A reality check

The newly elected government must set realistic economic and fiscal foundations on which fleets can continue to embrace the ‘green’ agenda, argues Julie Jenner, ACFO chairman

The general election campaign is underway and the economy will be the central background in the battle for votes.
    
Fleet budgets have been under the microscope like never before since the credit crunch-inspired recession struck in 2008 and savvy fleet operators have adopted numerous measures to trim operating costs while continuing to run transport operations effectively and efficiently to meet business requirements.
    
However, there is only so much that fleet operators can do to reduce costs within the framework of the wider economy and the fiscal regime set by the government.

The green agenda
The Labour government has made it abundantly clear in recent years through the motoring tax regime that it is pursuing a low carbon agenda. It is likely that whichever party wins the general election on May 6 that an eco-friendly motoring agenda will be the way forward.
    
However, while ACFO and most fleet operators do not argue against such moves – after-all running low emission vehicles helps cut operating costs – the political parties need to embrace reality.
    
For example, the April 1 rise in fuel duty – with two more 1p a litre increases scheduled for October 1 and January 1 – when petrol and diesel prices are at, or close to, all-time highs is an unnecessary cost to business that will be passed on to customers and thus impact on inflation. Global oil prices at around $88 a barrel are significantly below the $147 a barrel when petrol prices peaked at close to 120p a litre. Yet, UK petrol prices are now at an all-time high and diesel prices almost at their peak.
    
The AA has already called for a government-led investigation into fuel prices, particularly looking at the wholesale level with prices up by around 20 per cent in the first quarter of this year, and that is supported by ACFO.
    
Low emission cars offer better MPG than their high emission counterparts. Additionally, many fleets have embraced telematics, eco-driving and car alternatives such as video and teleconferencing, but there are still numerous cases when only face-to-face meetings can be undertaken.
    
The newly-elected government must look at the fuel price position relative to the global oil price and wholesale petrol/diesel prices and ask themselves how organisations can continue to afford to dip into their pockets without severely impacting on their trading position.
    
Equally, the recent Budget confirmed tax incentives now in place for the uptake of electric vehicles and introduced a new benefit-in-kind tax incentive for the uptake of company cars with emissions of between 1-75 g/km.
    
Taken at face value such incentives should be welcomed by the fleet industry. But in reality they have little relevance.
    
The Chancellor is hoping that tax changes introduced on April 6 will encourage fleets to rapidly increase their uptake of electric cars and vans.
    
The tax changes see:

• All electric cars exempt from company car tax for five years
• All electric vans exempt from van benefit charge for five years
• A 100 per cent first-year allowance provided for the purchase of electric vans

Electric vehicles are already exempt from Vehicle Excise Duty.
    
However, to-date, of the mainstream motor manufacturers only Mitsubishi has an electric car on sale and its i-MiEV city car has a list price of £38,699.

Grant schemes
Earlier this year the government announced the establishment of a grant scheme to reduce the cost of eligible electric, plug-in hybrid and hydrogen cars by 25 per cent up to a maximum of £5,000 would be available to consumers and business buyers from January 2011 and would run until March 31, 2014.
    
However, following the general election there is no guarantee that a newly-elected Conservative or Liberal Democrat regime will go ahead with the initiative.
    
Meanwhile, the percentage of list price subject to company car tax has been halved for cars emitting between 1 and 75 g/km of CO2, for five years from April 6.
    
This means that drivers will pay benefit-in-kind tax on petrol-engined models at the rate of five per cent (eight per cent for diesels).
    
However, at the moment there are no models on sale in the UK that meet the sub 75 g/km level, although the measure is largely aimed at the range of plug-in hybrid models due to be introduced by in 2011 and beyond.
    
This is a headline-grabbing move. With no such cars currently in showrooms it is likely to be at least 12-18 months before any driver can benefit from the measure.
    
Fleets want stability and they want honesty. They also want a tax regime that enables long-term planning. That is why the newly elected government must set solid economic and fiscal foundations on which fleets can continue to embrace the ‘green’ agenda.
    
Forgetting the list prices of electric cars, offering a five-year benefit-in-kind holiday on them is at face value welcome. But what happens with the tax regime after five years, which for most fleets is only just one replacement cycle away? Fleet operators and the industry at large require clarification.
    
Fleets already know that company car tax thresholds on mainstream models have tightened by 5 g/km of CO2 in 2010/11 with rates reducing again in 2011/12 and 2012/13. However, what will happen in 2013/14 and beyond? Operators and drivers need to know and the incoming government also needs to clarify whether the three per cent benefit-in-kind tax diesel surcharge will remain in place.
    
The recession resulted in many fleets extending vehicle replacement cycles from the standard three years into a fourth year and some even into a fifth year. This means that the government’s tradition of announcing benefit-in-kind tax regimes on a three-year cycle should now be moved to at least a four-year cycle and, ideally, a five-year cycle.

Working together
Fleets have reacted to the continual tightening of CO2-based motoring taxes – including Vehicle Excise Duty and capital allowances – by ensuring that fleet choice lists feature low emission vehicles, which are fit for purpose.
    
However, the newly-elected government must take into account the speed at which motor manufacturers are bringing new technologies to market and not introduce new fiscal rules that fail to take into account the real world position and the operational reality for business.
    
ACFO will continue to lobby and work with government departments on the key issues as they impact on fleets.
    
But, to ultimately achieve the desired carbon reductions demanded by our political masters a newly-elected government must establish a clear economically viable fiscal system that embraces economic reality and real-world opportunities and not unachievable dreams.

For more information
E-mail info@acfo.org
Web: www.acfo.org