Budget: Diesel targeted by Chancellor but there is support for electric vehicles

Fuel duty has been frozen yet again, but diesel company car drivers and fleet operators will have to dig a little bit deeper from April 2018.

The existing diesel benefit-in-kind tax supplement of 3% will rise by 1 percentage point to 4% from April 2018.

The first-year VED rate for diesel cars that don’t meet the latest emission standards will also go up by one band.

The Chancellor, Philip Hammond, said that the Vehicle Excise Duty (VED) measure would only apply to cars. “So before the headline writers start limbering up let me be quite clear,” he said. “No white van man or woman will be hit by these measures. This levy will fund a new £220 million Clean Air Fund to provide support the implementation of local air quality plans.”

Examples of impact on company car tax of the first year one-off VED increase (Source: HM Treasury)

Matt Dyer, managing director at LeasePlan UK, welcomed the freeze on fuel duty.

He said: “We’re glad that the Chancellor has listened to motorists and the fleet industry, and decided to extend the freeze on fuel duty for another year. However, even with a freeze, fuel prices are still rising. If this continues, the Chancellor should consider cutting duty rates for the first time since 2011.”

Fuel

Fuel duty will be frozen for an eighth year in 2018-19. The Government says that fuel duty freezes since 2011 will have saved the average driver a cumulative £850 by April 2019, compared to what they would have paid under the pre-2010 escalator plans.

The Government will also review whether the existing fuel duty rates for alternatives to petrol and diesel are appropriate, ahead of decisions at Budget 2018.

In the meantime, it will end the fuel duty escalator for Liquefed Petroleum Gas (LPG). The LPG rate will be frozen in 2018-19, alongside the main rate of fuel duty.

The Fuel Benefit Charge and the Van Benefit Charge will both increase by RPI from April 6, 2018.

Air quality

In support of the National Air Quality Plan published in July, the Government will provide £220 million for a new Clean Air Fund. This will allow local authorities in England with the most challenging pollution problems to help individuals and businesses adapt as measures to improve air quality are implemented.

READ MORE: air quality

VED and BIK

The Government says it is launching a consultation alongside budget on options that could be supported by this fund which will be paid for by changes to VED and BIK.

A VED supplement will apply to new diesel cars first registered from April 1 2018, so that their First-Year Rate will be calculated as if they were in the VED band above. This will not apply to next-generation clean diesels – those which are certifed as meeting emissions limits in real driving conditions, known as Real Driving Emissions Step 2 (RDE2) standards.

The rise in the existing company car tax diesel supplement from 3% to 4%, with effect from April 6 2018 will also apply only to diesel cars which do not meet the Real Driving Emissions Step 2 (RDE2) standards (60) 3.43 VED.

Meanwhile, the Government says it will increase in line with RPI from April 1 2018 VED rates for cars, vans and motorcycles registered before April 2017 and the First-Year Rates for cars registered after April 2017.

Dyer said: “Whilst we appreciate this clarity, we don’t want to see diesel motorists unduly penalised – particularly as new, cleaner diesel technology will still be important for both small and large businesses in coming years.

“The Government should offer carrots as well as sticks. Ministers have promised to bring forward measures to help motorists go green, and we look forward to seeing what these will be.”

There was also clarity from the Treasury on the implementation of the Worldwide harmonised Light vehicles Test Procedure (WLTP) in the Budget. Chris Chandler, principal consultant at Lex Autolease, said: “We welcome HMRC confirming that company car Benefit-in-Kind taxation will continue to use New European Driving Cycle (NEDC) derived official CO2 figures until 2020. This is good news for fleets as it removes some of the uncertainty over the transition to the Worldwide harmonised Light vehicle Testing Procedure.”

HGVs

There will be a freeze for Heavy Goods Vehicle (HGV) VED and Road User Levy rates from April 1 2018.

A call for evidence on updating the existing HGV Road User Levy will be launched this autumn. The Government will work with industry to update the Levy so that it rewards hauliers that plan their routes efficiently, to encourage the efficient use of roads and improve air quality.

EVs and driverless cars

Hammond also offered support to autonomous cars by declaring that, despite criticism of the technology by Jeremy Clarkson, future vehicles will be driverless, but they’ll be electric first.

“And that’s a change that needs to come as soon as possible,” he said. “So we’ll establish a new £400m charging infrastructure fund, invest an extra £100 million in plug-in-car grant, and £40 million in charging R&D.”

He also confirmed that HMRC will clarify the law so that people who charge their electric vehicles at work will not face a benefit-in-kind charge from next year.

David Martell, chief executive of Chargemaster, said: “We hope that some of this funding will be directed towards preparing network connections and reinforcing the electricity grid where required.

“We have already attracted private investment into the deployment of charge points across the UK, and having sufficient suitable sites at which to install them is important.”

Overall outlook

The Chancellor started his budget speech by announcing that the UK economic outlook had been downgraded by the Office for Budget Responsibility (OBR)

It has revised down its forecast for GDP growth in 2017 to 1.5%, given slower growth than expected at the start of the year and revisions to past growth in 2016. Thereafter, slower growth is driven by the lower assumption for trend productivity. Lower GDP growth is reflected in lower consumption growth and business investment.

From 2020, consumption growth picks up and GDP growth rises to 1.6% at the end of the forecast. Cumulative GDP growth is expected to be 2.1 percentage points lower over the forecast period, compared to the forecast at Spring Budget 2017.  

The OBR also forecasts CPI inflation to peak at the end of this year, averaging 3% in Q4. It is then expected to ease over 2018, reaching 2% by the end of the year, as the effect of sterling’s depreciation wanes. Inflation then remains steady around 2% until the end of the forecast.

Calire Evans, head of fleet consultancy at Zenith, said: "The fleet sector called for clear guidance on a range of issues, and it is good to see some clarification from the Chancellor that will help our industry plan with more confidence.

"There is a clear direction of travel from the government with more support for the adoption of cleaner engine technology and electric vehicles with taxation only impacting less efficient diesels."