Budget Analysis 2009

Overview

From a fleet perspective, Wednesday’s Budget contained few surprises. Nearly all of the

measures scheduled for this tax year and next had already been announced in previous Budgets.

Financially, a significant impact in the current tax year will come from the 2p per litre increase in fuel duty scheduled in September. This will increase the cost for road users by over £600 million, which is double the amount that the Government plans to spend on its longawaited scrappage scheme. With more cars available and many company car tax payers now choosing sub-120g/km cars, to take advantage of their 10% tax status,

the Chancellor announced that the 10% band will be replaced by a new structure, favouring even lower CO2 cars, from 2012. Details of the new arrangement, and a possible incentive to choose Euro 6 diesels, will be given in a future Budget. This year’s Budget committed the UK to cut its CO2 emissions by 34% by 2020. A report titled Ultra–Low Carbon Vehicles in the UK, published the same day, put forward an outline timetable for a switch to electric and hydrogen fuel cell cars. Even with increasing use of new technology, the Government expects to achieve most of the reduction in emissions by driving down the CO2 levels of new petrol and diesel cars.

Budget 2009: Fleet measures at-a-glance

Company car tax

CO2 thresholds will be lowered by 5g/km in 2011, apart from the 10% band for sub-120g/km

cars. More extensive changes, to be set out in future budgets, will follow in 2012. The £80,000 price ceiling on cars for tax purposes will be removed from April 2011, leading to potentially large benefit-in-kind (BIK) increases on very high cost cars. “Early adopter” discounts for Euro 4 diesels, alternative fuel cars and hybrids will be abolished in 2011 but the 3% diesel surcharge may be waived for cars meeting the Euro 6 standard.

Fuel Duty

Fuel duty will increase by 2p per litre on 1 September 2009. Duty will be increased annually by

1p per litre above inflation from April 2010 until 2013.

Vehicle Excise Duty

The new 13-band structure comes into effect on 1 May 2009. VED on cars emitting more than 140g/km will increase by £5. New VED rules on refunds, six-month licences and imported vehicles will be introduced in May 2010.

Other related measures

Scrappage scheme

A scrappage scheme for cars and vans over 10 years old will operate from mid-May to March 2010 (or sooner if the £300 million of Government funding is used up).

Funding cuts

Road schemes and the DVLA will be affected by efficiency measures intended to cut nearly £2 billion from the Department for Transport’s 2009-10 budget.

Green investment

More details of Government investment plans for low carbon vehicles were published alongside the Budget Report.

The details behind the measures

Company car tax

The current 10% BIK band for cars emitting less than 120g/km, which was introduced last year to incentivise drivers to choose cleaner vehicles, will be abolished in 2012. As an increasing number of cars now fall within this category, the system will be extended, with bands rising by 1% every 5g/km from a starting point of 10%. The new starting point will be lower than 120g/km and will be announced in a future Budget.

The standard CO2 BIK bands are unchanged from last year but they will move down by 5g/km in both the 2010 and 2011 tax years, as shown:

Luxury car price cap to be abolished

There is currently a cap of £80,000 on the price of cars for the purposes of calculating a benefit-in-kind. This will be abolished from 6 April 2011. The effect of the change will be magnified for drivers who will be paying the new 50% tax rate on incomes over £150,000. Individuals who drive expensive, high- CO2 vehicles could see their CCT go up by over 55%1 in 2011-12 if they continue to use them as company cars rather than seeking a more tax efficient alternative.

1 Example. Salary £150,000. Car: £100,000. BIK CO2 band: 35%. 2009 calculation: £80,000 (capped value of car) x 35% x 40% marginal tax rate = £11,200. 2011 calculation:

£100,000 (full value of car) x 35% x 50% marginal tax rate = £17,500. Tax payable increases by £6,300 / 56%.

‘Early adopter’ discounts to go in 2011

Discounts currently available for early uptake of Euro 4-standard diesel cars, higher-emitting hybrid cars and alternative fuel company cars will also be abolished in 2011. Hybrid cars emitting 120g/km or less will continue to fall within the 10% band of CCT. Electric cars will continue to be subject to the 9% band. The Government is also considering the case for waiving the 3% diesel supplement in CCT for diesel cars that comply with the future Euro 6 emissions and air quality standards.