The public sector is being urged to use car clubs to help cut grey fleet mileage and stop some employees being paid more than £5 per mile to drive their own car.
A combination of cash lump sums, low annual mileages and generous reimbursement rates are being blamed for the excessive expenses.
“People see this as a form of income,” said sustainable travel consultant Chris Endacott, who is a director at Gfleet services.
In addition, with many local government and NHS employers paying up to 50% more than the HM Revenue and Customs (HMRC) tax-free rate, they also have to pay tens of thousands of pounds in extra National Insurance Contributions (NIC).
Councils that reimburse grey fleet mileage at the rates agreed by the National Joint Council (NJC) pay the highest amounts.
An essential user on the NJC allowance can receive a cash lump sum worth several hundred pounds, in addition to a mileage rate of up to 50.5 pence per mile for the first 8,500 miles, while a casual user can expect to be paid up to 65ppm.
The NHS scrapped a similar system earlier this year and replaced it with a set of new rates under its Agenda for Change (AFC) scheme, which, from July 1, has paid 67ppm for the first 3,500 miles and 24ppm thereafter.
But both are costing councils and hospitals dear. For example, an employee who travels 2,000 miles a year on the AFC scheme will actually cost the NHS 70ppm, as the employer will have to pay an additional 3ppm in NIC for the amount of taxable benefit between 45ppm and 67ppm.
Endacott said: “I’ve been looking at some hospitals recently that are running up NIC bills from £100,000 to £150,000 a year on this scheme.”
It’s a similar story under the council system. “For the first 8,500 miles on a casual NJC scheme, you’re paying just under 70ppm,” he said.
An employee on the NJC scheme would have to travel approximately 25,000 miles to receive an average ppm rate equivalent to HMRC’s approved mileage allowance payment (AMAP) rate of 45ppm – lower mileage than that and the rate is much higher.
“It’s not until your employee is doing more than 7,165 miles on the NHS scheme that they are costing you on average 45ppm,” said Endacott.
However, for an essential user on the NJC scheme, where they also receive a cash lump sum, the employee can draw an even bigger benefit. If they drive 4,000 miles per year they will receive on average £1 per mile, while for employees that travel 1,000 miles their total reimbursement can equate to £5pm.
Research suggests that under the NJC scheme, 90% of all mileages were being paid at a higher rate than the HMRC rate.
Meanwhile, analysis of two health authorities revealed that 80% of all the mileage that was being paid was below 3,500 miles – equivalent to 70ppm – and less than 5% was paid at a rate below 45ppm.
Unison has criticised the NJC allowance and AMAP rates, claiming neither are ‘adequate’ and leave staff out of pocket.
But analysis of the grey fleet reveals that this argument doesn’t add up. The majority of employees are driving cars that are more than six or seven years old, at which age heavy depreciation becomes less of an issue.
“Therefore, for most people, the expense will be the cost of fuel which is typically between 12-18ppm,” said Endacott. “The difference is seen as a form of income.”
As part of its pay offer for 2013/14, the Government proposed scrapping the NJC scheme and replacing it with the AMAP rates, but after months of negotiations employees were awarded a 1% pay rise and changes to mileage rates at a national level were ditched.
However, many councils have opted to introduce the AMAP rate of their own accord, forcing through changes to their employees terms and conditions at a local level.
Fleet News has seen figures that suggest two out of five local authorities (43%) in England, Scotland and Wales currently pay the HMRC rate of 45ppm. Of those, roughly half reduce the rate to 25p per mile for staff who cover more than 10,000 miles a year.
It’s left around a quarter of councils in England and Wales paying the NJC rate for essential users and a further 6% paying the rate for casual users.
Even the newly-introduced AFC rates for NHS staff appear to be flawed. They are based on a set of motoring costs calculated by the AA each year.
The NHS Staff Council takes the mid-range set of values for both diesel and petrol cars, and uses their average to reach the rate of 67ppm for the first 3,500 miles and 24ppm thereafter.
However, the AA says on its website, where the figures are published, that its rates are “not intended to be used as the basis for setting mileage rates for business use of private cars”.
Endacott believes the best way to stop incentivising grey fleet mileage and supplementing staff income is to use a car club or introduce a pool car scheme.
Zipcar has a partnership with Croydon Council to provide a car club service to council employees following a successful pilot scheme, which has seen travel costs fall by 42%, from £1.3m to £756,000.
Andrew Edgar, head of Zipcar for Business UK, said: “At a time when councils are under enormous pressure to do more for significantly less, here is a clear example of just how that can be achieved.”