John Lewis, chief executive of the British Vehicle Rental and Leasing Association, discusses the budget and highlights further efficiencies that can benefit both government and taxpayers
In its March budget, the government finally started delivering on its promise of developing a simpler, fairer tax system. Meanwhile, it may not have abandoned the war on the motorist, but at least we have a ceasefire.
The most high-profile announcement centred on fuel duty, where the government was expected to act following a high-profile Fair Fuel UK Campaign which garnered widespread support from businesses and the public. So it came as no shock when the chancellor abandoned the 1p per litre increase in fuel duty due for April, but then he surprised everyone by reducing it by 1p. Furthermore he announced that he would defer the planned inflationary increase until January 2012.
The most interesting announcement was the introduction of a fair fuel stabiliser. This will increase fuel duty by the rate of Retail Price Index (RPI) inflation when oil prices are high. However, in years when the oil price falls below a set trigger level (US$75 per barrel has been suggested) on a sustained basis, the government will increase fuel duty by RPI plus 1p per litre. It proposes to make up any resultant shortfall in revenue by increasing the tax on profits from UK oil and gas production.
Whether you are a haulier, a fleet manager, a commuter or a just someone trying to keep your family car on the road, this imaginative tax measure will have had an instant impact on your weekly cash flow. For many it will be more important than all the other tax announcements put together.
Most motoring organisations have welcomed the move, although many road users have dismissed it as nothing more than a token, which is only returning a portion of the extra fuel duty revenue taken from road users since VAT was increased in January.
The 1p cut will save motorists around £400 million this year, which shows how even the smallest change in the rate of fuel duty can have a massive impact on tax revenues. Hence the need for the chancellor to balance out any duty cut with an extra tax take from North Sea oil and gas producers.
Petrol retailers have been accused of not passing the cut fully onto customers. The government has had to come out publically and say that it will be watching fuel companies to ensure that they do not pass their tax increases down the supply chain to their customers.
Despite this close supervision, surely it is about time we saw the introduction of an independent fuel regulator that could protect consumers and ensure greater transparency on pricing?
The amount raised by fuel duty has long since borne any resemblance to what is actually spent on UK road infrastructure. It is a cash cow – one of the government’s top five fiscal revenue sources – with British motorists contributing more than £26 billion to government coffers in the last financial year. Whitehall earns more from fuel duty than it does from taxing wine, beer, tobacco, gambling, air travel and house purchases put together – you can throw in the climate change levy as well.
But alarm bells should be ringing at HM Revenue & Customs about the long term security of this revenue.
After the budget, the Office for Budget Responsibility adjusted its estimates for fuel duty revenues, partly to take into account the chancellor’s fuel duty measures, but also because people are buying more fuel-efficient cars and not driving as much as expected. Due to the latter two factors, the OBR expects the Treasury to earn around £3.9bn less from fuel duty over the next five years than previously expected.
So what does all this mean? What are the implications if the market for electric vehicles really does take-off, hitting fuel duty revenues even further? Will fuel duty have to rise inexorably, leaving petrol and diesel-engine vehicle drivers to subsidise the road use of those whizzing around in a Nissan Leaf, Renault Fluence or Vauxhall Ampera?
At the moment, fuel duty is a very democratic, pay-as-you-go form of tax that charges a motorist according to the amount of road they use and the pollution they emit. But the automotive world is changing and the government needs to explore a fairer pay-as-you go way of taxing road use that also takes into account another major issue facing the UK’s over-crowded road network – congestion.
The answer has been there for a while – road pricing. The government needs to bite the bullet and explore ways in which a nationwide road pricing system could be introduced that takes into account both the emissions that a vehicle produces but also where and when it is travelling.
Other budget measures
Company car (Benefit-in-kind) tax will change. From April 2013, the appropriate percentages for all vehicles with carbon dioxide emissions between 95g and 220g per kilometre will be increased by one percentage point. This means a freeze in rates for cars emitting less than 95g per kilometre.
These changes are a natural downward progression that will maintain the incentive for fleets and company vehicle users to make greener choices. However, the British Vehicle Rental and Leasing Association (BVRLA) would like to see a return to the three-year forward view on the bands, which is essential for organisations in providing certainty and stability for fleet planning.
The recommended Approved mileage allowance payment (AMAPs) rate rose to 45 pence per mile for the first 10,000 miles and 25 pence per mile thereafter. In addition to claiming AMAPs rates, an allowance for passenger payments currently in place for business employees, at five pence per passenger mile, was extended to volunteers.
This increase in AMAPs is a back-door pay increase for public-sector and other grey-fleet users that will appease unions worried about job cuts and salary freezes. If the price of fuel has such an impact on vehicle running costs, the BVRLA would ask why we are not seeing a bigger rise in Advisory Fuel Rates (AFR), which are paid to people using company vehicles who don’t get their fuel paid for.
Vehicle Excise Duty (VED) rose for all vehicles emitting more than 120g/km of CO2. Rising in line with inflation, it meant a £5 per year increase for vehicles emitting 121-150g/km and a £10 per year increase for those emitting 151-200g/km. Cars below 225g/km will face a £15 increase while its £20 and £25 increases for the two highest bands.
First-year VED is up for cars over 130g/km, with everything below that exempt from this showroom tax. The increases rise from £5 for models up to 150g/km to £50 for cars over 255g/km.
The government provided a welcome boost for hauliers and vehicle manufacturers by freezing VED rates for heavy goods vehicles at their current level for 2011-12.
In addition, discount rates for Euro VI Reduce Pollution Certificates (RPCs) of £500 will remain the same as for previous Euro standards. RPCs will be available for Euro VI standard vehicles from 1 January 2012 until 31 December 2016, when the new standard will become mandatory. The RPC will also be backdated for any eligible vehicles purchased before 1 January 2012.
The fuel benefit charge mulitiplier, which is used to calculate the tax paid by employees who are given free fuel for their company car by their employer, has risen from £18,000 to £18,800. This figure is multiplied by the appropriate percentage for each company car (based on its CO2 emissions), using benefit-in-kind company car rates.