New cars imported into the UK will be subject to a 10% tariff in the event of a no-deal Brexit, helping to protect the UK’s car sector but potentially slapping higher purchase costs on fleets and private car buyers.

August production saw the fourth month of decline this year.

The new plan – announced by the Government just hours after the Prime Minister failed again to secure backing for her Brexit deal and ahead of tonight’s vote on whether to proceed on leaving the EU without a deal – is intended to “minimise costs to business and consumers while protecting vulnerable industries”.

Although the new tariff regime, which would apply both to imports from the EU and from outside the bloc for up to 12 months while a full consultation on a permanent approach is undertaken, would see an increased number of imports eligible for zero-tariff access compared to currently (87% compared to 80%), the UK’s car industry – along with other sectors such as agriculture – will receive some “protection”.

It follows months of concerns over the catastrophic effects of a no-deal scenario from the UK’s Society of Motor Manufacturers and Traders (SMMT), with three-quarters of carmakers in the UK having said in recent analysis that a no-deal Brexit would hit their business, impacting on profitability and future investment.

As previously warned by experts, the tariffs could be passed onto buyers in the form of higher car prices, as there is not enough margin to absorb much of the increase. According to reports, Volkswagen has already said it will pass on the cost to customers.

However, concerns that auto parts would also be hit by tariffs have proved unfounded, with the lack of tariffs intended to stop car production processes from facing delays.

The SMMT, which has been campaigning for the last couple of years against the impact of a no-deal Brexit, warned that the new tariff regime would not fully mitigate the damage of such a scenario, including the impact on the Just in Time production control method used by carmakers.

Chief executive Mike Hawes said: “Today’s announcement does not resolve the devastating effect a ‘no deal’ Brexit  would have on the automotive industry. No policy on tariffs can come close to compensating for the disruption, cost and job losses that would result from no deal. It’s staggering that we are in this position with only days until we are due to leave. Every day no deal remains a possibility is another day companies pay the price in expensive contingency measure. No deal must be taken off the table immediately and permanently.”