Grey fleet cash allowance costing councils £50m

Cash-strapped councils are stumping up an estimated £50 million a year in lump sum payments to almost 43,000 grey fleet drivers.

Classed as ‘essential users’ due to job need or minimum mileage, the employees receive a cash lump sum each year on top of any mileage they reclaim for driving their own vehicle in the course of their work.

Two-thirds (66%) of UK councils pay the cash allowance, but research suggests that only one-in-four of those are reviewing their reimbursement schemes.

The largest total lump sum is paid by Epsom and Ewell Borough Council, with essential users receiving up to £6,800 a year – 21 employees qualified for the perk in 2014. The smallest annual allowance of £271 is paid by North Lanarkshire Council.

However, almost half (48%) of the councils that pay their grey fleet drivers a cash allowance, pay an annual rate of up to £1,239, according to nationally agreed rates.

The single status collective agreement made in 2010/11 by the National Joint Council (NJC) – a negotiating group made up of employers and trade unions – allows for essential users to be classed into three payment rates according to their vehicle’s engine size.

Drive a vehicle between 451-999cc and the reimbursement rate is £846 per year; between 1000-1199cc is £963; above that an employee can receive £1,239 a year.

However, some councils have struck local agreements on reimbursement rates. As a result, around a quarter of those that said they did pay an essential user allowance have reduced their annual payment to a maximum of £963.

The figures have been revealed as part of a Fleet News investigation that has provided a unique insight into council fleet operations in the UK.

Information was sourced through a series of freedom of information requests sent to 434 UK councils, not including parish and town councils, between July and December last year, with a 92% response rate.

It revealed that 42,790 employees received an essential user allowance, with the lion’s share – 38,212 essential users – working for local authorities in England. In Scotland there were 2,442 essential users, 1,321 in Northern Ireland and 815 in Wales.

Taking the whole of the UK into account, Leeds City Council had the most employees classed as essential users, with 1,489 grey fleet drivers receiving a cash allowance. It was followed by East Riding Council and Bolton Council, which reported 1,200 and 1,075 employees respectively receiving cash lump sums.

Aware of the strain on council finances, Leeds City Council has introduced a range of measures to try to cut grey fleet costs. They include the introduction of HM Revenue and Customs (HMRC) approved mileage allowance payments (AMAP). The 45p per mile (ppm) tax-free rate for the first 10,000 miles and 25ppm thereafter is designed to cover the cost of fuel, insurance, service, maintenance and depreciation incurred by the employee.

Leeds had been paying up to 65ppm for casual users and up to 50.5ppm for essential users for the first 8,500 miles.

The local authority has also tightened up the eligibility for an essential user allowance and scrapped the payment for all new starters.

The measures are intended to save the local authority £675,000 a year by reducing mileage rates and £750,000 by curbing allowances for essential car users. The council spent almost £4.7m in 2013/14 on its grey fleet.

East Riding Council, with 1,200 of its employees receiving a cash allowance, is also reviewing its mileage reimbursement scheme in an effort to cut costs, while Bolton Council tightened its essential user status qualifying rules in 2012 and reduced its mileage reimbursement rates. 

Dean Hedger, head of public sector at Alphabet, said: “The hidden financial and environmental costs, combined with concerns around duty of care, are causing more organisations to re-examine how to reduce their grey fleet.”

Hull City Council, for example, has scrapped its essential user status and introduced HMRC reimbursement rates.

It was paying more than 500 employees up to £1,239 per year but, faced with the need to save up to £40m by 2016, it decided to act. It discovered an essential user scheme which had not been properly policed, leaving employees to claim the cash lump sum, while not necessarily meeting qualifying terms and conditions.

“People were just getting it if they said they needed a car for work,” said Councillor Phil Webster. “People would be essential car users and they would be moved to another job and it was never taken off them.”

Fleet News research has revealed that 344,679 employees working for UK councils are classed as grey fleet drivers, collectively costing the public sector £275m a year.

Around 12% of those employees are classed as essential users, with the estimated figure of £50m for lump sum payments equating to approximately 18% of overall grey fleet costs.

But the cost of paying council employees to drive their own car in the course of their work has also been inflated by generous mileage reimbursement rates. The NJC agreement allows for casual users – those that do not receive a cash lump sum – to claim a mileage reimbursement rate almost 50% higher than the HMRC agreed rate.

Using the same engine size categorisation as essential user allowances, casual users with the largest engine size can claim 65ppm for the first 8,500 miles. Even the two lower rates of 52.2ppm and 46.9ppm are higher than the Government’s AMAP rates. Essential users also enjoy generous reimbursement rates, with the NJC agreement allowing for employees to claim 50.5ppm, 40.9ppm and 36.9ppm depending on engine size.

Looking at all councils in the UK, almost half (48%) paid employees a rate higher than 45ppm, while 47.4% reimbursed their drivers at 45ppm and 4.6% had a mileage rate below the AMAP rate. One in four councils (25.4%) reimbursed their drivers at up to 65ppm.

Councils have struggled to change the terms and conditions of employees in the face of stiff opposition from trade unions. However, some have chosen to employ a range of measures in an effort to persuade employees to use an alternative to their own car.

Pool car schemes and car clubs are giving employees an alternative to grey fleet usage, while stricter controls, including mileage caps on grey fleet journeys, are helping to cut costs. Just under a fifth (18%) of organisations now offer employees access to a corporate car sharing or car club service, while 36% offer daily rental vehicles as a business travel option, according to Alphabet.

For example, Aylesbury Vale District Council (AVDC), which reported 52 essential users out of more than 200 grey fleet drivers, is estimated to save £100,000 a year after introducing a car sharing and rental programme. 

Nine low emission vehicles provided by Enterprise Rent-A-Car are now being used by staff travelling on council business.

Adrian Bewley, director of business rental UK & Ireland at Enterprise Rent-A-Car, explained: “The council wanted to move away from the expense and hassle of mileage reimbursement, but the question was how best to do this in the absence of a public transport option.

“Our technology provided the data capture that enabled us to analyse exactly how, where and why rental and car sharing would be a better alternative.

“A lot of organisations are still unsure how much they’re spending on the grey fleet and therefore don’t see that there could be a better way. That’s why we help them analyse those costs and behaviours right down to the tiniest detail.” All AVDC employees are now required to use the new rental and CarShare vehicles rather than their own cars for work journeys.

Experts have predicted a new wave of corporate car sharing and, with a further squeeze on town hall budgets expected, more councils could follow suit.