By Matt Sutherland, chief operating officer at Alphabet
Any budget from a Chancellor whose nickname among his colleagues is ‘Spreadsheet Phil’ sets the immediate expectation of a steady but unspectacular Budget.
This may be the final Spring Budget - following the announcement last Autumn - but it is the first after last year’s historic Brexit decision, so June 23, 2016, casts a long shadow over the spending decisions.
As with any Budget, the devil is in the detail and Mr Hammond’s meticulous, assiduous reputation gives business and industry confidence that not only will his numbers stack up, but also that the implications have been thought through.
The Chancellor is well-known for his belief in speed being crucial to development of a modern economy – whether that’s in travel, industrial or digital infrastructure. So there were clear outlines of investment in UK’s highways with the announcement of a £220m fund to address pinch points on the national road network and a £690m competition to tackle local, urban congestion.
Driverless cars also share in a £270m fund identified for investment in biotech and robots. Also well publicised was his determination to ‘make tax digital’ and bring the UK tax framework into the digital age, ensuring fair treatment under the tax system for businesses who trade in the physical space, as well as those who solely operate online.
From a company vehicle fleet and employee benefit perspective, since the Autumn Statement there has been uncertainty, lack of clarity from HMRC, and apparent lack of joined-up thinking (particularly on EVs) with conflicting directions from different areas of Government. As I warned at the end of last year, the unintended consequences of decisions announced in Autumn could have big implications for the UK’s ability to achieve key objectives such as air quality measures or widespread EV adoption.
On the crucial issue of air quality, the Budget papers detail the Government’s commitment to provide a detailed plan for consultation in next few months which will set out how the UK’s air quality goals will be achieved. At the same time the budget papers also reveal the Government will continue to explore the tax treatment for diesel vehicles ahead of announcing any tax changes at the Autumn Budget 2017. It is however disappointing that despite industry lobbying, the lower rates for ULEV BiK are still delayed until tax year 2020 and that VED rates for cars registered after 2017 may also provide a disincentive for the take up of ULEVs.
As originally announced in the Autumn, this Budget confirmed that the Finance Bill 2017 legislation will remove Income Tax and employer National Insurance contributions (NICs) advantages where BiKs are provided through salary sacrifice arrangements – or OpRAs: Optional Remuneration Arrangements to give them their official name – with effect from April 6, 2017. Hopefully the publication of the Finance Bill on March 20, will bring more clarity on outstanding technical questions raised since autumn, such as regarding variations, grandfathering and the wider implications of the changes.
The market has already expressed concerns with the practicalities of Governmental implementation of key changes previously announced, such as the lag in HMRC systems’ to handle changes to P46 and P11D reporting until apparently Q4 2018 or even 2019. This puts added pressure on PAYE taxpayers to go down the route of P87 self-assessment, adding further complication from a Government seeking to simplify, streamline and digitise the British tax system.
In the Budget small print, fleet decision-makers will also see that VED rates for cars, vans and motorcycles registered before April 2017 will increase by Retail Prices Index (RPI). The Budget also announced that HGV VED and Road User Levy rates will be frozen from April 1, 2017, but consultation with industry is planned to update the Levy so that in future it rewards hauliers who plan their routes efficiently and incentivises efficient road usage to improve congestion and air quality.
As a result of all of this uncertainty around taxation and legislation, some fleet customers have opted to be bold and accelerate their change cycles to pull forward as many vehicle orders as possible ahead of the key date of April 6. Others have decided to play the waiting game and hope for more clarity over the coming months, with some even turning to medium term rental to help them bridge any gaps.
Moving forward, the tax and legislative changes I think may push organisations towards treating ‘essential users’ and ‘perk drivers’ within the employee population very differently. As a result of the taxation changes, fleets could well need to reduce – not increase – the company car options available to employees.
It’s easy for company car drivers hearing the news about company car taxation to forget the value of their company car in terms of the whole package of 24/7 support, insurance and maintenance. However, anyone who’s had to insure a private vehicle or splash out on a new set of tyres recently understands that the cost of motoring for corporate drivers is still comparatively favourable (and hassle free).
With all of these concerns, it’s easy for fleet decision-makers to simply think of company car programmes as ‘more hassle than they’re worth’. But this would be to take for granted the business benefits of such schemes to an organisation – and their employees. It’s very difficult to put a monetary cost on the financial and legal implications of a company car programme. However, the visibility and control that they provide, as well as the management of downtime, improved efficiency and ability to deliver on duty of care obligations are invaluable.
Completely aside from the issue of talent recruitment and retention, the value of a company car programme to an organisation is only truly understood when it’s not there or something goes wrong.
Unfortunately, for fleet decision-makers and customers, there is no one solution, no magic bullet. The solutions you arrive at need to appreciate the unique circumstances of your own business, the precise composition of your fleet, your fleet and employment policies as well as the culture of your organisation expressed in the behaviour of your drivers and employees.
We understand that while the company car is only a small part in the big corporate machine these days, however without this small cog working efficiently and safely the whole machine can very quickly grind to a halt.