Fleet managers hoping for some positive news in the recent Budget were left wondering if it had the aim of supporting business or stifling it with more crippling tax hikes
Fleet managers hoping for some positive news in the recent Budget were left wondering if it had the aim of supporting business or stifling it with more crippling tax hikes.
As with all Budget announcements, it's drilling down into the figures which finally reveals the hidden messages, and once again it appears to have fallen on the motorist to provide the Chancellor with what will amount to billions in much-needed new revenue.
On the one hand, the Chancellor signalled it would be the 136-year-old diesel engine technology which will green Britain's fleet - for the next five years at least - by way of tax incentives with the aim of pushing manufacturers to develop even greater fuel efficiency from technology invented in 1876.
However, whilst the Budget made specific provisions to incentivise the development of cleaner diesel engines, it also cut or withdrew incentives to encourage manufacturers to develop cleaner technologies, as fleet buyers dictate the vehicle production lines as the largest buyers.
The main point in the Budget which caught the eye of fleet management firms was the reduction in the level of C02 emissions to qualify for benefit in kind tax incentives, calculated in relation to the car and/or fuel provided for private use, from 160 grams per kilometre (g/km) to 130 g/km. Those drivers hoping to avoid paying company car taxes by driving an eco-friendly company car will now find it more difficult to meet the criteria as the Chancellor also increased the car tax rates by one percentage point on cars producing more than 75 g/km, which comes into effect in 2014. These tax rates will rise by two percentage points in the tax year 2015/16 and could rise to a maximum of 37 per cent by 2016/17.
Company cars with a zero C02 rating - electric cars - will continue to benefit from a zero per cent benefit in kind tax charge until 2015 while vehicles with emissions from one to 75 grams of CO2 per kilometre (g/km) will continue to benefit from a five per cent tax threshold for petrol engines, rising to eight per cent for diesel engines in 2013/14 tax year. And for vehicles up to 99 g/km the threshold remains at 10 per cent for petrol and 13 per cent for diesel, rising to 11 per cent and 14 per cent respectively in the 2014/15 tax year and to 12 per cent and 15 per cent by 2014/15.
But the big change in the 2012 Budget for fleet managers was the setting of 130g/km as the new emission 'gold standard', effective from April 1, 2013. From next year, employers who operate company car fleet with cars above the 130g/km limit will lose the tax relief they current enjoy on cars with emissions of up to 160g/km.
In a post-Budget announcement, GE Capital Fleet Services estimated around a third of fleet cars currently available in the UK fall within or below the 130g/km category, and predicted manufacturers will now work flat out to bring their vehicles within the new standard to maintain market share.
Nick Hardy, sales and marketing director of Ogilvie Fleet, suggests it was this early race by manufacturers to improve fuel efficiency which has ultimately forced the Chancellor's hand. "As fleets and company car drivers increasingly turned to lower emission cars it was clear the overall amount the government was collecting from company car tax would reduce. Now we know the company car tax position for the next five financial years I'm confident motor manufacturers will work even harder to drive down emissions."
Martin Brown, managing director of Fleet Alliance, adds: "Manufacturers have already made massive strides to drive down C02 emissions and I think they will still do that, but the question is can they move quickly enough to keep pace with the tax changes? My personal belief is the manufacturers caught up too quickly with the existing CO2 limits and the revenue from those vehicles was falling too quickly, hence the moving of the limit to 130 g/km."
The UK Government had already announced major changes in company car tax, and from April 6 2012 the Qualifying Low Emission Car (QUALEC) category was scrapped, with charges for vehicles at the lower end of the carbon rating system moving from a scale of 15 per cent to 35 per cent onto a scale of 10 per cent to 35 per cent.
A three per cent tax surcharge for drivers of diesel vehicles will come to an end in April 2016 and this will apply to all registered diesel vehicles, not just to those registered after that date. It has been predicted that this move, along with the reduction in the top rate tax exemption for CO2 emissions to 130 g/km, will see manufacturers push to focus on diesel development with little to incentivise further development of ultra-low and zero emission vehicles.
Andrew Hogsden, senior manager of the strategic fleet consultancy team at Lex Autolease, explains: "The abolishment of the diesel surcharge from April 2016 will encourage more diesel cars, which typically have higher miles per gallon and lower CO2 emissions, so it is a positive environmental move.
"I wasn't surprised it has been put off until 2016 because the Treasury must be seen to be encouraging environmentally positive schemes whilst also balancing the overall tax take. But, on the other hand, for zero emission vehicles and ultralow carbon emitting vehicles from April 2015 there will effectively be no incentive for fleet to adopt those vehicles, certainly from a benefit-in-kind perspective.
Ogilvie's Hardy also finds the tax changes relating to low emission vehicles puzzling. He says: "The UK Government has made a huge attempt to kick-start demand for zero emission and low emission models and now it seems as though drivers who choose such vehicles will see a significant increase in their benefit-in-kind tax burden from April 2015 with petrol cars being taxed at 13 per cent and diesel models at 16 per cent, based on emissions of 0-94 g/km.
"However, drivers of diesel cars will ultimately benefit from the tax changes as the removal of the current three per cent supplement from April 2016 will trigger a one percentage point tax saving for them, but a two percentage point tax rise for drivers of petrol-engined models in that financial year."
The UK Government recently announced PFI in another guise to build new roads in England and put tolls on many others - a move which was welcomed as gridlock and the poor state of many roads in the UK push up fleet costs for both supplier and user. This of course, will come at a cost to the motorist, and in a further move to increase the tax coffers the planned rise in fuel duty of 3.02 pence will take effect from August 1, 2012 despite record prices at the pumps. The Chancellor also increased road tax rates from April 1, 2012 in line with the Retail Price Index, though heavy good vehicle rates were frozen until 2012/13.
Fleet industry body The Association of Car Fleet Operators (ACFO) says the response to the Budget from its members was "mixed" at best, with the biggest gripe, not surprisingly, being further rises in fuel duty.
This steep rise in fuel duty follows the reinstatement of the fuel duty escalator, which typically moves fuel tax ahead of inflation, and will add three pence in fuel duty to a litre of fuel from August. The Chancellor had scrapped the fuel duty escalator in his 2011 Budget, though the effects of that move made little impact on the price at the pumps.
Fuel tax now accounts for between 70 and 75 per cent of the retail fuel price, and since its introduction in 1993 - to cut pollution by pricing vehicles offthe road - the UK has moved from having the cheapest fuel in Europe to the most expensive.
Despite the relative gloom from a motoring perspective in the Budget, the fleet industry itself is doing rather well and fleet managers are seeing no signs of the slide in new business predicted last year. In fact, 2011 was one of the best on record for the UK fleet industry as a whole.
Brown explains: "Amidst all the negatives last year 2011 was our best ever year which saw us reach a milestone of 10,000 managed fleet. There are very few UK businesses who still buy and run their own fleet, and companies have come around to the idea contract hire is an easier way to manage fleet and plan in terms of fixed costs. As a result I think 2012 will be another strong year, though maybe not on a par with 2011."