How 4 government trends are influencing car buying in the UK

Posted by Meg Bernazzani on March 18, 2019

It’s easy to forget just how much influence the Government wields over car buyers’ decisions, but it’s absolutely enormous. It may be subconscious to a customer, but the country’s authorities impact their choices at every level, be it financial, technological or geographical, and the more in-tune retailers are with customers’ needs and concerns, the better their chances of a sale. Here, we investigate how four government trends are impacting car buying in the UK.

Mr. tax man

The most obvious way in which any government drives behaviour is to hit people in the pocket, which is why fuel consumption is so high up the agenda for many car buyers. Petrol and diesel are currently taxed at 57.95 pence per litre, which is far from insignificant; figures published by Petrolprices.com show that fuel duty accounted for 48% of the average cost of a litre of petrol on 5 March 2019 and 45% of a litre of diesel, so all conventional car owners remain at the government’s mercy in this respect.

Road tax or VED is another obvious government-led driver of car buying trends. The CO2-based system was overhauled in April 2017, which caused an 8.4% spike in new car sales the preceding month according to the SMMT, as buyers scrambled to get hold of vehicles registered under the older and generally cheaper scheme. Company car tax is similarly persuasive – especially for the 51.7% of fleet buyers in 2018 – and has an even closer correlation with CO2 emissions than private car tax.

Low carbon vehicle initiatives

The Government wants more of us driving ultra-low emission vehicles as part of its environmental agenda and has said that it intends to ban the sale of traditional petrol and diesel cars from 2040. As a result, there are a number of incentives to lure buyers towards alternative fuel vehicles, such as public charging points complete with complimentary parking spaces, which are rather attractive to those who live or work in urban areas. The big one, though, is the plug-in car grant, which involves the Government stumping up a chunk of the purchase cost for certain plug-in vehicles.

However, there have been mixed messages from the Government in this area. The grant historically applied to any type of plug-in vehicle – including hybrids and range extenders – providing it met certain criteria, but it was downgraded to only full-electric vehicles in November 2018, and the amount reduced from £4,500 to £3,500. Clearly, the Government still wants people to buy and drive the cleanest available cars, but the incentives are no longer what they once were.

Clean air zones are another way of steering buyers towards lower-emitting vehicles, by introducing a charge for older, more polluting models – typically anything prior to Euro4 petrols and Euro6 diesels – to enter a specified area. This is particularly relevant for urban drivers, as London’s ultra-low emission zone (ULEZ) is due to kick in on 8 April 2019, while five other UK cities have been mandated to introduce similar measures and more are expected to follow.

Buyers have already begun adapting their habits ahead of the move, which has a bigger effect on owners and operators of older vehicles that do not meet the specified emissions requirements. Auction firm BCA, for example, is due to hold a sale of ULEZ-compliant vans on 12 March to help gear up for the change.

Cost and availability of finance

The cost and availability of credit drive the retail side of the industry and, according to the Finance and Leasing Association, 91.2% of private new car sales conducted by its members in 2018 were on credit, so it’s a big deal. While the Bank of England is not a division of the government, the two bodies work very closely, and it is the central bank of the United Kingdom.

Any significant policy changes by the bank will immediately trickle down to automotive finance providers and could absolutely impact the rates and types of finance dealers are able to offer their customers. The most significant element is the Bank of England’s base rate, which has been at historic lows for a long time; it increased from 0.5% to 0.75% in August 2018, which is still extremely low, but the move was enough to rattle the finance industry as a potential sign of things to come.

Brexit

Finally, and it’s the word on everybody’s lips, but Brexit has and will continue to have a huge impact on consumer car buying habits. At the time of writing, the final outcome had not been decided, and many potential customers had held back on committing to purchases as a result of the uncertainty, evidenced by 2018’s 6.8% fall in new car sales.

Depending on the final outcome, subsequent import taxes could have a big impact on vehicle and parts prices, as could potential currency fluctuations – but we won’t know for sure until the final exit plan is revealed.

For more insight into government-influenced car buying trends, download our One Voice Report.

Topics: industry news, trends