Fleet News

Brown considers tax break for company cars powered by biofuels

THE environment has taken centre stage for fleets in today's pre-Budget speech by Chancellor Gordon Brown. But ECO schemes remain untouched - for now.

Key points:

Main road fuel duties

In Budget 2006, owing to sustained oil market volatility, the inflation-based increase in main fuel duty rates was deferred until September 1, 2006. However, with the risk of volatility remaining high, the Government announced in July that the increase would not go ahead in September and the position would be reviewed at the time of the Pre-Budget Report. Since July pump prices have fallen back on average by between 8 and 12 pence per litre.

The pre-Budget report announces that:

  • main fuel duty rates will increase in line with inflation by 1.25 pence per litre from midnight tonight; and
  • the changes to other fuel duties announced at Budget 2006 will also take effect from midnight.

    Measures to encourage biofuels

  • an extension of the 20 pence per litre (ppl) biofuel duty differential to enable a pilot involving the use of biomass in conventional fuel production to go ahead. The incentive will be maintained until 2008-09.

  • an extension of the 20ppl biofuel duty differential to a new second generation biodiesel which offers potential environmental benefits

  • a duty rate reduction for pilots which will use biofuel mixed with rebated gas oil, to develop the off-road use of biofuels

  • that the Government will consider the case for extending the duty incentive for renewable natural gas (biogas), equivalent to almost 40ppl, and for an incentive in company car tax to support the take up of flex fuel vehicles capable of using high-blend bioethanol E85. It will update its position in the 2007 Budget.

    Brown said in his speech to the House of Commons: 'A priority for vehicles, responsible for 25% of emissions, is to promote cleaner fuels through fiscal incentives.

    'I am consulting prior to a Budget decision on extending the 40 pence per litre duty discount for biogas and on the level of tax discounts for company cars using high blend biofuels: and I am relieving small biofuel producers of requirements to register or submit returns.'

    Last month, a host of automotive business leaders wrote to Chancellor Gordon Brown urging him to cut company car tax for drivers who switch to biofuel-powered vehicles.

    The signatories of the letter, which also called for revisions to vehicle excise duty and an increased fuel duty rebate for bioethanol E85 – a fuel made from plant products such as wheat and grain – were Saab, Ford, the National Farmers’ Union and Morrisons supermarket.

    Jonathan Nash, managing director of Saab Great Britain, said: ‘I am delighted the Chancellor has shown some support for bioethanol as an emerging clean road transport fuel. Company car drivers make up around 50% of light vehicle traffic on UK roads, so I welcome as a first step, his announcement to consult on possible incentives for such drivers to choose cars powered by biofuels.

    ‘Independent studies have shown that the use of high-blend biofuels such as bioethanol E85 can reduce fossil carbon dioxide (CO2) emissions by up to 70%.’

    Nash said other countries, such as Sweden, France, Ireland and Japan, offered incentives to drivers and wants the UK government to follow their lead.

    Government figures show the biofuels' market has increased sixfold from 2003 to 2005 and is expected to double again in 2006, increasing to around 250 million litres, or 0.5% of road fuels.

    The Government has also announced it will change the definition of biodiesel to include a new second generation biodiesel that offers potential environmental benefits and is capable of being blended in excess of 5% blends.

    ECO schemes

    In the 2006 Budget Brown announced a review of the taxation of employee car ownership schemes, 'with a view to possible changes'.

    This had revealed the carbon emissions from the average ECOs car are around 20g per kilometre (the typical measure of CO2 emissions) higher than the average company car.

    The Treasury's pre-Budget reports says: 'Furthermore there is a noticeable interaction between the tax treatment of ECOS, tax-free mileage allowances and rates of company car tax, which may have contributed to the popularity of ECOS. HMRC will hold further discussions with industry in 2007.

    'Following these discussions, the Government will consider whether changes are necessary in order to strengthen environmental incentives and protect Exchequer revenues.'

    Capital allowances for cars

    The Government has been consulting on options for modernising relief for business expenditure on cars, including the provision of incentives to business to purchase cleaner cars. 'This could build on the existing 100% first-year allowance for very low emission cars and recent reforms to VED and company car tax,' the Treasury says. 'The Government will continue discussions with business and present more detailed proposals in the 2007 Budget.'

    Vehicle excise duty

    The Department for Transport will launch a communications campaign to promote consumer information on purchasing greener cars and smarter driving on January 30, 2007 and to promote the benefits of business travel planning.

    The Government is considering improving VED incentives for fuel-efficient cars.

    Company car fuel

    The car fuel benefit charge, paid by employees who drive company cars and receive free fuel for private use, is currently set at £14,400. As announced in the 2005 pre-Budget report, the VAT fuel scale charge will, from May 1, 2007. be based on a car's carbon dioxide rating. The Revenue will publish details of the new regime 'in good time to allow businesses to familiarise themselves with it and make any necessary computer system changes'.

    Euro V emission standards

    Euro V emission standards for cars and small vans are currently being negotiated within the European Union and the Government will consider the case for incentivising their early uptake through car tax 'and other instruments' ahead of the formal requirement to fit the technology'.

    Commenting on the Chancellor's speech, RAC Foundation executive director Edmund King, said: 'The immediate fuel duty increase will go down like a flat balloon in this season of goodwill. However, the longer term icing on the cake could be the recognition of the need to speed up planning and investment in the road and rail network.'

    Ray Holloway, director of the RMI Petrol Retailers Association, said: 'The Chancellor's announcement of a 1.25 pence per litre fuel duty rise - the first in three years - is yet another revenue-raising exercise by the Government, which will hit industry and all road transport users.

    'It is also hugely disappointing that - once again - no financial incentives are to be made available to petrol retailers to invest in bio-fuels. This is vital if these new fuels are to be made readily available to consumers at UK forecourts.'

    Rob Shuttleworth, director general of the LP Gas Association, said: 'There are over 11 million motorists worldwide benefiting from running on LPG. In the UK this figure is over 130,000 and growing and with 1,300 public access refuelling sites in the UK it is easy to fill up wherever you are in the country.

    'With the significant environmental advantages of using LPG, motorists changing to this fuel should not only save money but will also be playing their part in improving the environment by way of both carbon savings and enhanced air quality.'

    Alastair Kendrick, tax expert, said: 'I am disappointed that a decison on ECOS has not been reached. HMRC said it was inundated with responses to its consultation, so what is there left to learn?

    'But their view is very clear, as they agree they want to come to a decision on what a compliant scheme is. A lot of companies have engaged people that are not professionally qualified and don't understand the ECO schemes they are introducing. It is like going into hospital for surgery and asking the window cleaner to carry out the operation.'

    On Euro V emission standards Rich Green, managing director at GE Fleet Services, said: 'Diesel cars are currently accounting for much more than half of all UK fleet sales. The current CO2 based benefit in kind taxation system, which often makes diesels a logical choice, is a key driving factor in this level of popularity. Euro V will be very tough on diesels. It seems to suggest that the thinking at European level is that diesel is more of an environmental problem, especially with the accent the targets place on reducing particulate emissions.

    'We are keen for the government to make its thinking on diesel company car tax clear as soon as possible. This is a request we made when the Euro V proposals were announced and we are repeating it now. Our feeling is that they may come under increasing pressure to dissuade company cars drivers out of diesel cars for environmental reasons. However, neither we nor our customers think that a sudden about face in policy without lengthy consultation and notice would be appropriate.

    'We believe that the Government should make its long-term position clear. Fleets do not want taxation surprises sprung onto them and they would prefer years of notice to deal with the implications of a reversal in tax policy against diesel, especially seeing as the Government has done so much to encourage its popularity.'

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