In his first and last Spring Budget, chancellor Philip Hammond set out a number of changes that will impact on fleets. Natalie Middleton reviews the fleet industry response to the changes.

Air quality and diesel vehicles

Key news for fleets was the Government’s somewhat hidden pledge that it will to“explore the appropriate tax treatment for diesel vehicles, and will engage with stakeholders ahead of making any tax changes at Autumn Budget 2017″.

Revealed as the Government also said detailed air quality plans will be announced in the coming weeks, the implications for diesel vehicles have caused consternation in the fleet industry.

In response ICFM chairman Paul Hollick warned that the “writing is on the wall for fleet reliance on diesel vehicles – and diesel company cars specifically”.

He added: “With the Government’s focus on improving air quality, the introduction of Clean Air Zones and cities globally introducing diesel car bans, it is clear that fleets must reduce their dependence on diesel power and develop a strategy that focuses on plug-in vehicles and ultra-low emission vehicles. A failure to do so will almost inevitably trigger an increase in the whole life cost of operating diesel models.

“Clearly we will have to wait until the Autumn Budget for some clarity, but forward-thinking fleet operators should start to review current policies and plan for a future that is less reliant on diesel.”

The industry also warned that any moves to penalise diesels could impact on climate change targets and impact on business productivity.

Gerry Keaney, chief executive of the BVRLA, said: “Diesel vehicles remain a vital part of the fleet mix, as diesel engines are the most energy-efficient internal combustion engines. It is often the most appropriate powertrain for long distance journeys and non-urban freight transportation, and the latest Euro 6 diesel engines have made some major gains in reducing harmful NOX emissions. As one of the stakeholders engaged with HM Treasury, we look forward to working with policymakers to ensure they do not adversely impact the UK automotive sector.”

The Society of Motor Manufacturers and Traders (SMMT) also expressed concerns, with chief executive Mike Hawes saying: “The automotive industry is investing significantly in new technology to address the issue of air quality, so we look forward to working with government to encourage the uptake of the latest, low emission vehicles, regardless of fuel type. Nearly one in two new car buyers chose a diesel last year and getting more Euro 6 diesels on the road will be part of the solution as we also strive to meet our climate change targets.”

Fuel duty freeze 

More welcome was the news of the continued freeze in fuel duty, which has remained at 57.95p per litre since the March 2011 Budget.

However LeasePlan UK’s managing director, Matt Dyer, commented: “The UK still has one of the highest levels of taxation on fuel, which places an undue burden on motorists. This, it can be argued, restricts economic growth through lost investment and expansion by businesses.

Investment in “disruptive technologies”

The chancellor’s pledge of £270m to keep the UK at the forefront of “disruptive technologies like biotech, robotic systems and driverless vehicles” was welcomed including details of a commitment to funding for the development, design and manufacture of EV batteries.

Claire Evans, head of fleet consultancy at Zenith, said: “Increased range on new battery technology will speed their adoption by fleets.

“Research by the SMMT found that 51% of motorists would be more likely to buy an electric car for their low running costs, while 46% said that cheap or zero car tax would influence their decision.”

David Brennan, CEO at Nexus, also welcomed the overall investment, saying: “It’s exciting to see that this Government is taking investment in new technology seriously. With the £270m pledged to keep the UK at the forefront of disruptive innovations such as driverless cars, it will allow the UK to attract global talent and provides us with the platform to become a world leader in research and development of new technology and in the digital sphere. This will go some way to making ‘Britain the best place in the world to do business’ as Hammond suggests.”

VED rates

Although the chancellor announced another freeze for both the VED rates for hauliers and the HGV Road User Levy, the Budget red book revealed that from 1 April 2017, VED rates for cars and vans registered before this date increase by RPI.

The Spring Budget also brought no changes to the new VED rates for cars, which take effect from 1 April 2017.

Peter Golding, managing director, of FleetCheck, said the news was “disappointing” and added that the new regime “makes little sense for fleets”.

BVRLA’s Gerry Keaney also reiterated the association’s warnings of the new regime’s impact on the car hire industry, which will see its first year VED bill rise by almost 400% in 2017.

He added: “Firms will also be unable to claim back £1.67m every year in legitimate refunds. Car rental companies operate the newest fleet on UK roads, and the average rental car is just eight months old. The sector purchases around 324,000 cars each year, but this number is now likely to fall as our members lengthen their operating cycles in an attempt to reduce the cost impact of the new VED regime.”

Infrastructure investment

There was a mixed reaction to the allocation of £90m funding to the North and £23m for the Midlands to address pinch points and the launch of a £690m competition for local authorities across England to tackle urban congestion.

PwC said the plans “will go a long way to keeping British businesses – as well as much needed supplies – moving on the UK’s road network”.

Howard Cox, founder of the Fairfuel UK campaign, said the competition “is still tinkering with the massive problems of our appalling roads”.

He added: “A Conservative Chancellor has missed yet again, a huge opportunity not announcing a significant UK wide roads investment plan that’s independently proven will increase GDP four times more than the billions of tax payers cash irrevocably cast in stone for HS2. Why, capitalising in roads benefiting the economy, jobs, inflation, businesses, hugely reducing the next decade’s £300bn cost of congestion and improving air quality, is repeatedly ignored by the Treasury is mystifying and a huge derogation in economic common sense.”

Salary sacrifice

The fleet industry expressed disappointment over the Government’s lack of further clarification on new rules governing car salary sacrifice schemes and cash or car allowances.

With the changes due to effect from 6 April 2017, it was expected that final clarification on the changes would be published with the Budget papers. Instead the publication of the Finance Bill on 20 March is now expected to bring more details. 

In response, ICFM chairman Paul Hollick said: “Fleet decision-makers need clarity and with the changes due to come into effect in less than a month, companies need that information quickly to avoid making rash decisions based on a lack of information.”

Meanwhile, in combination with the fact that company car tax rates for 2021/22 were not announced in the Spring Budget and are now expected in the Autumn Budget, Alphabet COO Matt Sutherland warned that the uncertainty around taxation and legislation means that some fleet customers have accelerated their change cycles to pull forward as many vehicle orders as possible ahead of the key date of 6 April while others are holding fire and some are even turning to medium-term rental to fill the gap.

He also said that the changes could push organisations towards treating ‘essential users’ and ‘perk drivers’ within the employee population very differently, and could require fleets to reduce – not increase – the company car options available to employees.

Sutherland added: “It’s easy for company car drivers hearing the news about company car taxation to forget the value of their company car in terms of the whole package of 24/7 support, insurance and maintenance. However, anyone who’s had to insure a private vehicle or splash out on a new set of tyres recently understands that the cost of motoring for corporate drivers is still comparatively favourable (and hassle free).

“With all of these concerns, it’s easy for fleet decision makers to simply think of company car programmes as ‘more hassle than they’re worth’. But this would be to take for granted the business benefits of such schemes to an organisation – and their employees.

“Completely aside from the issue of talent recruitment and retention, the value of a company car programme to an organisation is only truly understood when it’s not there or something goes wrong. 

“Unfortunately for fleet decision makers and customers, there is no one solution, no magic bullet. The solutions you arrive at need to appreciate the unique circumstances of your own business, the precise composition of your fleet, your fleet and employment policies as well as the culture of your organisation expressed in the behaviour of your drivers and employees.”

For more information about the Budget, click here.