Chancellor signals review into impact of WLTP on company car and road tax

Chancellor Philip Hammond’s 2018 Budget Statement outlined a review into the impact of the new Worldwide harmonised Light vehicle Test Procedure (WLTP) on both company car tax and Vehicle Excise Duty (VED) – a move that was widely welcomed by fleet operators.

Presenting his Autumn Statement on Monday, October 29, exactly five months before the Brexit deadline, the Chancellor said the Budget “set out the government’s plan to build a stronger, more prosperous economy”.

And he announced austerity was coming to an end on a first Budget Monday since 1962, although he said that it would only be an interim Budget if the UK failed to get a deal in its Brexit negotiations to leave the European Union.

Amongst measures of interest to fleet operators were:

A review of the impact of WLTP

The government announced that it will review the impact of WLTP on company car tax and VED, prior to reporting in the Spring Statement in March.

The WLTP regime, the government said, aims to provide a closer representation of ‘real-world’ fuel consumption and CO2 emissions. Vehicle manufacturers are currently able to quote WLTP emissions values correlated to the previous New European Driving Cycle (NEDC) testing system, before they must switch solely to WLTP values from April 2020.

However, many experts have identified a general increase in CO2 emissions under the NEDC-correlated WLTP values when comparing the old regime to the new, which could increase BIK tax bills. The move was immediately welcomed by the British Vehicle Rental and Leasing Association (BVRLA) which urged the Government to publish a new set of tax bands as soon as possible.

Chief Executive Gerry Keaney said: “It is great to hear that the Treasury is making plans to remedy any potential tax distortion caused by the transition to the new WLTP emissions standard in April 2020.

“It is vital that fleets and company car drivers are able to plan for the future, confident that they are working with more accurate emissions information and a fairer tax regime that rewards those who choose cleaner vehicles. These revised tax bandings can’t come too soon.”

Benefit-in-Kind taxation

The fleet industry had been hoping for tax incentives for electric vehicles (EVs) as, under current plans, the Benefit-in-Kind (BIK) rate for electric company cars is set to soar to 16% next April, before dropping to 2% in April 2020.

This has served to actively dis-incentivise the take-up of EVs, contrary to the Government’s own ambition to encourage their take-up, as set out in its ‘Road to Zero’ environmental strategy. However, there were no changes to BIK rates in the Budget. Gerry Keaney said the BVRLA was dismayed at the lack of news.

“The Chancellor chose to ignore the overwhelming voice of fleets, motoring groups, business organisations, environmental groups and MPs – all of whom were united in calling for this simple tax measure to support the electric vehicle market,” said Keaney.

“The Government has missed a golden opportunity to incentivise the most important market for electric cars and is in danger of undermining its own Road to Zero strategy,“ he added.

The BVRLA’s disappointment was shared by Neil Parish, Chair of the Environment, Food, and Rural Affairs Select Committee, one of dozens of MPs that had supported the association’s call.

“By not bringing forward the 2% company car tax rate for zero-emitting vehicles by one year the Government has signalled that transitioning to cleaner and greener vehicles is not a priority.

“This is a disappointing decision and will discourage company car drivers from choosing an electric vehicle until April 2020,” he said.

Road spending

The Chancellor announced an additional £420 million, on top of an existing fund of almost £300m, to tackle the nation’s growing pothole problem. The funding announcement came alongside additional cash to upgrade England’s motorways.

Mr Hammond earmarked around £25.5 billion for Highways England for major road upgrades between 2020 and 2025 with the money coming from VED collected in England.

The government said it was delivering on its commitment to hypothecate English VED to roads spending, announcing that the National Roads Fund will be £28.8 billion between 2020-25. The Fund will provide long-term certainty for roads investment, said the government, including the new major roads network and large local major roads schemes, such as the North Devon Link Road.

Fuel duty frozen

A freeze on fuel duty for the ninth year in a row had already been signposted by Prime Minster Theresa May at the Conservative Party Conference earlier in the month when she announced that duty, which is expected to generate £28.2bn in income for the Government in 2018-19, would not be increased.

The Chancellor said the freeze had “come at a significant cost to the exchequer, but the high oil price and the near-record pump price of petrol and diesel are also imposing a significant burden on motorists”.

He added that in the nine years of the freeze in fuel duty, car drivers had seen a saving of £1,000 and van drivers one of £2,500.

Changes to Vehicle Excise Duty

From 1 April 2019 VED rates for cars, vans and motorcycles will increase in line with RPI. To support the haulage sector, the government also intends to freeze the Heavy Goods Vehicle (HGV) VED for 2019-20.
With regard to VED on vans, the government will shortly publish a summary of responses from the consultation on VED reform for vans, published in May 2018. The response will set out proposals to introduce environmental incentives from April 2021. Bands and rates will be set out ahead of Finance Bill 2019-20.

The announcement was warmly welcomed. The BVRLA said: “This decision to postpone a CO2-based Van VED regime is great news for fleets.

“Tax incentives can be a very powerful tool in driving businesses to use cleaner vehicles, but it is no use having these until we have enough low-emission van options on the market. The BVRLA is pleased that the Government has listened to its feedback on this issue and decided to take a pragmatic, business-friendly approach to greening the van fleet.”

Fuel benefit charges

From next April, fuel benefit charges will increase in line with RPI and the van benefit charge will increase in line with CPI.

Electric charge points

The 100% first year allowance for expenditure by businesses on electric charging points has been extended to 2023 for corporation tax and income tax.

Mobility

To support the government’s Industrial Strategy Future of Mobility Grand Challenge, £90 million from the National Productivity Investment Fund will be allocated to the Transforming Cities Fund to create Future Mobility Zones. This will trial new transport modes, services, and digital payments and ticketing. £20 million of this will be allocated to the West Midlands.

The Chancellor also announced an additional £680m of funding for sustainable transport including buses, trams and cycling routes through the Government’s Transforming Cities Fund. This brings the total amount of funding available through the Transforming Cities Fund, which aims to support productivity and prosperity through investment in public and sustainable transport, to £2.4bn.