Formula 1 is governed under an annual budget cap. Since this introduction in 2021, teams must control their expenses to avoid any sanctions. This budget cap includes all the financial aspects of a stable: car development, breakdowns, simulator, salaries, etc…

The objective of this limitation is to establish a stable financial platform and to prevent the largest groups from injecting astronomical sums, in contrast to the smaller ones. In case of excess, the teams are directly sanctioned. Red Bull paid the price in 2022 for going over budget for the 2021 season. The Austrian garage was hit with a one-year reduction in wind tunnel time and several thousand euros in fines.

Manage Large Groups

The main objective of tightening the grid seems to have worked. If the manufacturers’ leader took off easily, the other teams have regularly been at the mercy of their rivals. However, this budget cap can be very constraining in case of an accident or breakdowns. The teams are more limited and cannot always operate a redesign of the single-seaters. In the event of a major accident, the cost of the damage can quickly rise and eat into part of the allocated budget.

« The problem with financial regulations is that, on one hand, they mean that someone cannot spend three times as much as someone else, which is a good thing, conceded Nicholas Tambiazni », the relay of the FIA President Mohammed Ben Sulayem. « But on the other hand, it also means that if you are behind someone, you cannot do everything and proceed with an upgrade. »

With this reform, teams like Mercedes and Ferrari couldn’t challenge Red Bull again. The performance difference was too significant for the two stables to catch up with their delay with simple « improvements ». Unlike before 2021, the two manufacturers couldn’t completely modify everything during the season to regain competitiveness.

« In the past, some teams would sometimes start a season and find themselves in a very bad situation », explained the Greek engineer. « The stables arrive and are in difficulty in the first few races but then they simply make a massive upgrade package for Barcelona or Canada. You virtually redesign the whole car like a madman for three or four months to become competitive again during the season. The current financial regulations limit the number of upgrades you can make. So, if someone is further behind, the recovery can be quite long and painful. »

Make adjustments for 2026

The FIA knows that all reforms have their disadvantages. This budget cap is above all a guarantee to avoid uncontrollable expenses and an untouchable top tier every season. To make up for the side effects of this regulation, the Federation is working on new adjustments to apply during 2026.

« There is a thin line between too much and not enough and it is clear that this is a technological sport, and must remain so », Nicholas Tombazis justified. « But with too much freedom, there can potentially be very large gaps between the cars. Obviously, if you ask an engineer from a team, they will tell you that there are too many limitations. I myself am an engineer, I would love for all the cars to be a real technological battle. But we must consider that there are other factors at play that are important for the sport. »

The Greek engineer also estimates that this reform prevents teams from staying too long at the head of Formula 1, as Mercedes did from 2014 to 2021. « Compared to the old days, where there might have been a bit more freedom, we have financial regulations and we also have to try to limit some of the activities that are happening », he added. « You could have teams that create an advantage through a R&D project, and then maintain an advantage for a very, very long time, with no chance for the other teams to catch up. There’s this boundary between freedom and having a competitive championship, and the financial regulations. I don’t think there’s a perfect answer. »

Since its establishment in 2021, the budget cap has only penalized Red Bull and it was for the inaugural season.