At the start of the year, a number of leading fleet experts announced to Fleet News the imminent demise of Employee Car Ownership (ECO) schemes.
They pointed to the downward trend in business mileage, which was wiping out the tax savings originally enjoyed by employers, plus the rising cost of fuel and the administrative burden created by the monthly reconciliation process.
Contract hire, they claimed, was becoming a more attractive, tax-efficient option for company and driver alike.
However, their predictions appear a little premature.
Among the estimated 100,000 employees who receive a car via an ECO scheme are the 1,100 company car drivers at AstraZeneca – and the pharmaceuticals giant has no plans to change its approach.
Judith Popay was appointed fleet manager at AstraZeneca in 2000 when the company set up its Advantage flexible benefits scheme, bringing together the car policies of the recently-merged Astra and Zeneca businesses within a broader benefits package.
She was one of four fleet managers at that time responsible for setting up the new scheme.
Gradually the number was reduced until, in 2009, she became the company’s only UK fleet manager.
Advantage, loosely based on the then Lloyds Autolease’s Whitechapel scheme, replaced a traditional contract hire arrangement.
AstraZeneca took the decision to set up an ECO initiative to pre-empt the 2001 changes to taxation rules.
Its staff tend to be well paid with good benefits and perk drivers showed a preference for high CO2 emitting gas guzzlers, particularly 4x4s.
But with benefit-in-kind poised to change to an emissions-based calculation, they were set to face a massive hike in their tax bills.
“The scheme was set up so they weren’t affected by the CO2 changes,” Popay says. “Most drivers found they were better off by £30 per month by moving to the scheme – some were better off by £100.”
While it works well for AstraZeneca – a recent review showed that both the company and its drivers continue to be better off on ECO – the scheme is complex to run.
A representative from the Inland Revenue (now HMRC) sat with the business for two years to ensure the scheme’s structure was right so staff did not pay BIK.
“We finance the vehicles so there are tax breaks on that,” says Popay. “The assets sit on our books and the profit and loss of the cars is down to us.
"ECO is still cost-effective for our drivers as well. Until recently we had no CO2 targets so we have a lot of gas guzzlers.
"If they were paying tax, they would be paying a lot more.”
It’s not just about tax – ECO works for staff retention as well because the choice is extensive. For the perk drivers who make up just under half the fleet, there are no restrictions other than the CO2 cap – it’s any model, any manufacturer.
The 565 job need drivers have a limited choice, however – albeit ‘limited’ to 11 manufacturers.
“The scheme is great for retention, especially reps who are notorious for changing company for the car scheme,” says Popay.
“Staff turnover has fallen from 22% before we launched the scheme to 15% per year now.
"It’s partly due to the economy, but the ECO scheme has also had an impact because staff see that they don’t have to have a typical rep’s car – they can have a 3 Series or A4.”
Perk drivers also enjoy the flexibility of changing the car whenever they want from 24 months up to 60 months (the maximum term for a credit sale agreement). Most plump for 36 or 48 months.