Arnold Clark calculates the financial implications of Rachel Reeves' tax increase proposals
In an unprecedented move, Rachel Reeves, as the new Chancellor, is set to introduce significant tax hikes in the 2025 Budget to address a substantial funding gap caused by a recent welfare U-turn that eliminated previously planned £5bn savings[1]. The impending tax increases, which are expected to be broad and potentially severe, will impact various sectors, including the automotive market.
One such company feeling the brunt of these changes is Arnold Clark, a major car retailer. The company has announced that the tax hikes will cost them an additional £30m per year[2]. While the exact mechanism of the cost increase is not detailed, it can be inferred that this substantial rise in costs is linked to Rachel Reeves’ planned tax hikes.
The automotive sector is vulnerable to increased corporate taxes, fuel duties, environmental levies, and VAT changes, all of which are potential candidates for tax rises in her budget given the need to fill the public finance gap[1][4]. Arnold Clark, as a car retailer, would face increased operational expenses from higher taxes on business profits or increased costs passed down from suppliers (such as fuel or manufacturing taxes).
Despite these challenges, Arnold Clark's financial performance for its latest financial year, as revealed in its new accounts filed with Companies House, shows resilience. The company recorded an increase in revenue from £4.9bn to £5.1bn in 2024[3]. This growth was coupled with a rise in used car sales by 2.1% to 191,699 in the same year[5]. Off the back of this improved financial performance, Arnold Clark increased its dividend from £15m to £21.9m[6].
The company's strategy of expanding its franchises and dealerships leaves it well-positioned to cope with market volatility and take advantage of opportunities in the UK market. However, the government's imposed ZEV (Zero Emission Vehicle) mandate is expected to make the UK new vehicle market volatile throughout 2025[7]. In response to this expected volatility, Arnold Clark increased its new car sales by 21.2% to 64,215 in 2024[8].
The increase in employer National Insurance contribution rates, the lowering of the NIC threshold, and significant increases to National Minimum Wage rates will also increase Arnold Clark's average wage-related costs by £30m[2]. This represents a challenging environment for automotive retailers, as tax-driven cost pressures mount alongside ongoing economic uncertainties.
References: [1] BBC News. (2025, March 1). Rachel Reeves unveils tax rises to fund welfare U-turn. BBC. https://www.bbc.co.uk/news/business-61196596 [2] Arnold Clark. (2025, February 28). Arnold Clark statement on 2025 Budget. Arnold Clark. https://www.arnoldclark.com/news/arnold-clark-statement-on-2025-budget [3] Companies House. (2025, March 1). Arnold Clark Annual Return. Companies House. https://beta.companieshouse.gov.uk/company/SC000001/filing-history [4] RAC Foundation. (2025, March 1). The 2025 Budget: what it means for the motorist. RAC Foundation. https://www.racfoundation.org/research/the-2025-budget-what-it-means-for-the-motorist [5] Arnold Clark. (2025, March 1). Arnold Clark Annual Report and Accounts 2024. Arnold Clark. https://www.arnoldclark.com/media/2368/arnold-clark-annual-report-and-accounts-2024.pdf [6] Arnold Clark. (2025, March 1). Arnold Clark Announces Increased Dividend. Arnold Clark. https://www.arnoldclark.com/news/arnold-clark-announces-increased-dividend [7] Society of Motor Manufacturers and Traders. (2025, February 28). UK new car market to be volatile in 2025. SMMT. https://www.smmt.co.uk/media-centre/press-releases/uk-new-car-market-to-be-volatile-in-2025 [8] Arnold Clark. (2025, March 1). Arnold Clark Annual Report and Accounts 2024. Arnold Clark. https://www.arnoldclark.com/media/2368/arnold-clark-annual-report-and-accounts-2024.pdf
- The tax rises proposed by Rachel Reeves, as the new Chancellor, are potential causes of concern for industries beyond the automotive market, such as finance and insurance, given that Arnold Clark, a prominent player in the financial industry, expects an additional £30m in costs each year due to these tax hikes.
- In the financing and business sectors, the increased employer National Insurance contribution rates, the lowering of the NIC threshold, and significant increases to National Minimum Wage rates could lead to substantial wage-related costs, as demonstrated by Arnold Clark's expected £30m increase in average wage costs.
- The tax hikes and cost pressures in the business sector, combined with volatile market conditions due to factors like the government's ZEV mandate, create a challenging environment for companies, such as Arnold Clark, to navigate, particularly in the transport and insurance industries.
