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The Insider: Diesel debate revisited

By / 5 years ago / Comment / No Comments

The Insider has been doing his sums on petrol vs diesel…Insider 800pxWelcome is the news we are working towards a worldwide harmonised test procedure to identify actual fuel consumption figures based on real-world driving conditions. Except, of course, that these will be less than are currently published, possibly up to 20% worse, leading to an increase in CO2, which in turn will affect employees’ taxable benefit, Vehicle Excise Duty and Class 1A National Insurance contributions.

Does the panel think we will see values increase on lower-emitting older cars, and hands up all those who will be hanging onto those cars for longer in an effort to protect our costs?

But it reminded me it was time to check up on the diesel versus petrol conundrum again. So I dug out an old spreadsheet and reworked it again to see how the figures stacked up.

Typically I check the P11D price differential between petrol and diesel cars to see how one or other will affect Employer’s National Insurance contributions. On a large run of the mill hatchback or estate, the list price differential between diesel and petrol seems to average at about £1,350.

At the same time it’s only fair to check the employee’s view in terms of tax payable, and the cost of their private fuel; the latter being further affected according to whether you reimburse using advisory fuel rates or actual cost.

Then there are calculations around actual fuel consumption and the real world differences between petrol and diesel engine cars; and the price of fuels, plus any differential between the two. Fuel prices are constantly moving, unfortunately upwards again, but with very little price difference currently between petrol and diesel.

What I found interesting was that it wasn’t until average annual mileage dropped to 10,000 miles a year or below, together with a petrol cost which was 4p a litre less than diesel, that the net costs for both types – calculated including projected employer’s NI savings on petrol cars – broke even.

The net result on our fleet was that the drivers would be approximately £75 per year better off in petrol cars, which I consider negligible, but the company would save £75,000 by remaining in diesel. So you can guess what we’ll be doing.

But we are not operating a significant number of cars within the proposed London ULEZ. Supposing I were, then I would have to be considering other factors. Take, for instance, the effect of a ban on allowing any diesel cars in central London. Anything I contract on now could be affected during its time on fleet if the new Mayor sweeps as clean a broom as he promises, and brings in changes before 2020.

Euro 6 qualifying cars are accommodated within the Ultra Low Emission Zone (ULEZ) as it was proposed, but if the rules are changed to exclude diesel per se, then we may have a problem. At over £3,000 per year for just one non-compliant car visiting the zone five times a week, you don’t have to multiply that by many vehicles to wipe out the fuel saving. And whilst you may not have many vehicles popping in and out of the London zone, if other cities follow London’s lead, as seems likely, more fleet cars will be affected, and the costs rocket.

At that point an all diesel policy becomes less attractive, and a mix of fuels has to be considered. Not such a tidy solution in terms of keeping one’s car policy simple, but cost-effective if you follow the school of thought which promotes seeking multiple small gains added together.

And that’s why it’s so important that the Government gives us a clear steer on future policy, in order that we have time to plan and budget properly, in order to get the right cars on fleet. Changes of heart, such as reversing the promise to drop the 3% diesel surcharge, and then allowing the ULEZ to be brought forward whilst possibly changing its parameters, are significantly unhelpful to business.

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