The salary sacrifice changes have had little impact on Leicester City Council’s scheme who see the changes and omission of ULEVs as an opportunity.
Not everyone pressed the panic button when the Government unleashed its plans to change the taxation rules on salary sacrifice. Once the amendments to cars had been announced, which saw the omission of ultra-low emission vehicles (ULEVs), some organisations saw the changes as an opportunity, not a threat.
Leicester City Council sits in the opportunity camp.
It launched its salary sacrifice scheme four years ago and believes the proposals, since confirmed in the Finance Bill, perfectly fit its environmental agenda.
The local authority conceived its scheme to save money while offering employees access to more benefits at a time of public sector austerity, according to service manager Cory Laywood (pictured).
Those priorities have since evolved.
Now, it is focused squarely at staff motivation and loyalty, while also helping the council to fulfil its environmental responsibilities.
Laywood was handed the remit for benefits six years ago, at a point when “we didn’t have many at the council”, he says.
“The mandate for the scheme was to save money while giving more value for working for the organisation,” he adds.
Cars were just one element of the programme, which also encompassed annual bus passes, car share and bicycles, but it quickly became the one which most excited and engaged staff.
“Part of the strategy was to get people to work,” Laywood says. “ A car is one enabler but it was also the main benefit that people wanted. That was good for loyalty because they are on three-year terms.”
Salary sacrifice enabled the council to close its traditional leased company car fleet of around 50 cars, although it continues to operate a fleet of around 760 vehicles, primarily vans, for council workers, managed by head of transport Steve Kerry. It also removed the essential user allowance for staff travelling to work in their own car.
The two actions resulted in a six-figure saving in the first year, with some of the savings used to subsidise the other forms of getting to work, including car parking (see panel overleaf).
“There were barriers to our leased cars; they were only available to certain people that were job-need, linked to business mileage, and the choice wasn’t great,” Laywood says.
In contrast, salary sacrifice enables the council to offer a broader range of cars to more employees. The only limitation it has imposed is a 120g/km CO2 emissions cap.
The scheme was set up in 2013 with Tusker and incorporates motor insurance, servicing and maintenance, roadside assistance, tyres and glass.
Initially there was scepticism among employees, but their doubts were quelled when Leicester City Council showed it could mitigate any risks by including protection against redundancy, resignation and maternity leave.
“They worried they would have a commitment to a car if they were made redundant. We said we have insured against that and we will take the car back,” Laywood says. “It added a bit of cost but that was the step-change that helped employees to engage with the scheme. They saw that as long as they stayed employed, they could keep the car. It was an instant win for us.”
Tusker was selected following a tender for a number of reasons. First, its approach to indemnifying risk appealed to the council. In addition, its explanation of benefit-in-kind (BIK) tax and how it worked “was the best”, says Laywood. It also had the widest range of vehicles at the time.
But the clincher was that Tusker’s scheme would improve the authority’s green credentials and keep business local.
“Because we are a council, a big thing for us is localism,” Laywood says. “What Tusker is able to do, where possible, is to supply cars from local dealers and maintain them locally, so business stays in the area.
“Its carbon offsetting was also attractive. Tusker is able to limit CO2 emissions and provide the cars at the most competitive rates. They are also geared towards the public sector; they understand our local government pension scheme and how to save money.”
To date, 312 people have joined, while the current fleet size is 283 vehicles. Of these, more than 100 are second-time purchasers; in fact, more than half of people that have taken a car on the salary sacrifice scheme have made a key-for-key change. New orders are running at an average of 10 per month for the first four months of 2017.
The council has an eligible population of 13,000 staff and has set a target of signing up “at least 10%” over the next five years, which would more than quadruple the scheme size.
“That is achievable based on our current experiences. It would be in line with the number of people that use their car to come to work,” Laywood says.
“We have realised that the real benefit is the value the car gives to the employees – the fact they could access a wide choice of new cars in the most efficient way. We work hard on the ones that have chosen not to stay with the scheme, although in many cases it’s down to timing.”
The profile of the employees that have joined directly contradicts the Government’s perception of salary sacrifice when it was consulting on the rule changes.
Far from being the preserve of the wealthy, 35% of take up is from people earning less than £25,000, while only 6% is from those on more than £60,000.
“That says the scheme is of most benefit to those who wouldn’t normally be able to afford a new car. That gives me a lot of satisfaction,” Laywood says.
He is now looking to put greater emphasis on cars with emissions below 50g/km. The tax changes announced by the Government fit perfectly with this strategy.
“Cars below that level are still tax efficient so the Government has helped us out – this makes absolute sense,” he says.
“It’s not the end; it’s the beginning for us. Our approach has been rubber-stamped by the Government.”
Nevertheless, the announcements did have the potential to cause confusion. Tusker acted quickly, updating its staff portal and providing clear advice about how the changes would affect the council and its staff, especially those who were already on the scheme.
The leasing company also pledged to fix its prices to their pre-April 2017 level for a period of two months; it meant that while, in some cases, tax and national insurance might be affected, the overall cost to employees and the city council was unchanged.
“It hasn’t deterred anyone from getting any type of car. In fact, it’s actually increased a little bit, probably because our employees now know where they stand and the changes gave us another opportunity to promote the scheme,” Laywood says.
“In reality, people aren’t interested in the detail; they just see that they can get a nice new car at a price that is affordable.”
He adds: “And as an employer, the changes make little difference to us because our focus has changed from the savings to staff motivation and loyalty.”
Tusker is supporting Leicester City Council’s environmental efforts by providing affordable access to ultra-low emission cars.
“Prices are high and people are concerned about secondhand prices,” explains Laywood. “Tusker understands that and has made the vehicles accessible and affordable and that was key for us.”
Laywood, himself, is a prime example: “I have an i3 – I would never have considered buying one from BMW, but it’s fit for purpose and fit for my budget.”
He plans to reduce the CO2 cap from 120g/km to 110g/km within the next month or so. Three-quarters of the salary sacrifice fleet is already under this threshold and Laywood believes there are enough models around to keep staff happy.
“There is just the odd model that slips through that we don’t want from an environmental point of view,” he explains.
Just nine vehicles (3% of the fleet) have emissions up to 50g/km, but Laywood’s five-year strategy will see this rise four-fold.
Ultimately, he would like to see around half the fleet below this threshold, although he recognises that this has as much to do with manufacturers’ model ranges and affordability as it has demand from employees.
Laywood has removed one hurdle to electric vehicle uptake: business mileage reimbursement. Instead of the advisory fuel rate, which might be as low as 11p per mile, Leicester City Council pays the AMAP rate of 45ppm; the difference becomes a P11D benefit.
“Otherwise it’s a barrier to pay 11p per mile. With our solution, there is no difference to using a private car,” Laywood says.
Six brands dominate the fleet – Audi, Citroën, Ford, Nissan, Peugeot and Toyota – although 28 manufacturers are represented, including some unconventional marques such as Suzuki, Jeep and Dacia.
So, any regrets, or elements of the scheme he would’ve changed, knowing what he now knows?
Laywood thinks for a moment. “There’s nothing we could have done any better,” he starts, “although one thing we could have done differently is using the savings from national insurance to subsidise other forms of travel. Instead, we could have used it to subsidise 50g/km cars as well to make them more affordable.”
As further evidence of the scheme’s success, he concludes: “We’ve only had two or three cars that have been terminated early. That tells you we are doing it right; staff are choosing the right car for the right purpose.”
Not just cars, but bus passes, parking and bicycles, too
Leicester City Council has used a proportion of the six-figure savings achieved by replacing company cars and essential user allowances with the salary sacrifice scheme to fund other elements of travel.
It subsidises annual bus passes for a couple of hundred employees, underwrites car parking for another couple of hundred and contributes to a cycle-to-work scheme for around 400 staff. It also uses money to incentivise car share.
Cory Laywood says: “We have a lot of car parks in Leicester on waste ground; they are unsightly and we don’t like those on prime land. So we have partnered with NCP to make their car parks affordable for our staff through subsidies. It has been so successful that there are no spaces left.
“We also have our own car parks that are just outside the city centre so we are now looking at how we can get staff to park there.”
The car share scheme has been around for a while. The council knows where everyone lives and uses software to put people together. The software identifies those who drive and informs staff who live nearby.
However, while a worthy way to reduce mileage or improve journey times to work, not many people use it; owners see sharing their cars as an inconvenience.