Uproar over end of bargain deals for car industry staff

The government’s plan to end what it has called “contrived car ownership schemes” has rattled the UK’s automotive industry, which forecasts devastating consequences for itself and its workers if this becomes law.

The Employee Car Ownership Scheme (ECOS), which the government intends to end from 6 April 2026, differs from traditional salary sacrifice schemes in that the car is owned by the employee, not the employer.

Operated mainly by car makers and their dealers, ECOS enables an employee to buy a brand new car at a hugely discounted price. Monthly repayment bills are very low, with little or no interest charged. 

Under the terms of the arrangement, the employee is required to sell the car back, typically after six months or 6000 miles. It’s then replaced by another. 

Because the car is owned by the employee and so not deemed a company asset, the employee is not required to pay benefit-in-kind (BIK) tax or national insurance contributions.

As such, the government believes this arrangement is neither legitimate nor fair, despite ECOS users being subject to heavy limitations.

In her Autumn Budget, chancellor Rachel Reeves outlined measures to “level the playing field” because “this arrangement means those benefiting don’t pay company car tax which other employees pay”.

Speaking to Autocar, manufacturers said they had been given few details on the proposed changes and were still considering the government’s plans. 

A spokesperson for Stellantis said the group was “speaking directly to the UK government on the impacts and to understand further details and timings”.

The Society of Motor Manufacturers and Traders (SMMT) said the chancellor’s announcement had come as a “complete surprise” after decades of the industry operating ECOS unchallenged.

The SMMT questioned Treasury estimates 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, because it believes this income would come at the expense of VAT and VED (road tax) on new cars no longer being sold. 

Urging the government to reconsider its plans, SMMT CEO Mike Hawes said: “These schemes are an integral part of the remuneration packages that attract people into the industry and allow employees affordable access to the products they make. They are an important part of the new car market and provide a key source of nearly new vehicles to the used market.

“Removing these schemes would challenge manufacturers’ business models, restrict their ability to retain and recruit staff and constrain efforts to decarbonise road transport.

“These [ECOS cars] are new models, reflecting the latest technologies and, as such, are increasingly electric, so to cut off this new and used vehicle supply at exactly the time the industry must drive up EV adoption would be a perverse step.

“Not only would this undermine industry and government net-zero ambitions, it would also be counterproductive to economic growth, actually decreasing government revenues from lost VAT and VED, and hurt working people and their families financially. 

“We would urge government to think again about this proposal and support the industry and its workforce at this critical time.”

The SMMT claims that each year, ECOS generates around 150,000 cars for the ‘nearly new’ market and are a valuable mix of popular vehicles and those, such as EVs, that customers would be wary of buying new.

However, used car valuation experts have disputed the magnitude of the impact that ending ECOS would have on used market supply. 

A spokesperson for Cap HPI said: “It won’t have an impact on nearly new volumes. The numbers involved are tiny compared to daily rental. The [ECOS] vehicles are often on very strict mileage and there are strict rules on how long they can be kept.” 

Meanwhile, Ed Steele, MD of leading automotive recruitment specialist Steele-Dixon, has predicted that employee recruitment won’t be so badly affected by the banning of ECOS.

“Banning the schemes will hamper recruitment, but then if everyone is suffering, I suspect the impact will not be so great,” he said. “At the moment, the prospect is a worry but not yet a problem, and I’m sure the accountants and lawyers will come up with a solution. 

“If they don’t, a ban might be a good thing, since 99% of the people I deal with haven’t a clue what it costs to pay for your own car. They should know what it’s like for those people who do.”

Why the ECOS isn't as good a deal as it seems

The prospect of a new car every six months on terms significantly better than anyone outside the car industry can enjoy sounds great, doesn’t it? Not according to one manufacturer employee in receipt of the benefit.

The employee, who asked not to be identified, has a 1.0-litre hatchback on his firm’s ECOS that costs him just £85 per month. He pays no benefit-in-kind tax or national insurance contributions on it and it’s replaced every six months. 

However, he says there are strict limits as to which model he can order and with which options, and even then, his order can be overruled by the factory and a different specification from the one he requested supplied. He must pay an excess mileage charge if he does more than 6000 miles in the car and any damage it suffers must be repaired by a manufacturer-approved garage whose prices, he says, tend to be higher than elsewhere.

If he puts the car through a car wash, any swirl marks must be polished out at a cost of £80, and a chipped windscreen must be replaced, not repaired. 

“The scheme is great in the sense that the car is cheap, and unless I damage the car, I don’t have to budget for new tyres or servicing,” the employee said.

“The downsides are that it’s quite inflexible and the higher refurbishment and repair costs put many employees with families off the scheme, because of the damage their kids might do to the car’s interior.