European-built cars imported to the UK from 2021 are set to become around £1,500 more expensive after the government confirmed that these vehicles would be subject to a 10 per cent tariff from 1 January.
The Department for International Trade today announced its post-Brexit tariff regime, which will see cars built in EU countries subject to the same 10 per cent levy as those arriving from other nations.
The move would hit some of Britain’s most popular cars, including best sellers like the Ford Fiesta, VW Golf and Mercedes-Benz A-Class.
This will be the case unless the Government negotiates a free trade agreement (FTA) with the EU between now and the end of the Brexit transition period, which is due to terminate on 31 December 2020.
Failure to secure an FTA means the UK will default to World Trade Organisation (WTO) terms on 1 January 2021, according to the UK Global Tariff document published on Tuesday,
This will end the zero per cent tariff on cars imported from EU nations and replace it with a 10 per cent levy.
Experts have already warned that in most cases the additional cost of tariffs will likely be passed on to British car buyers rather than absorbed by the manufacturers themselves.
The Society of Motor Manufacturers and Traders (SMMT) previously estimated that a 10 per cent import levy could add £1,500 to the price of an average new car shipped from Europe to the UK.
Commenting back in 2016, the trade body said: ‘Import tariffs alone could push up the list price of cars imported to the UK from the continent by an average of £1,500 if brands and their retail networks were unable to absorb these additional costs.’
While the tariff hike will be a blow for European makers who sell millions of cars to UK customers each year, the move is seen as a vital step to protect UK manufacturing.
SMMT figures for last year show that 2.3million cars were registered in the UK last year
Manufacturing data for the same period says that just 1.3 million motors were produced by British factories, of which 81 per cent were exported.
That means fewer than 250,000 of the cars build in Britain last year were bought by drivers on home soil.
It hints that more than 90 per cent of new models registered to private UK buyers, fleets and businesses were imported from other countries, most likely from Europe.
For instance, the Ford Fiesta, the UK’s most popular new car for the last 11 years, is produced at the manufacturer’s plant in Cologne, Germany.
Other examples include the Volkswagen Golf (produced in Wolfsburg, Zwickau and Dresden Germany), Mercedes-Benz A-Class (built in Rastatt, Germany; Kecskemet, Hungary; Uusikaupunki, Finland) and Kia Sportage (made in Zilina, Slovakia).
A potential trade agreement with Brussels could be reduced or scrapped entirely before the transition period ends, but it’s understood that progress on negotiations are slow.
The UK Global Tariff document suggests that imported motors made outside of Europe will be largely unaffected and continue to levied 10 per cent as they are currently.
However, individual trade deals with other nations – such as Japan and the US – could see these tariffs reduced.
David Leggett, Automotive Analyst at GlobalData, said: ‘With the UK automotive sector facing a long recovery from the Covid-19 crisis that has decimated sales this year, new tariffs on UK-EU car trade would be an additional and unwanted concern. The hope will be that tariffs can yet be avoided in a UK-EU agreement.
‘This announcement from London suggests that the UK Government is serious about no extension to the ‘business as usual’ transition period on UK-EU trade beyond the end of this year.
‘The UK’s auto industry is highly integrated with that of the EU, in terms of both manufacturing supply chains and a high proportion of car exports being bound for the EU. Over half of the 1 million cars exported from Britain last year went to EU27 markets.
‘If those EU-bound vehicles have a reciprocal 10 per cent import tariff levied by the EU under WTO trading rules, that potentially makes UK manufacturing much less attractive to car companies that have alternative options to produce at plants inside the EU’s tariff free customs union.’
He added: ‘Additional border checks would also be a concern for an industry heavily reliant on just-in-time logistics and with razor-slim margins.
‘In the UK, a 10 per cent import tariff would potentially also create problems for the retail sector either in absorbing higher prices or passing them on to consumers.’
The document revealed that while European cars are looking likely to become more expensive, the government is removing tariffs on £30 billion worth of other imported household items.
This includes white goods such as dishwashers and freezers, sanitary products, cooking ingredients and even Christmas trees.
Liz Truss, Secretary of State for International Trade, said: ‘For the first time in 50 years we are able to set our own tariff regime that is tailored to the UK economy.
‘Our new Global Tariff will benefit UK consumers and households by cutting red tape and reducing the cost of thousands of everyday products.
‘With this straightforward approach, we are backing UK industry and helping businesses overcome the unprecedented economic challenges posed by Coronavirus.’
