Call to axe diesel tax surcharge

Pressure is growing on the Government to axe the 3% company car tax penalty for diesels after this week's budget raised the cost of running a fleet car.

For the fifth time in seven years, company car tax bandings were increased in the Budget, adding a further 1% to each of the 20 carbon dioxide bandings between 135 and 230g/km.

'Continuing to change the tax brackets like this is all part of the Government's long-term strategy to reduce carbon dioxide emissions,' says the British Vehicle Rental and Leasing Association (BVRLA), the company car trade body.

Forward planning: we see 2010/11 figures
The figures published exclusively here are not contained in any official Budget documentation and this is the first time company car drivers have seen official benefit-in-kind bandings for the 2010/11 tax year.

Until this week's budget, company car drivers planning for the future only had figures for the forthcoming financial year 2008/09 and the following year 2009/10.

To look at the figures click here.

This means that, for example, a petrol car such as a Ford Mondeo 1.6 rated in the 170 to 175g/km banding will be liable for a benefit-in-kind rate of 24% in 2010/11. In 2008/9 and 2009/10 the figure will be 23%.

This means that for the first time in 2008, a company car buyer making a decision this year can now predict the full cost of the vehicle over a typical three-year lease between 2008 and 2010.

Tax to go up again
Although figures for 2011/12 won't be released until the Budget in 2009, it seems certain that they will be raised again.

'In meetings with the Treasury, it's been made clear that they need to make the bandings tougher each year to keep up with environmental gains being made by car-makers,' says the BVRLA.

In other words, although the Government says it wants to encourage drivers to switch to lower CO2 cars, once they do and the tax take goes down, so the government has to raise the bar again.

Inconsistent thinking
However, there is a huge inconsistency in the Government's thinking, because the highest-rated C02 banding for cars of 255g/km and above remains unchanged.

Cars such as luxury saloons with V8 and V12 petrol engines continue to attract a 35% tax rate, just as they did in 2003 when the new system was introduced.

Another huge inconsistency in company car tax policy is the way that diesels continue to be penalised with a 3% higher tax banding.

Diesels are typically 10% more fuel-efficient than a petrol engine, but are penalised because historically they produce more particulate pollutants.

But the pollutants gap between diesels and petrols has narrowed, thanks to better engine controls and exhaust particulate traps.

Diesels unfairly penalised
Both the BVRLA and Society of Motor Manufacturers and Traders (SMMT), the car makers' trade body, have unsuccessfully lobbied the Government to drop the 3% diesel penalty in the past few years, largely because the latest EU emissions rules, called EU4, have cleaned up diesels so much.

The Government will find it harder to resist such calls in future budgets, without appearing to snub car makers achievements in cleaning up diesels even more.

In 2009 a new standard called EU5 will mean that the mass of particulates emitted by diesels and petrols will be exactly the same. 'Certainly from the introduction of EU5, there is no reason for the 3% diesel penalty to stay,' says the SMMT.

Unless the Government revises the company car tax percentages from 2009, it will be unfairly penalising diesel owners who will automatically be buying new cars to the much cleaner new EU5 standard.

When super-clean EU6 engines go on sale in 2014, the inequality in the tax regime will be even greater.

To look at the figures click here.