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BUDGET 2008 REVIEW: Darling forces fleets to go green

Date: 20 March 2008

Alistair Darling

While the mainstream media said the 2008 Budget was lacking in excitement, Chancellor Alistair Darling made a host of announcements that will have repercussions for the business car industry. Rupert Saunders reports

Budget 2008 is, arguably, the most significant for the business car industry since the introduction of CO2-based tax ratings in 2002. Incoming Chancellor Alistair Darling has not only stepped up the pressure on higher polluting cars but also signalled an important new tax threshold of 160g/km CO2.

This new target, reduced from earlier Government consultations at 165g/km, is not only going to become important in areas such as Vehicle Excise Duty, it is also fundamental to the reform of capital allowances for business cars; a tax change that will affect both monthly rentals on lease vehicles and corporation tax liability for companies that buy cars outright.

Mark Chessman, Lloyds TSB Autolease deputy managing director, said: "If you're a business with a fleet of executive cars with higher emissions (over 160g/km CO2), this is last-chance saloon time. Now is the time to review the number of higher emitting cars you have in your fleet, or face significant increases in cost."


1. Fuel duty rise delayed

The planned 2p a litre fuel duty rise in April has been postponed until 1 October 2008 in view of the current high oil price. However, a further 1.84p rise is now scheduled for 1 April 2009 and, from 1 April 2010, the Government plans to reintroduce the old 'fuel-escalator' charge; increasing tax by 0.5p above inflation.

Reaction: "Drivers will notice a return to real increases in fuel tax from 2010. When last used, this measure led to 2000's fuel protests. Let's hope our new Chancellor reconsiders this policy in his overall review of road taxes." - Ray Holloway, director, Petrol Retailers Association

2. Bio-fuel duty differential scrapped

Scrapping the 20p a litre duty differential in 2010 will add £550m to Treasury coffers. The Government plans to replace the duty differential with its commitment to the Renewable Transport Fuel Obligation (RTFO), which it launched in the Pre-Budget Report. It is unclear how this will impact the take-up of bio fuels but the Government maintains "the RTFO will provide a sharper environmental focus through its sustainability criteria".

Reaction: "I am deeply disappointed that the Chancellor has announced the removal of the fuel duty rebate for biofuels from 2010. The lack of long-term consumer incentives for the use of high blend biofuels is a clear indication of the Government turning its back on this technology." - Jonathan Nash, managing director, Saab

3. New VED bands

As anticipated, there are significant increases in VED rates and, from 2009, a restructuring of the system around many more bands. In 2010 the Chancellor is introducing a new first-year VED tax that, while encouraging cars with emissions less than 130g/km, will also penalise those above 160g/km.

Business car users will bear the brunt of this extra tax, as the sector accounts for more than half of all new cars sold in the UK.

Reaction: "The 'showroom tax' on vehicles producing over 225g/km of CO2 will undoubtedly impact. Employers will have to look more closely at their policies to see if employees should be allowed to take these higher-emission vehicles at all; both employer and employee may have to pay if they do." - David Brennan, managing director, LeasePlan

4. New Capital Allowances

The Chancellor confirmed an earlier proposal to reform capital allowance for business cars based on CO2 ratings, rather than the current system based around the concept of an 'expensive' car.

The proposal is that expenditure on cars with CO2 emissions above 160g/km will attract a 10% Writing-Down Allowance (WDA) and expenditure on cars with CO2 emissions of 160g/km or below will attract a 20% WDA. The rules disallowing a proportion of car lease rental payments will also be reformed in line with the new capital allowances rules.

Reaction: "He [Darling] failed to appreciate just how much of a cliff edge is going to form and the impact it will have on the marketplace. Our preference was for at least two break points in order to ensure a smoother transition between different bands." - John Lewis, director general BVRLA

"It depends on how you interpret the first-year balancing allowance issue, but the extra cost for cars above 160g/km could be significant, particularly in the current economic climate. You might well find companies deselecting those cars from their lists or changing car policy.

"But senior managers, say currently driving a Mercedes E-class, are not going to accept a lower, sub-160 car. I think they'll opt out." - Alistair Kendrick, partner, Bourne Business Consulting

"There will be a big difference in the cost [to business] of a car with emissions of 161g/km compared to one with 160g/km. The changes will affect all users of business cars. As a result I expect a range of cars to no longer have a market within the mainstream company car arena, although it will take time for companies to realise the effect." - Alison Chapman, partner, Deloitte & Touche