The Government has delayed the removal of the 3% diesel supplement on company car tax from April 2016 to April 2021.
In today's combined Autumn Statement and Spending Review, Chancellor George Osborne said he had decided to act “in light of the slower-than-expected introduction of more rigorous EU emissions testing”.
However, the move will leave company car drivers facing higher-than-expected tax bills from next April when they thought diesel cars would be brought into line with their petrol counterparts.
Heather Simpson, principal consultant at Lex Autolease, said: “The delayed removal of the 3% diesel surcharge is a blow for company car drivers, potentially impacting four out of five drivers."
RAC Business head of corporate sales Jenny Powley added: “Company car drivers will clearly be disappointed by this announcement, as diesel engines have come a long way in terms of CO2 emissions since the supplement was introduced in 2002.
“Many company car drivers will have chosen diesel vehicles this year with the expectation that the supplement would be lifted in April 2016.
“Of course recent events surrounding diesel engine emissions and testing processes at VW have changed the perception of diesel in the market place. It seems that the Chancellor has also been influenced by that as the reasons given for the supplement to remain until 2021, is that EU-wide testing procedures should ensure new diesel cars meet air quality standards by then, even under strict real world driving conditions.
“However it would seem unfair to penalise diesel vehicle drivers by extending the Benefit in Kind tax when it was originally based on levels of CO2 emissions, which have improved considerably in the last ten years.”
John Pryor, chairman of ACFO, believes there will be many fleets and company car drivers that have made vehicle choices based on the fact that they would save cash as a result of the previously announced withdrawal of the supplement.
He told Fleet News: “Over many years, ACFO has been consistent in its call for clarity and long-term decision-making so that fleets and company car drivers could plan for the future in full knowledge of what the tax burden will be. This government U-turn does not assist that process.”
The Chancellor also told the House of Commons that the Department for Transport's (DfT) operational budget will fall by 37%, but its capital spending will increase by 50% to £61 billion.
"That funds the largest road investment programme since the 1970s, for we are the builders," said Osborne.
The Roads Investment Strategy signals the biggest investment in roads since the 1970s. This overall £15bn of investment in the Roads Investment Strategy period will include resurfacing more than 80% of the strategic road network and delivering more than 1,300 miles of additional lanes.
Future roads investment will be underpinned by a new Roads Fund paid for directly from the revenues of Vehicle Excise Duty from 2020-21.
A second Roads Investment Strategy will be published before the end of this Parliament setting out how the Roads Fund will be invested.
In addition, the Spending Review and Autumn Statement provide £250 million over the next five years to tackle potholes, on top of nearly £5bn of funding for roads maintenance, a £300m increase compared to the previous Parliament.
Simpson said: “The impact of increased investment in Britain’s road infrastructure will be enormous for the country’s many businesses who rely on the road network to transport goods and employees.
“We hope that the effective implementation of the Roads Investment Strategy will slash journey times and congestion levels, in turn reducing fuel bills and improving driver efficiency.”
There was no increase in fuel duty, which was welcomed by FairFuel campaigner Howard Cox.
However, he said: “George Osborne should have been bolder and cut duty on all fuels. The Centre for Economics and Business Research evidence is indisputable.
“He has missed a proven and ideal opportunity to increase consumer spending that generates new jobs, more VAT, a boost to GDP and as a result more growth tax revenue.
“We still pay the highest prices in the western world at the pumps due to his punitive and unnecessary taxation levels on drivers."
Meanwhile, the Chancellor says he remains concerned about the growth of salary sacrifice arrangements and is considering what action, if any, is necessary.
The Government said it will gather further evidence, including from employers, on salary sacrifice arrangements to inform its approach.
The Office for Budget Responsibility (OBR) now forecasts GDP growth of 2.4% in 2015, 2.4% in 2016 and 2.5% in 2017. It forecasts employment to be 31.1 million in 2015, rising each year to 32.2 million in 2020. CPI inflation is forecast to be below the 2.0% inflation target in 2015, returning gradually to 2.0% in 2019.
Public sector net borrowing is forecast to fall to 3.9% of GDP in 2015-16 and then to fall each year for the remainder of the forecast period. The OBR forecasts that public finances will return a surplus of £10.1bn in 2019-20 and £14.7bn in 2020-21. Public sector net debt is forecast to fall each year reaching 71.3% of GDP in 2020-21.
The OBR’s November 2015 ‘Economic and fiscal outlook’ provides an assessment of the Government’s performance against its fiscal targets. It confirms the Government is on course to achieve a surplus on public sector net borrowing of £10.1bn in the target year of 2019-20 and to maintain a surplus in the following year, 2020-21.
The OBR’s judgement is that the Government’s policies are consistent with a roughly 55% chance of achieving the mandate in 2019-20.
The Government’s fiscal strategy is to reduce the deficit by around 1.1% of GDP a year on average for the next four years – the same pace as over the last Parliament.