During his recent emergency budget the Chancellor, George Osbourne, announced a number of cost savings and taxes measures, some of which will have a direct impact on the automotive market. The new measures are likely to influence new car purchases, car leasing deals and the type of finance and contracts companies enter into.

The most obvious impact on the motor industry will be the increase in VAT to 20%. Commentators are speculating that this will lead to a rise in car leasing as companies who previously chose a purchase deal to buy their cars, will no longer be eligible for claiming VAT back on the purchase price.

The new rules on Writing Down Allowances, a specific type of capital allowance, will also have an effect on the purchase and leasing of cars. The allowance will decrease from 20% to 18% for cars with a CO2 emission rate of 160 g/km or less, and down to 8% for cars with an emission rate over 161g/km.

The fuel duty of 1p and the previously announced 0.76p increase for January 2011 will remain and thereafter the duty will be kept at 1p per litre above inflation until 2014. The government is also looking into fuel price stabilisation and ways in which to ease fuel costs on remote rural areas, with trials due to start in Scotland. This could lead to petrol prices being less volatile at the pump, protecting consumers against sudden price fluctuations due to oil prices.

Osbourne also confirmed other measure announced in the previous budget that will have impact on the purchase and leasing of cars. These include the company car tax that is due to change to encourage drivers to choose more environmentally friendly cars. The VED changes for heavy goods vehicles based on weight and suspension type are still due to commence in April 2011.

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