COSTS are rising: the value of Sterling is in decline against the Euro and the dollar; and RVs on cars are weakening, the combination of the two pushing up lease rates.
But for the other significant cost facing the leasing industry is the new vehicle excise duty for cars registered from April 1 2017. Road tax rises tenfold for most new low emission cars.
This change in Vehicle Excise Duty (VED) is thanks to previous Chancellor George Osborne who announced it in his 2015 Budget. Usefully for him, he’s not around as Chancellor to take the flack for it now it’s becoming reality.
Take the modest Ford Focus or VW Golf or top-selling Ford Fiesta models with CO2 emissions just under 110g/km. Right now their:
- First year VED costs nothing;
- The second year and third cost is £20 pa.
But for cars leased from April:
- The first year cost is £140;
- The £140 standard rate applies for the second and third years (in fact for five years).
So over three years the same car will cost £420 instead of £40. That’s a ten-fold increase.
Lease a fleet of 100 and that stacks up to £42,000.
The only way to beat the road tax rises is buy or lease the new car registered before April 1 – and supply volume for that timeframe is diminishing fast.
Of 2.7 million cars sold in 2016, 1.5m were for fleet and business. And according to the BVRLA the majority of cars out on fleet have emissions under 130g/km – even in 2015 the average fleet car was 112g/km and dropping, to counter the rise in company car tax.
So if the registrations continue at 2016 rates, the 1.5 million new company cars at that nominal £140 first year rate makes £210 million – and the price goes up with higher emissions and higher prices.
The Treasury did its maths back in 2015 – and registrations have hit record levels since then. It predicted the change bringing a total £195m extra in 2017/18, then £670m in 2018/19, £940m 2019/20 and a whopping £1.45 BILLION in 2020/21.
Usually the road tax will be included in a fully maintained lease contract and if the emissions are under 130g/km this is 100% reclaimable, 80% above that.
Last year just 10,000 new cars were pure electric, for which future sales escape the road tax hike – so long as they cost under £40,000. And even the alternatively fuelled vehicles like hybrids, of which 90,000 were sold last year, face a second year VED hike to £130.
The changes were proclaimed to target high emission vehicles but in fact hit everything that emits anything other than water.
So what will be the effect as this sector of overheads rockets?
The Treasury statement on the new road tax back in 2015 said: “This measure is expected to have a small positive effect on inflation but is not expected to have any significant macroeconomic impacts.
“The costing includes a behavioural response to account for an increase in vehicle purchases in the period between the measure being announced and it being implemented.”
Aha! Is that why we’ve had the increases in vehicle registrations over the past two years?
So will the world stand still on March 31? What do you think?