COSTS of operating company cars could rise dramatically under a Labour Government prompting a fleet industry shake-up, it was claimed.

Labour is declining to discuss its taxation position in public, but there is widespread belief the current 40% higher rate of tax could be increased by a Labour Government and fears that VAT levels and National Insurance could also rise.

W F Corroon, part of leading actuarial, human resource and benefits consultancy, Willis Corroon, claims a Labour Government could have a significant effect on the company car. It believes there could be a dramatic increase in employees ditching company cars for cash alternatives, with fleets renting cars for essential journeys or companies paying mileage allowances.

Executive director of human resources and compensation Nicholas Bennett, said if the Government changed personal taxation could increase. 'This will increase real costs to employees of company car provision, with the likelihood that more will opt for alternative cash allowances, so more tax effective secondhand vehicles are purchased rather than new company vehicles.'

In its 1996 Company Car Survey of 519 organisations employing 730,000 people, Corroon predicts Labour could increase VAT from 17.5% to 20% or more, or impose a higher rate on 'luxury items' like cars. Bennett predicted an inflation rise as the new Government's spending increased. Vehicle manufacturers would pass on production costs to fleets and other customers. The survey is published next month and the company is reviving its 'Directors' Company Car Report' for the first time since 1993.