Carmakers warn company car tax shake-up will cost Treasury £500m
Carmakers say Rachel Reeves’ plan to tax employee vehicle ownership schemes will backfire — cutting sales, jobs and Treasury revenue.
Britain’s leading carmakers have warned that a Treasury plan to impose company car tax on employee car ownership schemes (Ecos) could cost the Exchequer £500 million in lost revenue and threaten thousands of manufacturing jobs.
The Society of Motor Manufacturers and Traders (SMMT) said the proposed tax changes, due to take effect in October 2026, would “seriously impact” new car sales, penalise workers, and undermine investment in the UK’s transition to green transport.
The move, announced by Chancellor Rachel Reeves last autumn, would see Ecos vehicles taxed as benefits in kind — ending their exemption and aligning them with salary sacrifice schemes already subject to company car tax.
Under the current system, Ecos allow employees to buy new cars from their employer via a credit agreement, saving employers and workers millions in National Insurance contributions. The schemes are especially popular among car company staff, who can drive new models at discounted prices for around six months before the vehicles are sold on as “nearly new” stock.
According to SMMT analysis, around 100,000 cars are currently provided to workers through Ecos each year — roughly 5 per cent of the UK’s new car market. The group predicts that figure would collapse to just 20,000 if the tax goes ahead, leading to a £1 billion revenue loss for carmakers, 5,000 jobs at risk, and a £500 million fall in VAT and vehicle excise duty receipts.
The Treasury estimates the change would raise £275 million in its first year, falling to £175 million by 2030 as the market adjusts. However, industry leaders argue the real-world impact would be the opposite.
Mike Hawes, SMMT chief executive, said: “The Government has supported the automotive sector through EV incentives and trade deals, helping to drive growth and decarbonisation. But scrapping Ecos would undermine that progress — penalising workers, reducing Exchequer income and putting green investment at risk. At a time when the Budget should fuel growth, this measure will do the exact opposite. It’s time for a rethink.”
Robert Forrester, chief executive of Vertu Motors, previously warned that the policy is “likely to reduce income to the Exchequer rather than increase it.”
An industry insider described Ecos as a “win-win” for workers and manufacturers: “It’s a good scheme for staff — they get to drive the newest cars at a discount — but the system also supports sales and the used car market.”
In its policy paper, the Treasury said: “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 with other taxpayers, reduce distortions in the tax system, and reinforce the emissions-based company car tax regime that incentivises zero-emission vehicles.”
The row comes as SMMT figures show the UK new car market grew 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.
Petrol models remained dominant, accounting for 44.4 per cent of sales, down from 50.5 per cent last year. The figures follow the launch of the government’s new electric vehicle grant, offering up to £3,750 off the cost of new EVs.
The Treasury declined to comment further.
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Carmakers warn company car tax shake-up will cost Treasury £500m
