Fleet News

Commission in new call for company car tax shake-up

COMPANY car drivers could face personal taxation based on private mileage and the fuel efficiency of their vehicles if the Government takes notice of the recommendations outlined by the Royal Commission on Environmental Pollution. In an unprecedented follow-up to its controversial 1994 report on Transport and the Environment - which it hopes will form the backbone of Labour's forthcoming transport White Paper - the Royal Commission says no action has been taken to tackle the 'distortions' in car use it claims the present company car taxation regime produces.

If the Government does adopt the Commission's proposals, fleet managers face an ongoing escalation in fuel prices, but those which operate alternatively fuelled vehicles may get additional incentives to those already introduced in successive Budgets. The tone of the 'sequel' to the 1994 report, which provoked a storm of protest from the motor industry, is less overtly anti-car than the original document and tempered by a greater sense of commercial reality.

Its emphasis is on the much-vaunted 'integrated approach' which the new Government has already espoused, but the Commission stresses that the talking must stop and action start if 'the most intractable environmental problem we face today' is to be tackled.

Chairman Sir John Houghton said: 'Without major changes, the UK's transport problems could reach crisis point. But turning around present trends in the transport of goods and people requires concerted effort. Radical action is essential to make private transport less damaging and public transport more attractive. Transport policy presents us with a formidable challenge. Talking and tinkering will not be enough.'

COMPANY cars make up 20% of car traffic and cover one billion additional miles because of the current tax breaks, according to the Royal Commission's report. The authors note that no action has been taken on the recommendations made in the last report that the tax rules on company cars should be modified to remove the incentives to 'environmentally damaging behaviour'.

The report says: 'There is evidence that people commuting in a company car travel further than people of similar socio-economic status commuting in their own car; that those who receive free fuel from the company commute even longer distances; and that drivers of company cars make almost no use of rail for business journeys of more than 50 miles. Because less tax is paid if business mileage in the course of a year exceeds certain thresholds, the present rules have been estimated to result in an additional one billion miles being driven each year.'

The Commission estimates that around half of company car drivers receive some free fuel and the current tax regime cushions drivers from fuel price increases. At the same time, the system of mileage tax breaks encourages them to drive further. The authors believe employers should be more imaginative in funding their employees' business travel and that Government should incentivise the alternatives to the company car.

MOTORWAY tolls - favoured by the last Government - are still opposed by the Commission, but members believe urban road pricing devolved to local Government could play a key part in traffic reduction. The report notes the slow progress made on tolling trial schemes in both the UK and Germany, where the results indicate that the electronic technology is some way short of being able to cope with the volumes of traffic involved.

The Commission's previous report rejected motorway tolls on the grounds that they would force traffic on to secondary roads, increasing congestion, pollution and accidents and offsetting any gains made in terms of reducing motorway congestion. 'Motorways are usually the most efficient, safest and environmentally and socially least damaging roads for vehicles,' says the report. 'It remains our view that it is as a general rule inappropriate to divert long distance traffic from motorways.'

Members also expressed concern about new road schemes funded by the Private Finance Initiative, which create a financial incentive for the operators to increase the levels of traffic using them by the payment of 'shadow tolls'. The Commission is more receptive to the concept of urban road pricing, but says the power to charge vehicles for entering cities or using congested roads, should be devolved to local authorities.

The report also recommends the reintroduction of benefit-in-kind taxation on company-provided parking spaces as a further means of discouraging commuters from driving into the cities where they work.

DIESEL should be taxed more heavily than petrol, but alternative fuels like liquefied petroleum gas and ultra-low sulphur fuels should receive bigger incentives, according to the report. The report also examines the protracted petrol versus diesel debate and comes down in favour of petrol - although it recommends petrol prices rise at more than 6% in real terms - a rate of increase which the Chancellor introduced in Labour's first Budget.

'Within the general strategy of increasing the price of motor fuel to encourage economy in its use, there should continue to be differentials to encourage the use of those fuels which are less damaging to the environment,' says the report. It adds that although a large-scale switch from petrol to diesel would make a contribution to reducing carbon dioxide emissions, health concerns over diesel's higher levels of particulates and oxides of nitrogen precluded such a switch.

The report also recommends other alternative fuels, which the previous report said would make a significant contribution to reducing pollution. Fiscal incentives should continue to encourage fleets to replace their diesel vehicles with them.

MOTOR manufacturers must make cars 40% more fuel efficient within 10 years to satisfy the Commission - which delivered a 'must try harder' verdict on the car-makers. Commission members also deplored the motor industry's role in glamorising speed and powerful vehicles, using the trend towards urban 4x4 vehicles as an example of the car-makers' ability to make inefficient and impractical gas-guzzling off-roaders attractive to consumers.

The report says a whole raft of mutually reinforcing measures - both fiscal and ultimately legislative - are necessary to reduce fuel consumption across the board.

Commission member Peter Doyle said: 'Cars could be made up to 40% more efficient with existing technology, but car manufacturers are promoting larger and larger cars. Four-wheel drives are a fashion accessory because people succumb to advertising. The car industry should act more responsibly, or the Government should force it to do so. Advertising about the fuel efficiency of the cars could easily change fashion in the opposite direction.'

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