The concept of Peak Car – whether, in developed nations, use
of the private car has reached a zenith and is now in decline – is a subject of
much debate and argument among transport campaigners and motoring lobby
groups. Certainly, in the US and the UK
there is evidence that car use has declined according to various indicators, in the decade ending
2006, which is taken to be an appropriate date to measure to, as it predates
the current economic downturn and so is not confounded by purely temporary (I
hope!) factors. One such indicator is
the decline in vehicle mileages which, together with more fuel-efficient cars,
has led to a steep decline in fuel sales and so in taxes and duties collected
from motorists. (How those revenues should
be replaced from motoring is beyond my expertise) Another is the steep decline – from about 45%
to about 32% - in the proportion of 17-23 year olds who hold driving
licences. In fact, if you look at a bar
chart of driving licence penetration of the UK population by age group over the
last 40-50 years, it looks a bit like a “wave”, with its peak moving through
the age groups as the baby-boom generation has aged. True, the wave has a steeper and a shallower
face, ie the penetration behind the peak (lower age) is higher in more recent
decades than in earlier ones, but the peak has moved towards the 65+ bracket
and so presumably will start to fade out.
This is a bit woolly of course, and I can no longer lay my
hands on the links to some of these observations to illustrate them, but I can
do better than that – I haven’t yet lost the link to the “On the Move” report
co-sponsored by the RAC Foundation. This
report is referenced on the RACF website with a page headlined “Millions more women on the road as young male drivers ebb away”. This, and the following statement:
The researchers found
little evidence of ‘peak car’ - the situation in which there is no increase
over a sustained period of time (and in some cases a decline) in average car
mileage per person, even during periods of economic growth. Once company car
mileage was excluded, those aged 30 and over outside London actually increased
their car travel right up to the 2007 recession. This group accounts for 70% of
the British adult population. [My emphasis]
do seem to be trying to put a spin on the finding which is
in contradiction with the detail. The selective
presentation of the information would not disgrace that master-manipulator of
raw data, Transport for London. How can
you argue against Peak Car by excluding one of the biggest car-owning regions
of the country (even if car ownership there is below average) and the potential
future drivers who would be needed to replace those older drivers who will, over
the next decade or two, die of old age, possibly some time after they have
decided that they no longer feel competent to drive?
What interests me more, though - and here I am moving into
an area in which I actually have some expertise instead of some not necessarily
well-founded views – is the selective exclusion of company car mileage.
From this statement, and from what is recorded in the
executive summary of the report itself, you might conclude that the decline in
company car use is not relevant to the overall picture, but this is highly
misleading.
The first statements you come across, “the steep decline in company car use is hugely important, but
obviously not something that can be repeated”, and “there is some evidence of a partial shift of business travel from
company car to rail for men” (Key findings panel, page iv) are
unarguable. If company car use declined
to zero then it couldn’t go lower. A
shift from car to rail is an obvious consequence of one of the key changes to
the taxation of company car benefits, explained below.
For you see, I am a professional tax adviser, and have been
since 1981.
Prior to about 1998 – I haven’t been able to pin down
precisely whether it was until 5 April 1998 or 5 April 1999 as I can’t find the
information on the HMRC website, so I am going from memory – company cars were
subject to a standard tax charge according to engine cc bands. The bands were below 1,400cc, 1,401-2,000 cc
and 2,001cc & above. Slightly lower
rates applied for diesel engines in the same cc bands. There was no reference to capital cost, or to
fuel consumption/CO2 emission figures. The
result was of course to distort the market – an executive would prefer the
Grand Luxe version of one model over the more basic version of a larger-engine
model if it affected the cc band, and bunching around 1,399 and 1,999 cc
engines was significant.
At the same time, the tax charge could be halved if the car
was used for more than 2,500 business miles a year. The obvious result – and as a one-time company
car user I can attest to this personally – was that company cars were
frequently used for unnecessary business journeys, or journeys which would have
been better undertaken on public transport, to get the mileage up. For example, if I had an office training
course at a De Vere conference venue in Kettering, I would be sorely tempted to
go home, pick up the car and drive there instead of taking the train direct
from London. I even once had a colleague
who drove to a client meeting in Germany, more or less getting his entire 2,500
business miles in one trip! (The CO2 per
mile per passenger to fly is about half the CO2 per mile per car, ie two people
can travel more greenly by air, three by sharing a car).
Company fuel benefit was also taxed in similar bands, at quite low rates, and
the obvious consequence of that was that if you were going to pay £x flat rate
per year in income tax for all your petrol, and if your employer placed no
strict cap on the benefit he was prepared to pay for, you might as well fill
your boots.
So, around 1998 or 1999, the tax benefits scaled were
fundamentally changed. There has been
any number of minor adjustments since, but the fundamentals have remained
consistent. You compute the
capital costs of the car – recommended retail when new, including all extras added – and to
that you apply a charge of 35% pa. That percentage
can be reduced for low-emissions cars, and what has changed year on year is the
threshold for a low emissions car – the CO2 threshold has gone down from
155gm/km to 125 last year and 100 now. There
is no high-business-mileage reduction.
The fuel benefit changed to a scheme where an annual base value
is set and amended annually by statute.
This is currently about £20,000.
To this you apply a percentage, from 15% for the lowest emissions cars
and 35% for the highest. In other words,
a small hatchback would incur a fuel charge of about £3,000 pa and a Range
Rover about £7,000 pa.
It doesn’t take a mathematical genius to figure out that a
standard 3- or 4-year lease contract for most cars costs less than 35% of
retail price per annum. Supplying a car,
without free fuel, as a benefit (as
opposed to with genuine business need, eg a travelling salesman, or a
photocopier engineer) suddenly cost more in tax than the true value. So, my then employer changed its policy: instead of providing a car, they would assist
you in leasing one personally, and contribute up to a specified monthly amount (permitting
you to top-up to a limited extent – you could not for example have an allowance
of £500 pm and then contribute a further £1,000pm to lease a Porsche). Or, you could have the allowance in
cash. Either way it was taxed at its
cash value.
Funnily enough, most employees opted to take the money and
find themselves a car privately. Like
many others, I bought out my leased car and kept it another 4 years until it
had 120,000 miles on the clock. And of
course once you are paying the cost yourself, and have alternatives for what
you do with that money, you start to make more rational decisions. You no longer drive in the knowledge that it
doesn’t matter how far, or fast, or badly, you drive because the cost to you is
just an unvarying number on your tax
assessment.
Hence, as the report states, “The largest reductions in company car mileage have been among men classified
as ‘professionals’ (down by 63%) and ‘employer/managers’(down 35%). This
results from reductions both in car ownership and in usage per company car” (Para
14 page vii) These groups are the
ones most likely to have been provided with a car wholly or substantially as a
tax-efficient benefit-in-kind.
The following paragraph of the report goes on to say “There is circumstantial evidence of some
mileage having transferred from company cars to private cars among the
employer/manager group, where private car mileage increased slightly while company
car mileage decreased.” (para 15 page viii) If many company cars were
provided substantially for personal use, as a benefit-in-kind, then it goes
without saying that at least some of that car use would transfer from company
to private. Or as my teenage daughter would
say, “No shit, Sherlock?”
My final quote from the report is this: “Figures from HM Revenue and Customs show that the notional taxable
value of an employee being provided with free fuel for private use rose sharply
during the late 1990s/early 2000s. This resulted in an 80% drop in the number
of people declaring that they have been provided with both a company car and
free fuel for private use.” (Para 27,
page xi)
So, in summary, a significant proportion of company cars
were supplied as a benefit in kind rather than for explicit business use. Changes in tax rules have led to a steep
decline in the provision of company car benefit. As the principal use of those company cars was
for personal purposes, privately owned and financed cars took their place. You absolutely cannot pretend that
company cars are not relevant to the Peak Car question.
QED
It was a great experience to read this interesting article about the peak car and the company which have manufactured it. I will look forward to get more stuff about this car from somewhere.
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