Camels, cars and CO2
In the old days, one’s wealth was dictated by the number of cows or camels one owned. Today’s drivers still focus on the perceived number of horses under the bonnet though, rather than understanding that carmakers have indeed made less into more. I’m finding it difficult to convince drivers that yesterday’s 2.0 litre performance is today’s 1.6.
But in fact the easiest way to persuade any company car driver to downsize is to make them aware of the current taxation system. Now in its tenth year, and several incarnations on from the original, this must surely be the fleet manager’s favourite iteration in recent decades.
I like the current taxation system because really the hard work is done for us fleet managers. Instead of focusing on the amount of mileage to be driven in a year, or how low one can get the P11D value, there is a direct correlation between efficiency and taxable benefit. It’s easy for drivers to understand how they can reduce their tax through sensible choices and easy for us to report on.
The previous system relied upon driving additional business mileage to reduce one’s tax burden – 2,501 or more in a year to pay at 25% instead of 35%, and more than 18,000 to get the rate down to 15%. So a fleet manager trying to reduce company fuel and other running costs was up against it as the driver was more intent of getting into a lesser tax band by driving further.
I recall one finance director who gleefully submitted a business mileage of exactly 2,502 miles each year, with the appropriate back up to support it. Not that the 2,502 claimants were the real worry, compared with those racking up 18,000 miles a year. But the effort involved in reporting all these mileages was much more difficult than submitting a simple published CO2 value, once we had adopted revised payroll software.
The CO2 system removed the incentive to drive extra miles as well as being more environmentally friendly and, I suppose, to an extent reduced congestion – not that I noticed.
In 2002 when the 15% threshold was 165g/km, our fleet’s average was 190. Today, the current fleet’s figure is 135, pretty much the national average but a significant reduction over ten years.
When the CO2 idea was mooted we had sufficient pre-warning to educate drivers who were able to start ordering lower emission vehicles prior to the start of the regime, and I recall that for most of our fleet, drivers actually enjoyed a reduction in company car tax over the previous scheme, so that was a positive straight away.
For those who didn’t want a low CO2 car, and where the option was available, the answer was to switch to a cash allowance and buy a private car. We did see quite an increase in the grey fleet which brought its own headaches in turn. Responsibility for the employee was still there but without the same controls as for a company car, so new solutions had to be sought in that area.
Of course another side effect of the CO2 regime was the massive switchover to diesel from petrol, the downside being the 3% tax penalty and widening the pence per litre cost differential between the two main fuels.
Further back, I seem to recall there was a taxation system combining engine size and list price of the car, replacing an even older system where buyers got the purchase price as low as possible to reduce taxable benefit. Tax officers must have shaken their heads at the creative purchase prices submitted for cars in those days. I must be older than I thought.