A fair, consistent and well-signalled system can play a vital role in helping the government to meet its air quality improvement goals. Rental and leased vehicles are significantly less polluting, and by 2025 the fleet industry will be registering 400,000 battery electric cars and vans each year - equating to 80% of sales in the UK. The Treasury has a tremendous opportunity to accelerate this process and accentuate the results with smart use of the current motor taxation regime.
The Company Car Tax (CCT) regime is one of the Government’s most powerful tools in influencing the behaviour of businesses and individuals. A fair, consistent and well-signalled system can play a vital role in helping the government to meet its air quality improvement goals. The Treasury has a tremendous opportunity to accelerate this process and accentuate the results with smart use of the CCT regime.
BVRLA members welcomed the announcements at Budget 2020 of a rate freeze on Benefit-in-Kind (BiK) for 2023-24 and 2024-25. This gave the sector the five years of foresight that had been requested. Combined with the BiK incentives for battery electric vehicles (BEVs), it was an extremely powerful piece of policymaking. The low BiK rate for BEVs and certainty around this rate for the entire period of a lease has fundamentally transformed the UK market for BEVs. It has allowed leasing companies to effectively market the cost of ownership benefits of choosing BEVs. The result is that BEVs were responsible for 21% of member company car registrations in the three months to October 2020.
While the 2023-24 and 2024-25 rates were announced at the 2020 Budget, they are not yet written into law. Securing rates until 2025-26 will give leasing companies the ability to continue to provide customers with cost of ownership quotations. Given the impact of Covid-19 on personal finances, our member’s customers are understandably seeking financial certainty. Another year of foresight is critical as it will be impossible to provide accurate quotes on 48 month or longer car leases from the second quarter of 2021 - leases which equate to just over 40% of the market.
The success of the low BiK rates in driving BEV adoption is impressive, but fragile. Across vehicle segments, BEVs still have a significant price premium over equivalent Internal Combustion Engine (ICE) cars. Due to their higher values they are more sensitive to BiK rates than ICE cars. Any sharp increase in BiK rates for BEVs would halt the momentum achieved in the company car market and break trust in the government’s policy direction. While the BVRLA recognises that extremely low taxation rates for BEVs are not sustainable, 2025- 26 is not the time for any significant increases.
VED & WLTP
The rental sector provides consumers and businesses with access to some of the very cleanest and newest vehicles on the UK’s roads – with average emissions declining by 11% over a five-year period. The price sensitive nature of this market means that it has been affected significantly by increases in Vehicle Excise Duty (VED) due to the transition to WLTP.
Rental customers demand vehicles in all shapes and sizes, from supermini to SUV. As a result, first-year VED represents a major cost for operators, even more so now that the new WLTP emissions standard has inflated CO2 values by 10-20%.
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VED & Covid-19
Despite the Covid-19 pandemic forcing rental operators to shrink their fleets, cancel new acquisitions and hold on to vehicles for longer, operators still faced a significant VED burden in 2020 at a time they could least afford it. Rental needs renewed support to prevent further jobs being lost, both directly in the sector or in the downstream supply chain. BVRLA rental members paid over £50 million in VED on their car fleet purchases in 2020.
Freezing VED rates on cars and vans for a year would free-up valuable cash flow that can keep rental firms afloat until the leisure market returns. The government must also commit to replacing the current first year weighted VED system with a more fairly balanced whole life approach in 2022. This is vital to the continued decarbonisation of road transport, where the current VED system is failing to incentivise purchase behaviours as was intended, especially in the retail market.
Making the Van Benefit Charge (VBC) for zero emission vans 0% from 2021 in the 2020 Budget was a welcome and necessary step to support the uptake of BEV vans. However, to give accurate quotes members also need foresight of the future rates planned for the VBC. Vans have an average lease term of around 48 months which makes long term foresight extremely important in facilitating the decarbonisation of this sector.
- VED rates for cars and vans should be frozen at current levels until April 2022 when a new fairer car VED system is introduced.
- The Government review of VED needs to work with the BVRLA and its members to result in a fairer way to tax vehicles.
- Long term foresight of tax rates and incentives is required in order to properly plan future fleet decision making. The Government should therefore “Lock in” the previously announced Benefit-in-Kind freeze and publish 2025- 26 rates and give foresight of Van Benefit Charge rates for BEVs.
Fair Motor Taxation Resources