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March 13th, 2008
The Lex View - Budget 2008 - Alistair Darling Delivers Few Surprises

"Disappointment continues that issues surrounding AMAP payments not resolved"

March 13th, 2008: The UK's largest vehicle leasing company, Lex today delivered its verdict on Chancellor Alistair Darling's 2008 Budget report and its implications on company car owners, drivers and leasing companies.

Commenting on the overall impact of the Budget, Jon Walden, Managing Director of Lex comments: "The Chancellor provided very few surprises as most measures were widely predicted and the drive to reduce CO2 emissions continues. However, we are disappointed that the issues surrounding AMAP payments have not been addressed, despite extensive consultation with business."

Jon Walden concludes: "Although we support the changes to reform capital allowances, the HMT releases were light on the detail that we need to fully assess the impact on the fleet market."

The Budget report was analysed by the Lex Momentum team, Lex's in-house team of consultants. Established by Lex in 2004, Lex Momentum delivers consultancy and change management expertise to businesses which enhances the strategic, operational and employee value of the company vehicle.

Vehicle Excise Duty.

Six new bands to be introduced from April 2009 (13 bands in total), providing a more granulated link to CO2 than at present. Up to 100g/km remains at £Nil, with the charge for vehicles with emissions over 255g/km increasing from £400 (2008/9) to £440 (2009/10).

A new first year charge to be introduced for new registrations from April 2010. The charge increases more steeply for vehicles with emissions > £160 g/km up to £950 for the highest group. Second and subsequent years revert to standard VED charge.

Paul Roberts, Director, Lex Momentum Consultancy Services comments:"The first year charge had been muted and reflects the Government's intention to influence vehicle choice in relation to higher CO2 emitting cars. Increased fleet administration is a possibility due to a potential rush to register higher emitting cars prior to April 2010.".

Capital Allowances (Business Cars)

Writing down allowances (WDAs) to be based on an emissions approach from April 2009. Cars with CO2 emissions above 160 g/km will attract 10% WDA, whilst cars with emissions of 160g/km and below will attract 20% WDA

This effectively creates two "pools" for tax purposes and replaces the current approach of individual tax calculations for expensive cars of £12,000 or more

The new rules apply to new cars from April 2009

Paul Roberts, Director, Lex Momentum comments: "The impact for cars costing over £12,000 is to delay the recovery of capital allowances, due to the "pooled" approach, which will lead to a tax timing disadvantage for organisations claiming capital allowances".

Expensive Car Leasing Disallowance

The current disallowance for leased cars costing over £12,000 will be replaced by a disallowance based on CO2

From April 2009, cars with CO2 emissions > 160g/km will attract a 15% net disallowance relating to finance payments. For cars with emissions of 160g/km or below there will be no disallowance.

Paul Roberts, Director, Lex Momentum comments: "This move shifts the emphasis on penalising high CO2 emitting vehicles rather than expensive cars. Funding decisions for expensive cars with low CO2 emissions may need to be reviewed in the light of this change, and could result in contract hire becoming more attractive for expensive cars with low emissions."

First Year Allowance (FYA)

The 100% first year allowance for the cleanest vehicles is being extended to March 2013

The qualifying CO2 emissions threshold will be reduced to 110g/km

Paul Roberts, Director, Lex Momentum comments: "The intention is to incentivise manufacturers to produce cars with even lower CO2 emissions. There are presently a number of vehicles which fall within the 110-120g/km range - this will mean that initially, in the short term, few vehicles will now qualify for the continued FYA."

AMAP Rates

The Chancellor has confirmed that there will be no changes to the current AMAP rates at 40ppm and 25ppm after 10,000 miles.

Paul Roberts, Director, Lex Momentum comments: "The announcement of a new system was widely expected and still leaves a question mark over a future overhaul of the system. ECO and cash for car schemes will continue to survive, for now."

Company Car Tax

In line with previous Budgets the Chancellor has provided advance notice of the base band for company car for tax year 2010/11 at 130g/km. This is 5g/km lower than for tax year 2009/10 effectively increasing company car tax at most bands by 1%.

Paul Roberts, Director, Lex Momentum comments:"This increase was widely expected and was not a surprise."

Fuel Duty

Budget 2007 announced fuel duty rates for the next three years, and in line with this policy the rates for 2010 were announced in this Budget

Paul Roberts, Director, Lex Momentum comments:" Once again, this was widely expected and was not a surprise."

Standard Road Fuels

The Chancellor has responded to economic pressure and postponed the 2ppl fuel duty increase from 1st April 2008 to 1st October 2008. Subsequent increases were announced with a 1.84ppl increase due on 1st April 2009 and an increase of 0.5ppl above indexation on 1st April 2010.

Paul Roberts, Director, Lex Momentum comments: "Again the postponement of the duty rate increase was widely expected".

Alternative Fuels

The duty differentials given to biofuels will be abolished in 2010/11. The intention is that the Renewable Transport Fuels Obligation will support biofuels.

Paul Roberts, Director, Lex Momentum comments: "The RTFO is targeted at ensuring that biofuels remain cost effective whilst ensuring the fuels are ethically produced and in an environmentally sensitively way, although there is no detail as to how this will happen or what the effect will be at the pumps".

Duty rates discounts for Compressed Natural Gas (CNG) will remain, whilst for Liquid Petroleum Gas (LPG) the discount is to be eroded by 1%, both taking effect from 1st October 2008.

Paul Roberts, Director, Lex Momentum comments: "This rate reduction will have very little effect as LPG vehicles are a very small niche market and in decline.".

Road Charging Schemes

The Government has announced an invitation to tender for private sector companies to run a number of projects based on road charging by; time of day, distance travelled, and route chosen. Significant funds are being made available.

Paul Roberts, Director, Lex Momentum comments: "This shows yet another turnaround regarding national road charging, which would have a dramatic effect on the fleet market regarding private mileage reclaim systems where vehicle costs change based on the location, time of day, and miles driven".