VAT rise fuels car sales

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Manufacturing News, Source : British Industry
Published : 28 Jun 2010 17:40

One in eight UK citizens are planning to bring forward their car purchase decisions to dodge the Chancellor’s VAT tax bullet, positive news for the UK car industry.

Research among 2,000 people by GfK NOP in the wake of Tuesday’s emergency budget reveals that almost 40% of British motorists are considering buying a new car in the next year However, the budget announcement to increase VAT to 20% will drive people to the forecourts earlier, particularly middle to high income earners.

The tax increase will also have an impact on used car sales. Despite being VAT exempt, 12% of people said they will consider buying a second-hand car ahead of the January 4 2011 deadline

“The VAT increase will provide a short-term, much-needed lift for the British car industry," says Mark Durham, automotive expert at GfK NOP. "Car dealers need to act now to capitalise on this interest, boosting their marketing spend and offering incentives to entice buyers to their dealership.”

The Budget will also have an impact on the type of car people buy in future. The hike in insurance tax is making a quarter of car owners consider scaling down to smaller vehicles in order to reduce their insurance premiums. Again, it is the affluent motorist who will be most greatly impacted by this tax increase.

“The Budget’s impact on the motor industry will be felt for a long time," says Durham. "However, longer term, manufacturers and dealers will need to find ways to ensure the market doesn’t dip after the VAT increase, perhaps absorbing the VAT and insurance increases themselves.”

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