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Employee benefits – Key to change

In anticipation of the changes in company car tax last April, much was written about the impending death of the car as a perk. Pundits suggested that company cars would cease to be an attractive option because they would be taxed to extinction. However, evidence suggests that even where companies have opted out of supplying vehicles and put in place an employee car ownership ECO plan (this allows employees to pay a deposit and a monthly fee with an option to purchase the car outright after three years), company cars are still a very popular choice.

Nigel Dumbrill, client account manager for employee benefit advisors and actuarial firm Gissings, says his firm was one that expected the tax changes last April to have more effect. “Even those who have been worst affected find that a company car is very convenient,” he says.

Dumbrill also suggests there’s still status attached to being given a company car because if employees had to buy their own they would probably opt for a cheaper vehicle.

According to the 2002 Monks Partnership guide Company Car UK, which surveyed 162 companies, 7,605 out of 113,801 company cars were employee owned under a car ownership plan. The majority of large companies (62%) have a policy that allows the driver to contribute to the cost of the car and trade up to a more expensive model; 81% also allow trading down, with 76% passing on part or all of the savings to the driver.

Kevin Ruffles, business services director of Hogg Robinson, says freedom of choice is all. “People want to be able to opt out. We have a package that gives everyone a benchmark car and they can trade up or down, either paying extra or taking a cash supplement. This removes the status element. Choice is important,” he says.

A company car sits alongside other options in Hogg Robinson’s flexible benefits package. “We had 470 cars in the fleet in 2001 and when we introduced the flexible plan, 30 or 40 people opted out. I envisage the fleet size coming down to around 200 inside two years,” he says.

According to research by the Chartered Institute of Personnel Development, 5% of organisations intend to phase out company car provision in 2003. In some cases it will be replaced by car allowances. Among the companies moving away from car provision is events organiser Maritz. “The whole of my team has opted out,” says director of business development Freddie Guilmard. “We wanted to offer a more flexible benefits package and people appreciate the freedom of choice. This hasn’t made recruiting sales people difficult,” he says.

However, Andrew Cope, managing director of Zenith Vehicle Contracts, argues that a car will remain a popular benefit. “While there may be fewer of the traditional type of company car on the road in four or five years’ time, there will certainly be more through employee car ownership schemes,” he says. “We see this trend accelerating to meet the individual demands of employees, which can vary enormously.”

Flexibility is the key. Nick Sutton, managing director of Provecta Car Plan, says: “Flexible benefits let people choose the car they want. If they decide to trade down, they can take the difference as cash to top up their pension or spend it on a holiday. This serves everyone’s purpose. Those who trade up aren’t paying any more tax because, with an ECO, emissions become irrelevant.”

Where companies still own fleets, HR directors find they are a barrier to genuinely flexible benefits, according to Karen Bowen, head of personal motoring at Arval PHH. “If an employee may trade up or down, and the company owns the car, the specification of the vehicle is unlikely to match the requirements of the next person in the job,” she says. “However, with a structured retail APR package, employees get guaranteed credit acceptance and a better choice of vehicle, and the company retains policy control – insurance, tax, maintenance. It’s the best of both worlds.” She says the opposite package – the unstructured retail APR – is only offered where companies want to discourage opting out.

Nevertheless, as Cope argues, company cars that are part of a salary package are still an attractive benefit for most employees, particularly junior members of staff who often have difficulty obtaining competitive finance and insurance because of their age or financial circumstances.

Company Car UK is available from Monks Partnership (, price #275.

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