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PCH continues to erode fleet market

New figures show company car drivers are increasingly turning to personal contract hire – bringing added weight to calls for the Government to use the Autumn Budget to bring lasting change to the company car industry

Drivers are increasingly migrating away from company cars

Newly published figures from the BVRLA Quarterly Leasing Survey for Q2 2018 show the personal contract hire fleet continued to grow, increasing by 12% compared to the same period of 2017. In contrast, business contract hire and finance leasing fell 6.3% year on year to around 917,000 units. There was also a 10% drop for ‘Other’ forms of leasing, including HP, contract purchase, PCP, ECOS and salary sacrifice.

It follows Quarterly Leasing Survey figures for Q1 2018 which showed a 4% year on year fall for fleet leasing while PCH grew by 14%.

This is backed up by recently published Benefit in Kind statistics from HMRCwhich show the number of UK employees taking company cars fell by 20,000 during the last tax year – following a number of industry warnings that growing numbers of drivers will opt out of company car schemes over the coming years, due to WLTP changes and unclear taxation benefits.

The figures have been published as ACFO urges the Government not to drive more company car drivers away.

Highlighting how rising tax burdens and long-term tax uncertainty for fleets is impacting on government ULEV targets, the organisation has called on the Chancellor to use this month’s Budget to shake up the company car tax system to stop drivers migrating away to higher-polluting vehicles.

Echoing many points made in Fleet World’s call for government action, ACFO highlights how the current lack of information on future company car taxation means fleets remain in the dark as to how the switch to WLTP will be handled. Although last year’s Budget confirmed adjustments to company car tax and vehicle excise duty in April 2020, there’s no indication of how those tax bands will shape up, or if they might be backdated to all WLTP-tested cars.

As a result, the industry is awash with reports of fleets delaying replacement decisions and even switching to temporary solutions.

Meanwhile diesel tax hikes announced in last year’s Budget, along with ongoing rises in BiK and rates that don’t currently incentivise ULEVs, are forcing drivers away. Latest HMRC figures show the number of UK employees taking company cars fell by 20,000 during the last tax year, as rising tax burdens continue to take their toll on demand and force drivers to turn to personal contract hire and typically adopt more polluting vehicles – with consequences for CO2 emissions.

This is borne out by the BVRLA Quarterly Leasing Survey for Q2 2018. The headline figure shows that average emissions for its members’ newly registered vehicles dropped nearly 1g/km to 112.0g/km, compared to the same period in 2017. This is in stark contrast to the national average for all newly registered cars, which increased for the fifth consecutive quarter to 123.6g/km.

However, delving into the figures shows the great divide between emissions for newly registered cars on fleet leasing schemes and PCH schemes. Driven by BiK tax and fleet policies, emissions for newly registered cars on business contract hire in Q2 stood at 111.0g/km and marking a downwards trend. However, emissions for PCH vehicles in Q2 were 124.0g/km – up even higher than the national average for all newly registered cars – and heading upwards.

The emissions figures bring added weight to calls – including Fleet World’s petition – for the Government to adopt a clear direction of travel on fleet taxation to ensure drivers stop migrating away to more polluting cars.

This includes from ACFO, which is calling on the Chancellor to provide long-term tax stability and clarity to “enable fleet decision makers to compile company car choice lists in the knowledge that they will not be usurped by tax changes”.

This includes providing at least a four-year period of notice to apply to BiK rates to ensure fleets can make vehicle decisions in the full knowledge of what the tax burden will be over the lifecycle of the model.

ACFO has also called on the Chancellor not to make unexpected – and “unwarranted” – changes to tax rules at short notice, highlighting the Budget 2017 announcement of an increase in the company car BiK tax diesel supplement from 3% to 4% from 6 April this year; the organisation is calling for this diesel supplement to be reconsidered, arguing that the latest generation of Euro6 emission diesel cars are among the ‘cleanest’ on the roads.

It’s also calling on HMRC and HM Treasury to ensure detailed discussions are held with it and other fleet industry organisations before tax changes are announced so that any ambiguities can be resolved, highlighting the issues caused by the lack of clarity over the 2016 Autumn Statement announcement of new rules governing the impact of cash or car and salary sacrifice schemes, known as Optional Remuneration Arrangements (OpRA).

ACFO is also continuing to call for an Advisory Electricity Rate for all plug-in cars to be introduced and for the Government to bring forward reduced rates on ULEVs and remove uncertainty over plug-in car and van grants by pledging that they will remain in place for the long term.

Pryor said: “If the Government is to achieve its environmental objectives, it is critical that company cars have a future. The year-on-year increase in the tax burden is likely to drive more employees to give up company cars, which historically have always been among the most environmentally-friendly as they feature the very latest cutting-edge technology.

“If a combination of the rising tax burden and long-term tax uncertainty continues then it will drive more employees out of company cars. What’s more, the Government’s hoped for significant take-up of plug-in models, which is being led by fleets, will not be achieved, and overall CO2 emissions are likely to rise as we know that staff giving up a company car typically opt for one with higher emissions when making a personal acquisition decision.”

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Natalie Middleton

Natalie has worked as a fleet journalist for 16 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. As Business Editor, Natalie ensures the group websites and newsletters are updated with the latest news.