
In its policy paper, the Treasury said: “The private use of a company car is a valuable benefit and it is right that the appropriate tax is paid on it. This measure will ensure fairness to other taxpayers, reduce distortions in the tax system and strengthen the emissions-based tax system for company cars, which incentivizes zero-emission vehicles.”
The dispute comes as SMMT figures show the UK new car market grew by 0.5 per cent in October with 144,948 cars sold, including 36,830 electric vehicles (25.4 per cent of sales) – up from 20.7 per cent a year ago.
Gasoline models remained dominant, accounting for 44.4 percent of sales, compared to 50.5 percent last year. The figures follow the introduction of the Government’s New Electric Vehicle Grant, which offers up to £3,750 off the cost of new electric vehicles.
The Treasury Department declined further comment.
