F1 introduced the budget cap in 2021 to help promote parity between teams and since then the FIA have published annual findings regarding cost cap compliance.
Red Bull were notably punished for a 'minor' breach back in 2022, when they were found to have exceeded the cost cap during the 2021 season.
With the FIA recently revealing two breaches of the 2023 budget cap from power unit manufacturers Alpine and Honda, GPFans have put together an explainer to reveal what the F1 cost cap is and how it works.
The FIA introduced the cost cap in 2021
How much is the F1 budget cap in 2024?
The first cap was placed at $145 million in 2021, with a $5 million reduction the following year.
There was an impact on finances from Covid-19 and then rising energy prices through inflation last season, with teams given a break by the FIA to meet targets.
For 2023 there was a further $5 million reduction, with the cap now set at $135 million until 2025.
As of 2023, power unit manufacturers also have financial regulations imposed on them to control the cost of the new generation of power units that will be introduced from 2026.
Mercedes were one of the wealthiest teams when before the budget cap was introduced
The budget cap was introduced to limit the spending of F1 teams to encourage convergence in performance between competitors and produce exciting racing.
Prior to the cost cap some teams enjoyed larger budgets, whilst others had to make do with smaller financial resources.
Therefore, poorer teams struggled to improve their performances and catch up to those at the front of the grid, with the cost cap aiming to even the playing field.
Sustainability also impacted the decision to introduce the cost cap, encouraging teams into saving rather than being wasteful.
How does the F1 budget cap work and what is included?
Each team must pass an audit, with regular discussion throughout the year between the team and the FIA.
Penalties are then handed out in the case of a breach, with the given punishments for any breach kept vague in order to stave off any enticement to take a hit.
A minor breach is classed as any failure to comply with $5million over the mark, whilst a material breach would surpass that figure.
There are exemptions from the cost cap that teams can spend infinite resource on, including marketing, travel costs and, crucially, the wages of the three highest-earning staff members.
Essentially, all costs that are related to car performance are included.
The cap does not include driver salaries, although there has been discussion in recent years as to whether a separate salary cap is introduced.
What happens if F1 teams go over the budget cap?
Red Bull were found guilty of a 'minor' cost cap breach in 2021
For a minor breach, teams could be hit with a fine [determined on a case-by-case basis], a public reprimand, a deduction of constructors' points [for year in which the breach took place], a deduction of drivers' championship points, suspension from 'one or more stages' of competition and testing limitations.
Punishments for a material breach extend to exclusion and suspension from the championship.
For Red Bull's minor breach from the 2021 season, the team was fined $7 million and handed a 10% reduction in aerodynamic testing time for the 2023 season.
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