Under pressure from the environmental lobby, and from Labour’s own sense that it should be doing the right thing for the future, the government is struggling to come up with a coherent transport policy. And amongst all the rocks in the road towards such a unified Holy Grail, the company car stands out like a particularly hefty chunk of granite. From the standpoint of encouraging Britain to use public transport rather than clog up the countryside with endless traffic jams, the company car looks like an unambiguous evil and definitely something to be done away with. The problem, however, is that viewed from the standpoint of encouraging British competitiveness, the company car is one of the best incentive tools UK plc has in its armoury. If the Chancellor aims at the company car, he shoots British industry, and thereby his own coffers, in the foot. If he encourages the company car, he shoots all the toes off his transport policy. Faced with dilemmas like this, a politician’s strongest instinct is to form a committee and play for time. Small surprise, therefore, that we are told that the Inland Revenue and the motor industry will be consulting before the Millennium Finance Bill. To be fair to the government, however, it has to be said that the Budget did set guidelines for action. Chief among these is the idea of providing taxation disincentives to pollution and providing incentives for cleaner cars and cleaner fuels. As things stand, however, the car fleet leasing industry is not too dismayed by the current form of the government’s Transport White Paper or the recent Budget. “We had a great deal of sabre rattling in the Budget, but nothing that stands out as a coherent transport policy,” says Lease Plan’s Howard Thomas. What is clear, he says, is that the government’s policy is still full of anomalies and blank spaces. “We were promised a fuel policy, for example. What we got in the Budget was an increase that means that the UK now has the most expensive diesel in Europe, which makes no sense.” Martin Hall, marketing services manager at Lex, points out that there are many complexities surrounding the likely impact of the various tax options available to the Chancellor – and few seem to work in the direction favoured by the White Paper. He points out that a survey commissioned by Lex (conducted by the market research firm Sample Surveys in October and November 1998 across a sample of almost 1,300 motorists) found company car users resistant to attempts to tax them out of their cars. The Lex survey showed that 70% of those interviewed had no intention of using public transport more than they did at present even if the cost of using it were to be halved. Indeed, 75% said that they would not use it at all in the course of their work. Since perhaps the central plank in the White Paper is the idea of improving public transport and wooing the public into making increased use of a more efficient and cheaper public transport system, this does not bode well for the government’s policy review. Other White Paper ideas, such as charging drivers a penalty fee for taking their cars into towns and centres for work or shopping fared little better: 54% of motorists said that a fee of £3 per day would not drive them out of their cars when commuting to work. Bumping up road tax to £500 a year found 41% of drivers still committed to the car, though almost as many (39%) said that a tax at that sort of level would force them to abandon car ownership. Another favourite, the idea of introducing toll charges on car ownership on Britain’s major arterial routes, found the same hard core of committed car users. A charge of £5 per 100 miles, the equivalent of the French system, would fail to change the habits of 46% of motorists, the survey discovered. Even raising this to £10 per 100 miles would still leave a hard core of 36% of drivers on the roads. Astonishingly, even the prospect of an instant doubling of petrol prices still found 21% of drivers saying that they would continue to opt for the company car. “What we found was that although in general company car owners are not particularly familiar with the details of the White Paper, those who are aware of its existence tend to view it as a back-door tax mechanism, rather than as an environmental measure,” Hall says. Only three of the White Paper’s policies received majority support from motorists in the Lex survey. These were the Paper’s pledge of increased road maintenance, an increase in tax for large cars and the curtailing of new out-of-town shopping developments. Lease Plan’s Thomas points out that his company’s survey of almost a thousand company car drivers found that a tax on work-place parking, one of the favourite kites flown by the White Paper, would have a fairly dramatic effect on drivers. A tax of £250 per annum on work-place parking would be enough to make a quarter (26%) of company car drivers give up their fleet car. A further third (34%) would give up their car if the tax was set at around £500. A rate of £1,000 would virtually make a clean sweep of company car ownership, the survey found. However, results from the Lex survey show that the consequences of a work-place tax might not necessarily accord with the stated aims and objectives of the White Paper. “The results of our survey show that taxing work-place parking would be a recipe for disaster, since employees would seek alternative parking in nearby residential areas, thereby adding to road congestion,” Hall says. Some 67% of the respondents opposed the introduction of a work-place tax for employers, while 22% of employees thought that their employers would pass on any tax charge directly to them. If this passed-on charge reached £5-per-day, then half the respondents said they would rather park on the road than use company parking. 13% said that they would change jobs if their employer tried to charge them for parking space. Steve Clary at Ford Contract Motors takes an optimistic view of the Budget and its relationship to the White Paper. “We were relieved, by and large,” he says. “There was nothing there that was particularly detrimental to the car leasing market.” Over the next few years, he points out, companies are obviously going to have to take a prudent view of what the models they choose are likely to be doing to the environment. The obvious consequence of a change in attitude along these lines, he says, is that one can expect companies to down-size to smaller, more economical and more environmentally friendly vehicles. “We think that ‘environmentally friendly’ is highly unlikely to mean LPG driven cars, rather than petrol driven, since until there is a nationwide LPG network of garages, drivers are unlikely to accept that,” he says. In Clary’s view, the government has been clever in ensuring that it derives a maximum tax benefit from hitting the middle band of drivers, those who regularly travel over 2,000 and under 18,000 miles a year. “The vast majority of company fleet drivers are in this middle band. We are obviously going to see an end to the incentive for people to create false reasons for travelling long distances just to bump up their mileage. But this will be a good thing, since forcing people to travel to gain a tax advantage was always a nonsense. It is not good for traffic congestion or the environment, and it was never good for the taxman, who lost revenue,” he says. All in all, Clary judges, what the White Paper and the Budget demonstrate is that the government is taking a realistic approach to the impact that changes in transport policies have on all affected parties. “Previous governments simply imposed decisions on the industry. What the Chancellor has signalled is that there will be a detailed consultation process. That cannot be a bad thing.” Clary was more concerned about a move by the Accounting Standards Board (ASB) to reconsider the status of operating leases, with a view to possibly changing their accounting treatment from off balance sheet to on balance sheet. (See the story on page 3.) “If the ASB were to press ahead with this we believe that many companies would say: ‘Right, we don’t want leased fleets on our balance sheet, let’s take this opportunity to get out of the company car scene altogether!'” he claims. Clary argues that an accounting treatment that demanded operating leases appear on the balance sheet of leasees would bring about a dramatic and unacceptable deterioration of the operating company’s gearing. “It would be the biggest push that companies have yet received towards giving employees cash instead of cars and it would transform the structure of human resource reward strategies. This is definitely something our industry would resist,” he says.
View our archived webinar, including Oracle and a host of ‘Fast Data’ experts, to discover how financial professionals can help create a Fast Data business
Reinmoeller, professor of strategic management at Cranfield School of Management, has proposed an Eight Actions Model to help organisations increase margin and perform ahead of market expectations
When thinking about Iran as a potential market it’s important to go in with open eyes. This means being aware of some of the myths as well as being clear on the challenges
Third of UK companies with defined benefit pensions schemes are paying out more from their scheme in pensions than is being received in contributions