Diesel Tax Changes

The Government has confirmed that it is looking at a new system for taxing company diesel cars, after an announcement at the Spring Budget that almost slipped under the radar.

In documents to the main Budget proposals but not announced by the Chancellor on the day, the Government revealed that it was looking to explore the “appropriate tax treatment for diesel vehicles” through a consultation process.

This consultation process is set take place ahead of the Government making any tax changes to the treatment of diesels at the Autumn Budget later this year.

The implication for the future of diesel vehicles has caused concern in the fleet world as, for the last 15 years, companies have been operating under a tax regime that has encouraged the uptake of diesel vehicles.

Since April 2002, when the last Labour Government introduced a company car tax system based on carbon dioxide emissions, various administrations have taken the fleet market down a predominantly diesel-inclined path.

Fifteen years ago, the tax regime was said to encourage those using company cars to drive extra miles on business, producing unnecessary carbon dioxide emissions.

So Chancellor at the time, Gordon Brown, introduced what was seen as a fundamental reform of company car tax to cut emissions by basing it around the CO2 output of the vehicle.

 

As diesel cars emitted lower C02 emissions than their petrol-powered counterparts, they quickly become the fuel of choice for many company car drivers because they attracted lower benefit-in-kind tax bills – despite a 3% ‘dirty surcharge’.

As a result, a market that had hitherto been petrol dominated, swung towards diesel and, from a relatively small base, diesel consistently claimed more than a 50% share of the new car market – which has ultimately led to more than 11m diesel cars currently being on UK roads.

At the start of 2014, for example, diesel vehicles had a more than 53% market share compared to 45.5% for petrol.

However, since then diesel’s appeal has begun to decline, especially on the back of the ‘dieselgate’ scandal when Volkswagen was shown to have cheated in emissions tests to produce unrealistic results.

And sales of lean burn petrol-engined cars have climbed in popularity, such that at the end of last year’s record new car market, petrol had a 49% market share to diesel’s 47.7%.

Various fleet experts have said the new Government review means that the writing is on the wall for fleet reliance on diesel vehicles – and diesel company cars specifically.

Paul Hollick, chairman of the Institute of Car Fleet Management, said: “With the Government’s focus on improving air quality, the introduction of Clean Air Zones and cities globally introducing diesel car bans, it is clear that fleets must reduce their dependence on diesel power and develop a strategy that focuses on plug-in vehicles and ultra-low emission vehicles,” he said.

“A failure to do so will almost inevitably trigger an increase in the whole life cost of operating diesel models.

“Clearly we will have to wait until the Autumn Budget for some clarity, but forward-thinking fleet operators should start to review current policies and plan for a future that is less reliant on diesel,” he added.

The British Vehicle Rental and Leasing Association warned that any moves to penalise diesels could impact on climate change targets and business productivity.

Chief Executive, Gerry Keaney, said: “Diesel vehicles remain a vital part of the fleet mix, as diesel engines are the most energy-efficient internal combustion engines.

“It is often the most appropriate powertrain for long distance journeys and non-urban freight transportation, and the latest Euro 6 diesel engines have made some major gains in reducing harmful NOX emissions.

“As one of the stakeholders engaged with HM Treasury, we look forward to working with policymakers to ensure they do not adversely impact the UK automotive sector,” he said.

Another concerned trade association was the Society of Motor Manufacturers and Traders (SMMT).

Chief Executive, Mike Hawes, said: “The automotive industry is investing significantly in new technology to address the issue of air quality, so we look forward to working with government to encourage the uptake of the latest, low emission vehicles, regardless of fuel type.

“Nearly one in two new car buyers chose a diesel last year and getting more Euro 6 diesels on the road will be part of the solution as we also strive to meet our climate change targets.”