BUDGET 2010 – WHAT IT MEANS TO YOU

Chancellor of the Exchequer Alistair Darling delivered his third Budget today (Wednesday), March 24, 2010 against a background of a forthcoming general election and slow economic recovery.

In reality, the 60-minute Budget statement was short on significant announcements, but long on pre-election politics.

With a general election expected to be held on May 6, the Chancellor was out to woo voters in what was the Government’s last Budget statement before polling day.

As a result, apart from announcements on:

• Changes in benefit-in-kind company car tax on low emission models
• Fuel duty
• Additional money being made available for road repairs and ‘Managed Motorways’ schemes designed to ease congestion
• And the establishment of a £2 billion public-private sector Green Investment Bank fund to help establish low carbon projects, including in the transport arena

the small print of the stream of Budgets papers emanating from HM Treasury only clarified a string of measures announced in last December’s Pre-Budget Report.

With some measures due for implementation next month and others in 2011 or beyond, below we outline the key initiatives impacting on the fleet and motor industry.

Company car tax

Company car benefit-in-kind tax thresholds will tighten by 5 g/km on April 6 with the Chancellor confirming that thresholds will reduce by a similar amount in 2011/12 and 2012/13 (see chart below).

There was no announcement on company car tax thresholds for 2013/14 and the 3% benefit-in-kind tax surcharge on diesel models remains in place, despite calls for it to be axed.

Meanwhile, in a new announcement the Chancellor said that the percentage of list price subject to company car tax would be halved for cars emitting between 1 and 75 g/km of CO₂, for five years from April 6.

This means that drivers will pay benefit-in-kind tax on petrol-engined models at the rate of 5% (8% for diesels).

However, at the moment there are no models on sale in the UK that meet the sub 75 g/km level, although the measure is largely aimed at the range of soon-to-be-introduced plug-in hybrid models from some manufacturers.

In other company car tax changes, April 6, 2012 will see the abolition of the special 10% benefit-in-kind tax rate for company cars emitting 120 g/km or less, which has been in place since April 2008.

Instead, the 10% tax rate will apply to company cars with emissions up to 99 g/km. Additionally, the system of bands will then increase by one percentage point with every 5 g/km of from 10% (see chart below).

Meanwhile, a number of other company car tax changes will also be introduced from April 6, 2011. They are:

• Abolition of the £80,000 price cap on company car list prices for benefit-in-kind tax purposes
• The axing of company car tax discounts that currently apply to alternatively-fuelled vehicles (electric-petrol hybrids, ‘Flex-Fuel Vehicles’, bi-fuels, road fuel gas and bioethanol). The only discount that will remain from 2011/12 is that for electric cars (see below).                                          

• Add 3% for diesels up to a maximum of 35% (2012/13 unconfirmed)

Electric company cars and vans

The Chancellor is hoping that tax changes from April 6 will encourage public and private sector fleets to rapidly increase their uptake of electric cars and vans.

The tax changes see:

• All electric cars exempt from company car tax for five years
• All electric vans exempt from van benefit charge for five years
• A 100% first-year allowance provided for the purchase of electric vans

Electric vehicles are already exempt from Vehicle Excise Duty.

Earlier this year the Government announced the establishment of a grant scheme to reduce the cost of eligible electric, plug-in hybrid and hydrogen cars by 25% up to a maximum of £5,000 would be available to consumers and business buyers from January 2011 and would run until March 31, 2014. However, following the general election, which is expected to be held on May 6, there is no guarantee that a newly elected Conservative regime would go ahead with the initiative.

Fuel duty increases

Chancellor of the Exchequer Alistair Darling decided against introducing a 1p a litre above inflation fuel duty increase on April 1, which would have added about 3p to the price of a litre of petrol and diesel.

Instead he announced that fuel duty would increase by 1p a litre on April 1 with a further 1p a litre rise scheduled for October 1 and a 0.76p a litre rise on January 1, 2011.

In making the announcement the Chancellor said that the ‘staging’ of the fuel duty rise would ‘ease the cost on business’ and predicted that by the time the full fuel duty increase had been implemented in January next year that the inflation rate would have reduced to 2% from today’s 3%.

In December 2009’s Pre-Budget statement, the Chancellor also promised that fuel duty would increase by 1p a litre above inflation in 2011/12, 2012/13 and 2013/14 and in the Budget statement he extended that pledge to include 2014/15.

In addition to supporting the public finances in the medium term, the Chancellor said that the fuel duty increases from 2010 onwards were expected to save 1.7 million tonnes of CO₂ per year by 2014/15.

Average UK fuel prices are currently at near record levels - 117.3p a litre for unleaded petrol and 117.9p a litre for diesel - according to comparison website Petrolprices.com.

Fuel benefit charge

Employees who are in receipt of company-funded fuel used privately will see their benefit-in-kind tax bills rise from April 6.

The Chancellor confirmed in the Budget that the fuel benefit charge multiplier will increase from £16,900 to £18,000, while the van fuel benefit charge - on which tax on ‘free’ van fuel is paid - will increase from £500 to £550.

It means that drivers in receipt of employer paid for fuel used privately and with a company car with a P11D value above £18,000 will pay more in tax on fuel than they will on their vehicle.

National Insurance rate rises

The Chancellor reconfirmed that employee and employer National Insurances rates will rise by 1% from April 6, 2011. That means that employees will pay 12% on earnings. Employers will see their NICs rise from 12.8% to 13.8% including those paid on benefits-in-kind such as company cars and company-funded fuel used privately.

Vehicle Excise Duty

The Chancellor confirmed his Pre-Budget Report statement that April 1 will see the introduction of a first-year rate of Vehicle Excise Duty - a so-called ‘showroom tax’ -to further strengthen the take-up of low emission cars (see chart below).

Additionally on April 1 there will be cuts of up to £30 in VED rates on lower emission cars, while vehicles in the seven higher VED emission bands will be subject to annual road tax rises of up to £30.

Vehicle Excise Duty for cars registered on or after 1 March 2001: 2009/10 and 2010/11 standard rates and 2010/11 first year rate 

 *Alternative fuel discount 2009/10: A-I £20, J-M £15; 2010/11 onwards: £10 all cars
** Includes cars emitting over 225 g/km registered between March 1, 2001 and March 23, 2006

Vehicle Excise Duty for light goods vehicles registered on or after March 1, 2001: 2009/10 and 2010/11 rates

*for Euro 4 compliant vans registered between March 1, 2003 and December 31, 2006
**for Euro 5 compliant vans registered between January 1, 2009 and December 31, 2010

Vehicle Excise Duty for private and light goods vehicles registered before March 1, 2001 (pre-graduated VED): 2009/10 and 2010/11 rates

Other Budget announcements:

Roads investment - an additional £84 million to fund repairs for local roads damaged by the recent adverse weather. The cash will be distributed to local highways authorities over the coming months based on the length and condition of roads they are responsible for. The cash, said the Chancellor, would help road users by reducing the congestion and damage to vehicles caused by potholes.

In addition, the Chancellor announced a further £25) million investment to enable further progress on its ‘Managed Motorways’ programme and other transport projects. The funding will be spent through 2010/11 and will speed up the delivery of key road projects such as more hard shoulder running schemes designed to reduce congestion and improve journey time reliability and safety benefits to road users.

Green Investment Bank - Budget 2010 announced the Government’s intention to establish a Green Investment Bank (GIB) that will operate on a commercial basis and involve both public and private sector capital. The Government will start by investing up to £1 billion from the sale of infrastructure-related assets and will seek to match this with at least £1 billion of private sector investment, creating a fund of approximately £2 billion. The fund will be used to support further investment in low-carbon projects, including transport-related initiatives.