Fleets braced for tax hikes in the Budget

Anticipation is mounting as to what the Autumn Budget may mean for fleet decision-makers, with fuel duty, company car tax and national insurance potential targets for the cash-strapped Chancellor.

Chancellor Rachel Reeves is expected to unleash up to £40 billion of tax rises in the Budget tomorrow (Wednesday, October 30), while Prime Minister, Sir Kier Starmer says that short-term pain is needed to end the decline of the previous Conservative Government.

“I will defend our tough decisions all day long,” Starmer said yesterday (Monday, October 28). “It is the right thing for our country and it is the only way to get the investment that we need.”

With the Labour Government pledging not to raise income tax, VAT or employee national insurance, fleets are braced for tax hikes elsewhere, including fuel duty.

The previous Chancellor, Jeremy Hunt, announced a 12-month extension to the temporary 5p fuel duty cut for petrol and diesel as part of the Spring Budget in March. This was in addition to cancelling the planned inflation increase for 2024/25.

The temporary cut was first introduced in March 2022 to combat high fuel prices after global supply chain issues following the pandemic, as well as Russia’s invasion of Ukraine.

As things stand, petrol and diesel duty rates are set to rise by 5p in March 2025 plus retail price index (RPI) inflation (in April 2025) and by RPI inflation every year thereafter.

Ashley Tate, managing director of Allstar Chargepass UK, says that the UK’s businesses are “bracing for major changes – many of them unwanted”.

“For the UK’s fleets and fleet operators, it is yet another period of deep uncertainty, during a critical period of change and transition,” he added.

“There seems to be general consensus that the freeze on fuel duty that began in 2011, and the extension of the temporary fuel duty cut from 2022 will come to an end, putting £2bn back in the budget at the expense of both poorer drivers and larger fleets.

“The extra 5p charge on every litre of petrol will quickly add up to thousands of pounds when they are refuelling large vehicles that are constantly on the move, such as delivery vans.”

Research by IAM RoadSmart shows that the two biggest concerns for motorists are either cost, or the state of the roads.

The charity is calling on the Chancellor to maintain the current the 5p cut that was introduced in 2022. If the rate is increased, this should be partially ringfenced into repairing Britain’s crumbling road network and filling in potholes, it says.

Crumbling road network

IAM RoadSmart Director of Policy and Standards Nicholas Lyes said: “At the very least, if fuel duty is to increase, the Chancellor should ringfence this money to repair Britain’s crumbling road network.

“Not only will this save motorists money in repairs, it will more importantly save lives, especially for those travelling on two wheels where the impact of hitting a pothole is likely to be far more severe.”

In the run up to the General Election the Labour party’s manifesto pledged to fix an additional one million potholes across England in each year of the next Parliament, in comparison to the 1.8 million pothole repairs in England reported in the Annual Local Authority Road Maintenance (ALARM) survey 2024.

Now, in Government, Lilian Greenwood, minister for the future of roads, told the audience at Highways UK earlier this month that she was committed to investing in local roads, but at what level remains to be seen.

“We know from ALARM that the condition of our local roads is at an all-time low, and that this the result of decades – not just recent years – of underfunding as well as the effects of all the physical and climatic challenges on a deteriorating network,” said David Giles, chair of the Asphalt Industry Alliance (AIA).

“It’s clear that current approaches to highway maintenance funding are not delivering for road users. It’s time for a rethink and we call on the new administration to place improving local road conditions at the heart of the Government’s transport policy.

“We urge the Chancellor to commit to adequate sustained, targeted and accountable funding for local roads – provided on both a needs and improvement basis – over the long term.

“This will allow local authorities to plan and proactively carry out the right maintenance intervention at the right time to the greatest benefit of all road users, rather than just having enough money to address immediate and urgent repairs.

“Without it there will be a continual decline in the condition of our local roads on which we all rely.”

Stability and certainty needed

Tate says the fleet sector needs stability and certainty. “One of the few areas we have this for are benefit-in-kind (BIK) tax rates,” he said.

Company car tax rates beyond April 2028 are unknown. “Short term plans and policies – or reversing of these – results in stunted momentum, and this cannot be allowed to happen,” Tate continued.

“We’ve seen other nations, such as New Zealand and The Netherlands, have successfully created great momentum in the electrification of their transport and logistics infrastructure only to see it stall when government initiatives change or stop altogether.

“The UK Government must acknowledge that drivers have been through a difficult few years and make serious and long-term commitments for at least five years. That would give everyone time to plan, to adapt to new conditions and would give the UK’s drivers a much-needed break from uncertainty.”

Barney Goffer, UK product manager at Teletrac Navman, says that, while the fleet industry is eager to hear about the plan for a “realistic road to net zero”, one of the more concerning suggestions for transport businesses, other than the obvious potential rise in fuel duty, is the rise in employer national insurance contributions (NICs).

“Kickstarting economic growth relies on multiple sectors operating efficiently and cost-effectively – the transport sector being a major factor in this,” he said.

“Increasing NI on top of operational costs such as fuel is a very difficult thing for a transport sector already running on low margins to absorb.

“The obvious thing to do would be to pass the rise in tax onto the customer but in a highly competitive transport sector there’s always someone willing to run at even lower margins.

“If the sector does inevitably have to absorb this additional tax, it also raises the question of what remaining capital will be available to invest in the important transition away from ICE (internal combustion engine).

“There’s potentially big ramifications for the sector depending on how much it gets hit at the pump and on payroll so investment in operational efficiencies will be more important than ever.”

Employers currently pay national insurance of 13.8% on all earnings above £175 per week. They do not pay NI on pension contributions, but there are concerns that this could change and the impact this could have on wider salary sacrifice arrangements, such as cars. 

If Government opted to impose a contribution of 2%, for example, it could add thousands of pounds to employer costs.

Salary sacrifice, also known as salary exchange, has been integral in helping employees to lease an electric vehicle (EV) by agreeing to give up a proportion of their salary.

While there is not currently a limit of how much employees can sacrifice beyond the national minimum wage, Alphabet says that any plans to change the benefit thresholds could wreak havoc with salary sacrifice scheme providers if the numbers do not add up for vehicle lessees.

Caroline Sandall-Mansergh, consultant and channel development manager at Alphabet (GB), is calling on the Government to “carefully consider” making any changes to salary sacrifice to stop the industry moving into an EV recession.

“It cannot be underestimated the advantages that salary sacrifice schemes have to help people lease a new zero or lower emission vehicle,” she said.

“If employees are doing business miles or commuting to and from work, it will have a positive impact on a company’s carbon emissions’ reporting, which most companies will be required to disclose from next year.”