Budget: New diesel car taxes to spell end of the road for fleet’s favourite fuel?

Fleet demand for diesel company cars is tumbling and speculation that new taxes will be announced in this month’s Budget could further accelerate the decline of a fuel that on a model-for-model is more efficient than petrol.

In this year’s March Budget, Chancellor of the Exchequer Philip Hammond served notice that the “tax treatment for diesel vehicles” could change as the government looked to cut pollution from the transport sector and improve air quality.

Since then the government has published a plan setting out how the UK’s air quality goals would be achieved notably through a network of Clean Air Zones in towns and cities and encouraging increased demand for plug-in vehicles, while diesel vehicles have been “demonised” in the national media for their emissions and largely taken the blame for the UK’s poor air quality in urban areas.

It has now been reported by the Financial Times (November 9, 2017) that Mr Hammond was considering introducing higher taxes on new diesel cars in the Budget on Wednesday, November 22.

It has been suggested that additional VAT could be levied on new diesel cars or they could be subjected to a new ‘sales tax’.

Such taxes may potentially have to be taken account of in vehicle whole life costings and thus would make diesel company cars more expensive to operate.

Simultaneously, it should have the undesired impact of seeing fleets extended vehicle replacement cycles.

RAC chief engineer David Bizley said:  “We are concerned that those who drive long distances, business drivers especially, might consider sticking with their older diesels given the superior economy they offer.

“It would be a terrible misjudged ‘knee-jerk’ reaction which could backfire and have the unexpected effect of encouraging these owners of older diesels and fleets not to upgrade to newer, cleaner diesels which offer significant benefits in reduced emissions.

“This isn’t what the government, or any of us, want and is the opposite of what is needed from an air quality perspective.”

Further HM Treasury “leaks” have suggested that fuel duty on diesel could rise, while that of petrol is reduced or remains unchanged. As a result, the pump price of diesel would increase and penalising owners and operators of all diesel vehicles – not just new diesel car buyers including commercial fleets reliant on diesel vans and trucks.

Another option that has been floated is for “extra charges” to be levied on anyone who buys a second hand diesel car if they live in an area with high levels of emissions. However, such a move would hit used vehicle values and mean defleeted diesel vehicles could be transported around the country to be sold in “low” emission areas.

Against the background of the government apparently looking to “penalise diesel”, the Society of Motor Manufacturers and Traders has repeatedly highlighted that today’s Euro6 diesel cars are the “cleanest in history”.

SMMT chief executive Mike Hawes said: “Not only have they drastically reduced or banished particulates, sulphur and carbon monoxide but they also emit vastly lower NOx than their older counterparts.”

What’s more, as Mr Hawes highlights, today’s generation of Euro6 diesel cars are recognised as ‘clean’ because they are exempt from the London Ultra-Low Emission Zone that will come into force in 2019.

Additionally, a new report by automotive information providers JATO Dynamics claims that despite the reputational issues surrounding the fuel, diesel engines could produce more power and torque with lower CO2 rates when compared with traditional petrol-based engines.

It highlights that the average power output of a diesel engines registered in the European Union is 142bhp with CO2 emissions of 115g/km. That compared with the average power output of a petrol engine registered in the European Union being 123bhp with CO2 emissions of 122g/km.

Mr Hawes therefore points out that: “In addition to their important contribution to improving air quality, diesel cars are also a key part of action to tackle climate change while allowing millions of people, particularly those who regularly travel long distances, to do so as affordably as possible.”

Mr Bizley added: ““The possibility of a sudden rush [away from diesel] to petrol engines also risks a new rise in CO2 emissions, precisely what previous governments tried to avoid by encouraging drivers into diesel vehicles.”

However, diesel’s status as the “default fleet fuel” could be about to come to an end, according to an analysis of SMMT data by vehicle information provider Glass’s.

Diesel car share of fleet registrations has fallen below 60% every month since November 2016 and its demise is accelerating, according to Glass’s analysis. The diesel share even fell to 50% in August and only recovered to 51% in September, a major barometer of new car registrations due to the number plate change.

Petrol has been the main beneficiary of the switch away from diesel company cars and based on current trends, was set to surpass diesel as the leading fuel among fleet buyers within months, according to Glass’s in its November Monthly Car Market Report.

The decline of diesel cars as a percentage of fleet registrations has been rapid, according to the data. Just two years ago (October 2015) diesel cars accounted for almost 70% of fleet registrations with petrol cars at a fraction above 30%.

Given that diesel cars on a model-for-model basis are more efficient than petrol-engine vehicles and thus produce lower CO2 emissions, Glass’s said: “Although diesel demand is still falling more rapidly among private consumers than fleet buyers, this trend is rather worrying as fleet users naturally cover higher mileage. As it is, there are already concerns that CO2 levels could rise in the UK this year for the first time since average CO2 emissions were recorded and a continuation of this trend will only increase the likelihood of that.”

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