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Fleet World - April Edition
By Jim Salkeld

The budget was pretty much as advertised.  We had all expected increases in GVED (Graduated Vehicle Excise Duty) for bigger cars, and although the published Capital Allowance restrictions were a bit more aggressive than originally thought, we had been given plenty of notice of the intention to link them to emissions.  Expansion of the GVED bands from G to M and more tinkering around the edges of the “standard” 130 – 160 g/km levels makes fleet planning somewhat more challenging than it had been previously, and some fleet operators are already showing signs of giving up and moving to cash allowances instead.  But they shouldn’t be too hasty.  Although considerably more complex, the fleet will still deliver better value to employees at a lower cost to the business, and this will become increasingly more important as the economy weakens.

Other announcements simply reinforced the “green” agenda with road pricing projects and fuel tax increases (despite a brief postponement) heralded over the next few years.   All these need to be added into the mix when calculating whole-life costs, as well as an expectation of severely reduced residual values for >160g/km cars.  On the plus side, we had confirmation that AMAPs (Approved Mileage Allowance Payments) are to remain unchanged.  This was an unexpected bonus, as frenetic lobbying over the past year or so had certainly raised the expectation of decreases or a more complex matrix of emission-linked rates and bands.  The announcement has been interpreted by some in the industry that ECO (Employee Car Ownership) schemes are the answer to all our prayers, but they are not.  They undoubtedly have their place in a mixed environment as part of an overall strategy, but wholesale adoption will almost certainly end in failure, especially given the complexity of whole-life cost calculations and the need to provide at least revenue neutrality to employees.  If nothing else though, fleet operators who had been waiting for some announcement before making any decisions can at least now begin the process.

Looking forward, the UK business car park will continue to consist of cash allowance; ECO and company cars although the actual proportion of each could well change over the next few years.  There are bound to be some changes in company car funding as a result of Capital Allowance engineering, but this could be for a relatively short duration as manufacturers meet the technology challenges of reduced emissions.  The most likely methods being Contract Hire still (although the classic Discounted Cashflow model will need some adjustment) and Lease Purchase for corporate funding, with ECO options providing additional range and tax efficiencies where appropriate within the business fleet.  The only option that causes me any concern is the cash allowance.  I say this because it is the one option that is least visible to the employee in terms of net cost, and is the one most likely to be selected by the business if the fleet plan hits the “too difficult” pile.

Even assuming that the level of cash is set such that the average-mileage employee can reasonably expect to buy, insure and maintain a benchmark car, it will inevitably mean that those who drive more miles will lose out and those who drive fewer will be better off.  The business then has to add the costs of employer’s NIC and any business mileage or fuel payments made.  For the business the cash costs are likely to exceed those of a company car on some occasions and especially where the emissions are relatively low, and will probably also exceed the costs of an effective ECO allowance where the business mileage is high.  The employee position can be even worse once tax and NICs have been deducted, even allowing for tax relief on the business miles driven (net of any business mileage or fuel payments made by the employer).

Although the budget clearly makes fleet cost calculations more difficult, the one certainty is that there is no single solution – not company cars, not ECO, not even cash.  As times get tougher the fleet operator must analyse all options with a view to combining them into a mixed fleet solution that will deliver best value at least cost.