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Budget 2015: Overview

Fuel Duty

In his speech, Mr Osborne said fuel duty would be frozen for the rest of this year in line with the Budget in March but did not announce a further cut.

The statement follows warnings from organisations across the country that an increase would impede UK plc.

Paul Lippitt, principal consultant at Lex Autolease, commented: “It is pleasing to see that the fuel duty freeze planned for September will still go ahead. This should go some way to mitigate the impact on British businesses that are already burdened by some of the highest fuel prices in Europe. We would like to see the Government go even further and take steps to reduce fuel duty to ensure that firms are not priced off the road altogether.”

 

Vehicle Excise Duty / Roads Fund

Mr Osborne also announced the creation of a new Vehicle Excise Duty mechanism that would be used to fund new roads, adding that increased roads spending was announced in the last Budget but that we “need a long-term solution if we are going to fix Britain’s poor roads”.

He added that under the current VED system, by 2017, three-quarters of new cars won’t pay VED due to new fuel efficiency technologies, and said: “This isn’t sustainable and it isn’t fair.”

Instead from 2017, a new VED system will be introduced and will be used for a roads fund by the end of the decade. For new cars, the duty in the first year will be set according to emissions, like today, but updated for new technology. Thereafter there will be three duty bands – zero emission, standard and premium.

Zero emission cars will continue to fall into the zero road tax band but anything emitting over 0g/km will qualify for a charge of £140 a year. In addition, premium models that cost more than £40,000 to buy new will require a £310 supplement on top of the £140 standard rate for the first five years.

Mr Osborne added that the new system will only raise the same amount of revenue as today. For standard cars – which covers 95% of all cars sold in the UK – the charge will be £140 a year; less than the average £166 that motorists pay today “but the revenue will be secure for the long term”. Meanwhile owners of more expensive new cars – with a list price above £40,000 – will have to fork out an extra £310 a year for the first five years. There will be no change to VED for existing cars.

Mr Osborne added: “From the end of this decade, every single penny raised in Vehicle Excise Duty in England will go into that Fund to pay for the sustained investment our roads so badly need.”

The Chancellor added that the Government will publish a second Road Investment Strategy by the end of this Parliament, building on the first published in December 2014.

Phil Harrold, automotive partner at PwC, said of the changes: "The change in road tax banding will accelerate the pre-existing trend towards the manufacture and purchase of low emission vehicles. The increased tax on more expensive vehicles may put a brake on such vehicle sales in the UK but it is unlikely to materially affect production as the vast majority of such vehicles are exported. While it has been indicated that the Vehicle Excise Duty raised will be spent on roads, this would be at odds with the historical treatment of VED which has been added to general taxation rather than ring fenced for road building.

And James Stamp, head of transport at KPMG UK, added: “In the last budget, the Government announced a major road investment program worth £15billion. Today, the Chancellor announced that road tax (VED) income will be "ring fenced". This provides some clarity about where funding for the ambitious road projects will be found.

“However, we note that while road tax raises around £6 billion per year, this is dwarfed by income collected from fuel duty which is around £27 billion. We believe that more of this income should be reinvested in roads and transport infrastructure in line with the Chancellor’s statement that money raised from drivers should be spent on the roads they drive on.”

 

MoTs

In addition the Government will consult on extending the deadline for new cars and motorbikes to have their first MoT test from three years to four years, which would save motorists over £100m a year.

In response, Ashley Sowerby, managing director at Chevin Fleet Solutions, said: “Fleets should probably take a good look at the way in which the proposed increase in the first MoT from three to four years affects their risk management. For those that operate on replacement cycles of more than three years, it could create a potential weak spot. For example, you might have a high mileage vehicle that has covered perhaps 75,000 miles after three years which, while it has undergone regular maintenance, will not be required to pass an MoT for another year. From a duty of care point of view, that vehicle would represent an increased risk and fleets would perhaps need to ensure that they had procedures and arrangements in place that recognise that fact.”

 

BiK

The Government said that there would be no changes to company car tax rates announced for 2019-20.

As per the March 2015 Budget, the appropriate percentage of list price subject to tax will increase by 3 percentage points for cars emitting more than 75 grams of carbon dioxide per kilometre (gCO2/km), to a maximum of 37%, in 2019-20. There will be a 3 percentage point differential between the 0-50 and 51-75 gCO2/km bands and between the 51-75 and 76-94 gCO2/km bands. (Finance Bill 2016)

 

Insurance Premium Tax

The Government also announced that it is increasing Insurance Premium Tax from 6% to 9.5%.

The rise of more than 50% has been criticised by ACFO chairman John Pryor, who said it seems to be extremely penal in respect of vehicle insurance, which is a legal requirement and added that it “places an increased onus on fleet decision-makers to ensure that employees who drive their own cars on business trips are suitably insured for the purpose”.

 

Salary sacrifice

Following conjecture that the Budget might bring changes to salary sacrifice, the Budget text included a comment saying: "Salary sacrifice arrangements can allow some employees and employers to reduce the income tax and National Insurance that they pay on remuneration. They are becoming increasingly popular and the cost to the taxpayer is rising. The Government will actively monitor the growth of these schemes and their effect on tax receipts."

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Natalie Middleton

Natalie has worked as a fleet journalist for over 20 years, previously as assistant editor on the former Company Car magazine before joining Fleet World in 2006. Prior to this, she worked on a range of B2B titles, including Insurance Age and Insurance Day.