In a move that surprised many in the fleet industry, Chancellor George Osborne announced in the Autumn Statement and Spending Review that the Government had cancelled plans to abolish the 3% Benefit-in-Kind tax surcharge on diesel cars from next year and deferred its removal until 2021.
The 3% diesel tax surcharge was set to disappear in April 2016, but the Chancellor said he had decided to postpone the move for a further five years “in light of the slower-than-expected introduction of more rigorous EU emissions testing”.
The Government U-turn therefore seems likely to have been influenced by recent publicity involving diesel emissions in which software was used to deliberately disguise pollution levels.
More rigorous European emissions testing, involving real-life conditions on open roads as well as test centre or laboratory tests, are now being planned. But the Government clearly feels that the timetable is too slow for its liking.
The U-turn is expected to raise an additional £1.36bn over the next five years for the Treasury, according to the Government’s policy costings document, with some £280m being raised in the next financial year, 2016/2017.
An estimated four out of five company car drivers are now facing higher-than-expected tax bills from next April. And many drivers may well have chosen diesel vehicles this year with the expectation that the supplement would be lifted next April.
The new move means that the scale charge for diesel cars will now be 3% higher from April, starting at 10% for cars emitting CO2 emissions of 1-50g/km.
The U-turn was met with disappointment in many quarters of the fleet industry.
Gerry Keaney, chief executive of the British Vehicle Rental and Leasing Association, said: “We’re very disappointed with the Chancellor’s decision to defer the removal of the 3% diesel supplement on benefit in kind tax bands. This move will penalise company car drivers for decisions they have already made, based on the Chancellor’s 2012 announcement that the supplement would be lifted in 2016.
“What is especially frustrating is that many of these motorists are being penalised for driving some of the latest, safest, most fuel-efficient vehicles on UK roads.”
Fuel benefit charge confirmed
In other announcements in the Autumn Statement, the Chancellor also confirmed the van, van fuel and car fuel benefit charge for the 2016-17 tax year.
The van benefit charge – that paid for employees with private use of a vehicle – rises by £20 to £3,170, while the figure for van fuel benefit rises to £598 from April 2016.
For company car drivers that have private fuel paid, the figure goes up by £100 to £22,200, from April 6, 2016. For a company car emitting 111-115g/km of CO2, the scale charge would be 20% of £22,200 resulting in a taxable fuel benefit of £4,440, which equates to £1,776 for a 40% taxpayer.
Increased ULEV support
At the same time, the Government announced it is putting aside £600m to support the market and manufacturing of ultra-low emission vehicles with a target of 25% of European EVs being built in the UK.
This is part of the Government’s commitment to continue towards 100% zero emission vehicle sales by 2040. The investment is said to save 65 million tonnes of carbon, as well as helping with air quality issues.
Roads spending increased
The Chancellor also announced that the Department for Transport’s (DfT) operational budget will fall by 37%, but its capital spending will increase by 50% to £61 billion, as part of the Roads Investment Strategy, signalling the biggest investment in roads since the 1970s.
This will include resurfacing more than 80% of the strategic road network and delivering more than 1,300 miles of additional lanes.
Future roads investment will be underpinned by a new Roads Fund paid for directly from the revenues of Vehicle Excise Duty from 2020-21.
In addition, the Spending Review and Autumn Statement will provide £250 million over the next five years to tackle potholes, on top of nearly £5bn of funding for roads maintenance, a £300m increase compared to the previous Parliament.
Fuel duty frozen
The Chancellor also announced that fuel duty would remain frozen, an announcement that was seen by some campaigners as not going far enough.
Some campaigners said Mr Osborne should have been bolder and cut duty on all fuels, missing an opportunity to increase consumer spending, generate new jobs, boost GDP and, as a result, see more growth tax revenue.