If you’re hoping for some light-hearted respite from the Coronavirus pandemic, the fact that the UK is hurtling out of the EU without a trade agreement won’t be the relief you seek – especially as from 1 January 2021 cars imported from that trading area are set to become 10% more expensive.
Currently, cars manufactured within the EU are imported into the UK duty-free.
Which companies have announced Brexit-related price adjustments?
There are still a lot of ifs and buts to be negotiated between the UK government and the EU in the remaining few weeks of 2020, but earlier this year Liz Truss, the trade secretary, confirmed that the 10% tariff will be applied if no trade deal is reached by the 31 December deadline and Britain moves to a World Trade Organization (WTO) set of rules.
This now appears to be the likely scenario if a Free Trade Agreement (FTA) between the UK and EU is not agreed, or if there’s a further extension of the Brexit transition period due to external influences, such as the COVID-19 pandemic.
Will this make cars more expensive?
As it’s very unlikely that car manufacturers importing models into the UK from the EU will foot that 10% increase, then yes, we expect the majority – if not all – of that cost to be passed on to British car buyers. As the situation becomes clearer, we will regularly update this page with Brexit-related pricing announcements from different manufacturers as we get them.
As far back as 2016, the Society of Motor Manufacturers and Traders (SMMT) suggested that without an FTA, the average price of an imported car into the UK could rise by £1,500.
A 10% increase would see a popular French-built small hatchback increase from £15,000 to £16,500, while a typical German-made compact family SUV would rise from £25,000 to £27,500.
This WTO-aligned tariff would also mean that a car manufactured in the EU for a British brand would also be 10% more expensive.
Jaguar Land Rover’s EU-built models – the I-Pace is assembled in Austria, the Defender and Discovery in Slovakia – would be subjected to the same 10% increase, although a statement from a company spokesperson remains upbeat: ‘We continue to work with government to achieve an ambitious free trade agreement with the EU, which will remain one of JLR’s most important trading partners.’
Where the industry is also negotiating with the UK government and the EU is over ‘rules of origin’ – in other words, what percentage of a car must be manufactured in Britain for it to be exempt from the 10% duty.
Many UK-assembled cars contain all manner of major components, from bodywork, engines, battery packs, transmissions and electronics that are sourced from EU-based suppliers. If the vast majority of a car’s components are supplied from the EU, it’s unlikely to be regarded as British simply because the final assembly takes place here. Those precise percentages, based on component value, are still yet to be determined.
On the other hand, where car companies have manufacturing bases in the UK already, it could prove prudent to shift production of key EU-built models to Britain to avoid those duties on popular models and emphasise the fact that they’ve been produced locally.
Is it all bad news?
Well, it’s not looking rosy right now, but there is still time for a deal to be struck. Just.
Even if there isn’t a cordial FTA with the EU, Britain would be free to negotiate alone to create low- or no-tariff arrangements with other large car-building nations such as the USA, South Korea and China. The trade agreement already signed with Japan closely mirrors the Asian nation’s present deal with the EU as far as automotive is concerned.
Of course, as we have already witnessed with the Brexit negotiations, such agreements aren’t the work of a moment, so even if FTAs can be struck with other nations that result in cheaper cars, the benefits are unlikely to be experienced until 2022 at the earliest.
Other items are set to become duty-free under the WTO rules, including various white goods such as fridge-freezers and washing machines, plus sanitary products, but like cars, many imported foodstuffs would be subjected to the increase.
Keep this page bookmarked for updates to this story over the coming days leading up to the UK exiting the European Union
Confirmed Brexit-related price rises
Volkswagen: Although VW has yet to confirm exactly how much its prices will increase by from 1 January, a rise appears to be in the offing. The company is advising through its advertising and social media channels that no Brexit-related tariffs will be passed-on to customers providing orders are placed by 17:30 on 31 December 2020.
Further reading
>> Check out Parkers’ COVID-19 guide to car ownership
>> Looking for an electric SUV? These are the best available
>> Find out how much your car is worth with a Parkers valuation
