Car Policy Best Practice

Chancellor Alistair Darling delivered this year's Budget speech on 22 April. Lex Momentum, the strategic consulting team, has analysed and summarised the implications of this year's announcement for fleets and company car drivers.

Changes that will take effect within the next 12 months

Fuel duty is set to rise by 2 pence per litre from September 2009 and by 1 pence per litre above indexation in each year from April 2010 to 2013.
From September 2009, Bioethanol duty will be increased to maintain the 20 pence per litre differential. The current duty differential for bio-fuels for road use will cease from 2010 and duty will thereafter be charged at the same rate as main road fuels.
From September 2009, LPG will be increased further to maintain the differential with main road fuels. From 2010 to 2013, the duty differential for natural gas will be maintained and the duty differential for LPG will be reduced by the equivalent of 1 penny on a litre of petrol each year.
A ‘scrappage’ scheme will be introduced in May 2009 and will run until March 2010. £2,000 will be deducted from the invoice price of a brand new vehicle if part-exchanged for a ten year-old (or older) vehicle. The £2,000 will be made up of a £1,000 government grant plus £1,000 from a participating manufacturer.
From 1 May 2009, there will be an increase in the number of VED bands from seven to thirteen and all rates will increase by £5.
Changes to the rules in cross-border leasing aim to ensure that, as far as possible, VAT is due in the country in which the service is consumed (e.g. where the customer is established) rather than where the supplier is established.

Changes that will take effect from April 2010

An additional higher rate of 50% for taxable income above £150,000.
Abolition of personal allowance for earnings in excess of £100,000.
From April 2010, all of the 13 VED rates will change again with the introduction of a first-year rate commonly called the ‘showroom tax’.

Changes that will take effect from April 2011

The £80,000 cap on company car list prices for the purposes of Company Car Tax (“CCT”) is to be abolished.
Discounts for Petrol Hybrid/Bioethanol and LPG are to be abolished.
5g/km reduction for Company Car Tax (minimum threshold set at 125g/km).
All electric-only cars set at 9% BIK.
Removal of reduction for Euro IV standard diesel cars registered before January 2006.

Consideration for consultation

To continue to provide an incentive to purchase the lowest emitting vehicles on the market, the Government intends to remove the 10% starting rate for vehicles
below 120 g/km and instead extend the system of CCT bands so that they increase
by 1 percentage point with every 5g CO₂ per km increase in emissions, from 10%.

Lex Momentum comment

Overall the 2009 Budget was fairly uneventful for the fleet and leasing industry, with many of the announcements repeating previous announcements, or very light on detail. That said, there have been quite a lot of minor amendments to company car tax and increasing focus on the environment.

The headline-grabbing elements for the motor industry surround the vehicle scrappage scheme, which is light on detail (where it only relates to 10+ year-old cars being exchanged for new cars) and may not provide the boost the industry needs. Although the Government intends to provide a £1,000 scrappage payment to the new car purchaser, the participating vehicle manufacturer will need to put in the other £1,000.

In addition, there are plans to provide a £2,000 to £5,000 incentive to purchase electric and plug-in hybrid cars, due in 2011. There will need to be a period of discussions with key stakeholders and the industry before the details of the scheme can be confirmed. It remains unclear whether this incentive will only apply to privately-purchased cars. As yet it is difficult to quantify the benefit based on vehicle availability and the detail; for example quadricycles are excluded.

The big blow to the fleet, transport sectors and private motorists is the confirmation of another increase in fuel duty of 2 pence per litre in September 2009 followed by regular increases of 1 pence per litre above inflation every April until 2013; an increase which will continue to impact transport and travel costs.

The majority of the remainder of the changes are a “tidying up” of the company car tax scheme, with alternatively-fuelled vehicle discounts and the £80,000 cap both being removed in 2011, as well as the announcement of future changes to the company car tax scales.

Consideration is also being given to removing qualifying low-emission cars (“QUALECs”) in the future and replacing this with a company car tax scale starting at 10% as opposed to 15%, in addition to the potential for removal of the of the 3% diesel supplement for Euro VI compliant diesel cars.

Finally, some changes to legislation surrounding leasing have also been announced, but we await further details of these changes before we can really comment on the effects they might have on the industry.