Tax u-turn on emerging technologies puts diesel in pole position

DIESEL power is set to monopolise company car sales from 2015 – although some would argue it is close to dominance now – as a result of benefit-in-kind tax changes that have virtually killed the electric vehicle market before it has become established.


That is the claim of Mark Chessman, commercial director with responsibility for sustainability at Lex Autolease, following the recent 2012 Budget.


Whole life cost figures from the company suggest that diesel pump prices would have to rise to more than £7 a litre or electric vehicles list prices tumble by more than a third to bring parity to the operating costs of ‘average’ diesel and electric cars.


Chessman said: ‘There are winners and losers in every Budget. But the benefit-in-kind changes to company cars have poured cold water on the prospect of any meaningful power struggle for fleet dominance between diesel and electric. Or even diesel and petrol for that matter.


‘If 2011 was billed as the year of the electric vehicle, then you don’t need a time machine to realise that 2015 will be the year that diesel really begins to really monopolise fleet sales.’


The Government announced in the Budget that fromApril 6, 2015the five-year exemption for zero carbon and ultra low carbon emission vehicles will come to an end. The appropriate percentage for zero emission and low carbon vehicles will be 13% from April 2015 and will increase by two percentage points in 2016/17; and from April 2016, the Government will remove the 3% diesel supplement differential so that diesel cars will be subject to the same level of tax as petrol cars.


Chessman said: ‘In withdrawing the benefit-in-kind discount from electric vehicles and hybrids and increasing the CO2 scale charge so rapidly, the Government has surprised many stakeholders right across the motor industry.


‘The real fear is that this will make manufacturers think twice about committing to developing low emission technologies – be it electric, hydrogen or any other. It should be noted that the market still has not so fond memories of the LPG debacle and will not want to be burnt twice.


‘The Government’s budgetary shift in policy away from supporting ultra low and zero emissions vehicles is particularly pronounced when you also examine what’s happening at the opposite end of the tax scale.


‘Over the next four years, vehicles with no tailpipe emissions will be subject to a 15% increase in benefit-in-kind. Meanwhile, executives running the most polluting new petrol cars on the road will barely notice the standard 2% levy, which will also apply to most other company car drivers.


‘Some argue that battery-powered vehicles have struggled to get a foothold in the market – even with heavy subsidisation – but the fact remains that only a handful of pure electric vehicles have been launched over the last 18 months.


‘Historically, it has taken 10 years for fundamentally innovative vehicle technologies to really break into the mainstream. So, it’s particularly disappointing that the benefit-in-kind life support machine will be switched off before the market’s had time to make up its mind.


‘The scale of the benefit-in-kind u-turn appears perverse at a time when significant investment has very recently been ploughed into the Plug-In Car and Van Grant. Not to mention the ongoing development of the public recharging infrastructure, such as Plugged-In Places.


‘Battery-powered vehicles, whether they are pure electric vehicles or a hybrid solution, need time and assistance to find a natural equilibrium in the market. Even before the tax changes were announced, the medium term outlook for this segment was to fill a relatively small, but important, niche.


‘In light of that, and the current economic realities, perhaps it’s understandable that there is a tremendous lure to downwardly readjust or withdraw the incentives.


‘However, it will be interesting to observe whether policymakers intend to level the playing field going forward, which has been seismically altered by the benefit-in-kind threshold changes and the removal of the 3% diesel surcharge.


‘For electric vehicles to survive and prosper well beyond 2015, we are going to have to see a combination of factors come into play with both positive and negative consequences for fleets and drivers.’


Calculations from Lex reveal the wide whole life cost disparity between a Ford Focus diesel and the electric Nissan leaf over a three-year period pre and post the forthcoming benefit-in-kind tax changes.


The table (below) shows the whole life cost taking into account: lease costs, fuel/ electricity, disallowed VAT and employers’ National Insurance contributions.


Company Car Average Projected MonthlyWLC(April 2012 – March 2015) Average Projected MonthlyWLC(April 2015 – March 2018)
Nissan Leaf

Hatchback 5dr Auto

£642 £693
Ford Focus Diesel

1.6 TDCi  115 Edge 5dr

£416 £421


Lex says that diesel pump prices would need to rise from the current £1.47 per litre to £7.02 per litre (478%) to equalise the whole life cost of the Leaf and the Focus, all other things being equal. Alternatively, the price of the Leaf would need to fall by 37.2% by April 2016 relative to the price of the Focus to bring whole life costs into line, assuming the current £5,000 Government grant remains in place. If that was removed, the price would need to fall by 52.9%, all other things being equal, says Lex.


Potential ‘game-changing’ scenarios that, in theory, could rescue the plug-in vehicle market, according to Lex, include:

  • Frequent and sizeable increases in the fuel duty escalator
  • Significant reduction in manufacturer list prices of electric vehicles
  • Widespread adoption of battery leasing to minimise P11d
  • A quantum leap in battery performance and costs
  • Widespread imposition of emissions-related road charging schemes
  • Sizable electric charging subsidies for homes and businesses
  • Mandatory carbon reporting on transport emissions for businesses


Chessman concluded: ‘The fleet industry’s carbon footprint will continue to fall for the foreseeable future, but we may look back and wonder what could have been given a little more encouragement for the green shoots of a potentially burgeoning electric vehicle market.’

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