Britain’s top car manufacturers have warned that Chancellor Rachel Reeves’ plan to impose company car tax on employee car ownership schemes (Ecos) could backfire — damaging car sales, threatening jobs, and reducing Treasury income by hundreds of millions of pounds.
The Society of Motor Manufacturers and Traders (SMMT) said the proposed changes, due to take effect in October 2026, would “seriously impact” the industry by discouraging car purchases, penalising workers, and undermining investment in the UK’s transition to electric vehicles.
Ecos currently allow employees to buy new cars from their employers under a credit agreement, saving both staff and companies significant sums in National Insurance contributions. The schemes are particularly popular among automotive employees, who can drive new models at discounted prices for a few months before the cars are resold as “nearly new” stock.
Under the Treasury’s plan, Ecos vehicles would be taxed as benefits in kind, removing their exemption and bringing them in line with salary sacrifice car schemes that already face company car tax.
The SMMT estimates that around 100,000 cars are currently provided to workers through Ecos each year — representing roughly 5% of the UK’s new car market. If the new tax rules come into force, that number could fall to just 20,000. The group warned this would result in a £1 billion loss for carmakers, the loss of 5,000 jobs, and a £500 million reduction in VAT and vehicle excise duty revenue.
The Treasury predicts the measure will raise £275 million in its first year, dropping to £175 million by 2030 as the market stabilises. Industry leaders, however, argue the actual effect will be the reverse, cutting income for both businesses and the Exchequer.
SMMT chief executive Mike Hawes 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, CEO of Vertu Motors, also warned that the policy was “likely to reduce income to the Exchequer rather than increase it.” An industry insider described Ecos as a “win-win” for employees and manufacturers, saying, “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.”
Defending the proposal, the Treasury said in a policy paper that private use of company cars is “a valuable benefit” and should be taxed fairly, arguing the change would “reduce distortions in the tax system” and promote zero-emission vehicles.
The warning from carmakers comes as SMMT figures show the UK new car market grew by 0.5% in October, with 144,948 vehicles sold. Electric cars accounted for 25.4% of sales — up from 20.7% a year earlier — while petrol models remained the biggest segment, at 44.4% of total sales.
The Treasury declined to comment on the warnings.
