CHANCELLOR Jeremy Hunt announced measures in his Autumn Statement designed to help stimulate business growth, but for fleet operators his failure to cancel the planned increase in fuel duty next April will serve to dampen any early festive cheer.
David Bushnell, Director of Consultancy and Strategy, Fleet Operations, said that if this goes ahead, the first rise in over a decade would come at a time, in the wake of a cost of business squeeze, when fleets can least afford it.
He said: “Making the full expensing capital allowance tax scheme, introduced in the last Budget, permanent certainly comes as welcome news, helping to support many fleets’ bottom line, along with the transition to e-mobility. However, it is only cash-rich business with access to capital that benefit. Failing to extend the scheme to the leasing and rental sectors continues to prove a missed opportunity to support the wider fleet industry, and its critical role in driving business investment and transport decarbonisation.
“Elsewhere, following the recent decision to delay the ban on the sale of petrol and diesel cars and vans, there had been high hopes that significant measures would be announced by the Chancellor to help counteract the impact of this by incentivising EV adoption. But this was not forthcoming in any meaningful way, and once again, has proved a missed opportunity.”
Alfonso Martinez, the UK Managing Director of ALD Automotive/Leaseplan expressed his disappointment with the lack of comprehensive policies for the current issues that the fleet industry is facing. The lack of initiatives and additional funding to tackle the switch to electric vans, chargepoint accessibility, and rising charging costs will continue to affect UK fleets and businesses.
“Businesses will undoubtedly welcome the Chancellor making the ‘Super Deduction’ – a 100% capital allowance available for qualifying plant and machinery – permanent. This means that items such as forklifts, tools and computers, as well as vans, trucks and tractors, will be able to be fully expensed against taxable profits for the foreseeable future, instead of the scheme ending in 2026. It’s an important step to promote long term business investment with corporation tax rising to 25% in 2024/25.
“Unfortunately, cars are exempt from this scheme, and so are vehicles that are bought with the intention that they will then be leased. This means that leasing companies cannot reduce their tax bills accordingly and pass on the savings to their customers.
“Reforms are needed urgently, particularly to support the electric vehicle market ahead of the first mandatory registration targets – a 22% share of new cars and 10% of new vans – being introduced next year. Almost half of business contract hire (BCH) vehicles delivered by BVRLA members were battery electric during the second quarter of this year and, although prices are falling, they are still higher than their petrol or diesel counterparts.”
Martinez said that raising the living wage and reducing the base rate of Class 1 Employee National Insurance Contributions (NICs) by 2% points (from 12% to 10%) will be welcomed by households during the ongoing cost-of-living crisis. However, these changes inadvertently affect the salary sacrifice schemes which are making electric vehicles more accessible to drivers.
Salary sacrifice enables drivers to lease vehicles through their employer and pay for them with their pre-tax income. As long as the vehicle emits 75g/km CO2 or less (which is true of most plug-in hybrid or electric cars), income tax and Class 1 NICs are based on the remaining salary, while the driver pays Benefit in Kind for the vehicle and their employer pays Class 1A NICs for providing it. With company car tax bands as low as 2% for electric vehicles, this usually helps employers to cut their NIC bill while offering an affordable way for drivers to go electric.
Martinez said: “The Chancellor’s decision not to adjust Class 1A rates means employers won’t see any reduction in their NICs, which could in turn be passed on to employees – who would normally cover those costs. Furthermore, the increased living wage means some employees will no longer be eligible, as the vehicle payments would take them below that threshold. The Chancellor needs to be careful not to undermine the benefits of a system which is enabling drivers to switch to the cleanest vehicles.”
Despite recent changes to the 2030 phase-out date for new petrol and diesel cars and vans, the pathway to electric vehicles is clear. The first mandatory EV sales targets – 22% for new cars, 10% for new vans – will be introduced next year, rising annually to reach 80% and 70% by the end of the decade and with large fines for manufacturers who can’t meet them. Supporting this fast-growing market is critical.
The Chancellor confirmed electric company car tax incentives through to April 2028 as part of last year’s Autumn Statement and the transition is going well. It’s fuelled a resurgence in company cars and salary sacrifice schemes – which are one of the most cost-effective ways to get behind the wheel of an electric vehicle.
However, Martinez said the business case for electric vans is less clear-cut and – with a stagnant 5.5% share of registrations – this market needs additional support to reach next year’s 10% target. Fleets are finding range, charging and vehicle prices challenging, while heavy batteries mean the largest electric vans (over 3.5 tonnes) have to comply with HGV-derived rules including earlier MoT tests, tachographs and speed limiters that don’t apply to their diesel counterparts.
The Government needs to move quickly to solve those hurdles, as flatlining electric van sales could push OEMs to restrict the supply of new diesel vans – including the latest, most efficient, and cleanest engine technology – to avoid fines.”
“The 5p per litre Fuel Duty reduction is in place until next March, and it’s an important measure for controlling inflation, so we weren’t expecting any announcements during the Autumn Statement. It’s given businesses and households useful breathing space but does nothing to address the high energy and charging costs affecting electric vehicle drivers.
Reducing fuel prices narrows the business case for going electric, especially for drivers who rely on public chargepoints. According to the latest Zap-Map data, drivers would pay an average 79p per kilowatt-hour (kWh) to charge at the fastest ‘rapid’ chargers, which is almost 20p per mile. To put that into context, a diesel car or van would break even at around 37mpg, based on the latest average pump prices.”
As it stands, the VED exemption for electric cars (and discounts for hybrids) will end on 1 April 2025. This means all vehicles registered since April 2017 will pay the same annual tax rate, while the Expensive Car Supplement – an additional charge for the first five yearly renewals – will apply to new registrations with a list price of £40,000 or more.
Martinez added: “Electric vehicle prices are falling, but plenty of new models are still over the £40,000 threshold – including the UK’s best-selling EV, the Tesla Model Y. As rates rise with inflation, this system will leave drivers with a tax bill of around £600 per year for an electric vehicle, or three times more than the petrol or diesel equivalent. The Chancellor should consider adjusting the threshold to account for the still-higher price of EVs or exempting them altogether.
“It’s also worth noticing that, five years after it launched its consultation, the Government has yet to reform the VED system for vans.”
The Autumn Statement offered no additional funding to grow the public network – nor any support for home chargepoints, or local authority schemes which are equally vital to help encourage drivers to go electric. With mandatory zero-emission sales targets due to be introduced in 2024, action is needed to alleviate drivers’ concerns.
Martinez said he would also seek clarification following publication of the Overview of Tax Legislation and Rates (OOTLAR), which includes a company car tax table that contradicts policy laid out during last year’s Autumn Statement. He added: “This indicates a 7% tax band for electric cars during the 2027/28, instead of the 5% announced by the Chancellor, and appears to have been published in error.
“If this figure is correct, then it undermines the integrity of the process. OOTLA is intended to show the effect of the changes, not to announced policy decisions. Fleets depend on long-term visibility to make investments, and it would be very disappointing to see a U-turn on incentives announced last year.”
Paul Hollick, Chair of the Association of Fleet Professionals, said the measures taken in the Autumn Statement, especially those to encourage investment, are to be welcomed in general terms and some businesses operating fleets will no doubt take advantage of them.
“However, it doesn’t change the underlying truth that the economy remains in pretty poor shape and that while inflation is falling, it remains relatively high. There’s also little in there to specifically support the motor industry or the fleet sector, although the £2bn allocated to EV manufacturing is to be welcomed and the planning changes for chargers could potentially speed rollout.”
“While the increase of the national living wage (NLW) is another welcomed improvement for the public, it is also important to acknowledge the impact this will have on salary sacrifice schemes. As the NLW increases, the threshold for salary sacrifice eligibility increases with it, meaning lower-earning employees may not be granted the benefit. With this in mind, it will be important for those who manage fleet to review the schemes they have in place, seeking expertise where needed, to ensure employees’ access to benefits such as company vehicles can remain in place without significant disruption.”
