UK car industry: Scrapping ECOS could cost £1bn, 5000 jobs

The UK car industry has warned that the government's decision to end employee car ownership schemes (ECOS) could result in losses of more than £1 billion in revenue, throttle used car sales and put 5000 manufacturing jobs at risk.

ECOS, operated mainly by car makers and dealers, allows employees to buy brand-new cars at significantly reduced prices, with low monthly repayment bills and little to no interest charged.

Usually, after six months or 6000 miles, the employee then sells the car back and replaces it with another under the same terms. 

Accounting for around 100,000 registrations every year – 5% of the annual new car market – the scheme is considered to be a significant incentive for attracting and retaining talent within the automotive industry in the UK, with the Society of Motor Manufacturers and Traders (SMMT) saying it enables "employees to access the products they make and sell in an affordable manner".

But because they do not pay benefit-in-kind tax or national insurance contributions – because the car is owned by the employee so isn't a company asset – the government says ECOS is unfair and has pledged to scrap the framework from 6 April 2026.

Calling ECOS a "contrived car ownership scheme", chancellor Rachel Reeves earlier said: "This arrangement means those benefiting don't pay company car tax, which other employees pay."

The Treasury estimated that taxing ECOS cars as employee benefits would raise £275 million in the 2026-27 tax year and a further £590m over the following three years. 

But the SMMT questioned this forecast because the extra cash generated would come at the expense of VAT and VED on new cars no longer being sold. It suggested the Treasury could lose out on £500m here, "more than double that allocated to the Electric Car Grant, effectively wiping out the growth it is intended to stimulate". 

Now, with the planned end date just months away, the SMMT has called for the government to scrap its plan to phase out ECOS. It argues that the decision would "depress growth and seriously impact the nearly new and used markets".

Shutting down the scheme, says the SMMT, will "put these vehicles out of reach for most workers and reduce a crucial supply of new and increasingly zero-emission vehicles into the market". 

Ultimately, the SMMT estimates that scrapping ECOS could cost more than £1bn in lost sales and put 5000 jobs in the manufacturing sector at risk.