Consumers in general, motorists in particular and the motor finance sector as a whole have had a tough time of it lately, but is this month’s Spring Budget 2023 the answer to their problems? Chris Farnell reports.
Whatever sector you are in, ultimately the foundation of whether you are performing well or poorly is whether consumers are feeling confident enough to spend or not. So, it is no surprise that in the middle of the worst cost-of-living crisis of recent times, the motor finance sector is in a precarious position.
“The key economic threat to the retail motor industry over the last year or so has been the possibility that the new and used car and van sectors would be badly hit by the cost-of-living crisis,” says James Tew, CEO of the automotive retail technology firm, iVendi.
“So far, however, effects have been limited, and the main plus point from the Budget is that the government seems to recognise that it’s important personal finances are not allowed to get much worse, as seen in the three-month extension to the energy price guarantee.
It has to be said, however, that the government’s response to the cost-of-living crisis has not been a dramatic one. There are no sweeping changes or big, structural overhauls in place. “Ambition” is not the word of the hour.
“For the retail motor industry and motor finance specifically, this is a relatively benign budget without any moves that will either noticeably boost or harm prospects,” says Paul Burgess, CEO of Startline Motor Finance.
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“Really, its hallmark is an extremely measured approach, as seen in the decision to extend the energy price guarantee by three months to not worsen the cost of living crisis. The economy is performing just a little better than expected at the end of last year and there seems to be a mood of gently trying to ensure that trend continues, with great store placed on avoiding recession.”
Spring Budget 2023: strong and stable?
Tew of iVendi agrees that this budget’s goal is to avoid rocking the boat more than any longer-term goals.
“While they may insist that today’s measures were largely about growth, the underlying message is one of stability,” Tew says. “This, in itself, is welcome after the various economic and social storms we have all had to weather in recent years but there is also perhaps an absence of really big ideas to get the economy moving, despite a basket of smaller scale, targeted measures designed to promote growth.”
Peter Golding, managing director of FleetCheck points out some areas that may be more promising, although still questions whether they will work in practice.
“The policies designed to get people back to work are potentially interesting, especially given the shortages of drivers and other key roles in the fleet sector, but whether these will have a noticeable effect in our sector is very much open to question,” he says.
Indeed, one of the biggest headlines for motorists in this budget is hardly glamorous – a fund to fill in potholes.
“Ministers also seem to have little control over how local councils are implementing divisive and piecemeal transport policies across the country, while the £200 million pothole fund is likely to be yet another sticking plaster for the country’s road network, which needs comprehensive, fundamental attention,” says Hugo Griffiths, consumer editor at online marketplace, carwow.
Spring Budget 2023: Fuel for thought
The other major news for motorists is the freeze on fuel duty, and during an energy crisis it is one that most motorists will be grateful for, but even here the triumph is somewhat deflated.
“While welcome, petrol and diesel prices have been falling in recent months anyway, so this will perhaps largely go unnoticed,” says Golding.
“In the grand scheme of things, the Government is clearly lacking ideas in a number of key strategic areas,” Griffiths says.
Overall, the budget has made a pretty uninspiring impression on professionals in the motor finance sector.
“For motorists in general – apart from some elements regarding fuel duty and fixing potholes – few eyebrows will have been raised,” says Norman Chambers, Managing Director of the National Association of Commercial Finance Brokers (NACFB).
The revolution will not be electrified
Indeed, if anything is surprising in this budget, it is how little it addresses the transition to EVs that has dominated motor finance discourse all year.
“We are still being kept in the dark with regard to how fuel duty will be replaced once electric cars are mandated; there is also little clarity on how EVs will be made affordable for private buyers as we edge ever closer to 2030, something 66% of carwow customers think the Government should provide support for,” Griffiths points out.
Disappointment in this lack of support for electrification is common across the sector.
“What is perhaps most disappointing is that no support was announced for the electrification of the UK motor industry,” Golding says. “Industry bodies have been calling for this and it really does feel as though the government is letting our car and van manufacturing capacity drift away to other countries that are being more proactive.”
Chambers adds, “Through the lens of the motor finance industry, no further updates were revealed on the Zero Emission Vehicle mandate, which had previously been mooted by the government as an initiative to compel manufacturers to sell a certain proportion of EVs as the 2030 target approaches.
“We are also no clearer on the pathways to Net Zero and specifically in terms of the number of plants and gigafactories developing batteries. Where is the incentive for companies to invest in such plants?”
Spring Budget 2023 Bank Referral Scheme
As Chambers points out, the issue is not a lack of ideas. The industry has put forward a range of potential tools and solutions that could help.
“The NACFB’s primary ask ahead of the budget was to place recognised advisers at the core of an enhanced Bank Referral Scheme. For years the Association has called for an overhaul of the Bank Referral Scheme, by placing the UK’s commercial finance intermediaries at its core, to increase the options available to SMEs seeking funding,” Chambers says.
“In 2022, 29% of small businesses who had been successful in obtaining finance via a NACFB commercial intermediary had previously been turned away for funding elsewhere, whilst 40% of lenders surveyed did not have a formal referral system in place for businesses they couldn’t support. Encouraging more commercial lenders to refer to a centralised independent system – which in turn refers to a wider array of funding solutions – will enable many more businesses – including those in the vehicle and transport sectors – to realise their growth ambitions.”
But perhaps this lack of big ideas is one the government sees as a feature, not a bug. As well as responding to the serious economic and environmental issues the UK faces, this budget may also be a reaction to last year’s “mini-budget”, and its catastrophic, career-ending aftermath.
“It’s important to remember that it is only seven months since the fated mini-budget and this is a budget very much about being seen to make no sudden, dramatic moves and convince onlookers that the Sunak administration is one that is, above all else, fiscally responsible,” says Burgess.
“Recent news about bank collapses in the US and the plight of Credit Suisse does raise the possibility of more unanticipated shocks hitting the economy, so this cautious approach is perhaps understandable, even if there is a strong argument for a more strategic and proactive approach on growth than the measures the Chancellor revealed.”
But even if that caution is understandable, there is still a feeling that, given the challenges ahead, this is a budget that is not up to the task.
As Griffiths concludes, “All things considered, Jeremy Hunt’s Spring Statement is a thin gruel that will sustain motorists for a while, but drivers need substance and clarity that is sorely lacking.”