Spring Budget 2021: Our First Thoughts

Written by

Paulo Larkman

Friday 5th March 2021

This was always going to be a Budget that focused heavily on supporting people and businesses as we continue to emerge from the most turbulent of times.

Recent successes developing and rolling out a series of vaccines to combat COVID19 have created some much-needed optimism but, along with the challenges of today, this was also an opportunity to support the big switch to electric vehicles and secure a greener, more sustainable future for everyone.

Fuel Duty

Frozen again, but for how long?

From a fleet and driver standpoint, the news that fuel duty has been frozen for the eleventh consecutive year was an unsurprising yet welcome move. For how many more Budgets we can say this remains to be seen.

The Government’s commitment to reaching net-zero emissions by 2050 makes predicting a twelfth year in a row a very risky bet and with it the reasons to switch to alternative fuel vehicles continue to stack up.

Having said this, with motorists continuing to rely on the perceived safety of personal mobility over public transportation, a sudden hike would be far from popular.

Sir Mike Penning MP, Chair of the All-Party Parliamentary Group (APPG) on Road Freight and Logistics also pointed to the need for “an essential user rebate for UK hauliers who have been so badly hit by the pandemic” but have little option in the type of fuel used.

Benefit in Kind (BIK)

Stability is good, but further clarity is needed

In the context of recent uncertainties, the current situation provides a degree of stability but the lack of rate visibility beyond 2025 could soon make it more difficult to make BIK related policy decisions with any degree of confidence.

With many businesses reassessing their fleet policy in line with the 2030 ban on the sale of new petrol and diesel vehicles, the safest course of action is to plan now for making the switch to electric as soon as it is practically and financially viable to do so.

Government incentives to support the switch may not be as generous once the element of choice is removed and, although long term tax rates for ICE cars and vans are not yet known, the direction of travel is abundantly clear.

Fuel and Vehicle Tax 

A modest rise for most but there are bigger changes to come

The VED rate for cars, vans and motorcycles is set to increase from 1 April in line with the Retail Price Index (RPI). Whilst nobody likes to see taxes rise, the move is an entirely reasonable one. In fact, there is little else HM Treasury can do to incentivise EVs — short of removing the expensive car limit.   

Together with the van benefit charge, the car and van fuel benefit charge will also increase in line with the September 2020 Consumer Price Index (CPI) from April 6. With the break-even annual private mileage to make this tax pay sitting around 25,000 per annum, taking up the option of ‘free’ private fuel only makes sense for a tiny minority of people.

HGV fleets will be pleased to see that the Budget included a freeze on VED for 2021/22 and the HGV Levy will also be suspended for another 12 months from August 2021.

Quite how long the VED system will remain in its current form is open to question. Further details are expected on 23 March this year in relation to a series of consultations on the future of transport related tax policies.

Recent restrictions on movement had an understandable impact on the revenue derived from fuel duty but, even as the UK returns to higher levels of road usage, the continuing switch to electric vehicles means that the government will need to rethink its strategy for funding the development and maintenance of the UK’s transport infrastructure. And with the news that EVs could outnumber diesels by 2030 it’s a decision that becomes more pressing with each passing year.

Overall, taxes derived from VED, VAT, Fuel Duty and Benefit in Kind raise around £40 billion per year for the Treasury and the current system is simply not designed for a mobility landscape undergoing such seismic changes. Whether this means a shift to road pricing or alternative forms of taxation is not yet clear, but something must be done to fill the gap in revenue before too long.

Decarbonisation Support

Tax relief to support chargepoint installation and EV adoption

From 1 April 2021, companies have two years to take advantage of a 130% ‘super-deduction’ capital allowance on qualifying plant and machinery and a 50% first year allowance for certain special rate assets such as cars emitting less than 50g/km and low emission goods vehicles.

On the face of it, this is great news for the increasing number of businesses looking to invest in workplace and depot charging facilities to support the adoption of electric vehicles. Of course, there are some details that still need to be worked out, such as whether this relief can also be applied to the ancillary infrastructure, such as the cabling and groundworks needed to facilitate fully operational chargepoints.

Conversely, it was disappointing not to hear anything more about continued support for the OZEV (Office for Zero Emission Vehicles) grants. This feels like a missed opportunity and a step that is somewhat at odds with other elements of the government’s green agenda.

The First Infrastructure Bank

Targeted investment supporting the UK’s journey to net-zero

The new Leeds based bank is being touted as a welcome boost for the region and further evidence of the government’s ongoing commitment to eradicating the North-South divide.

The Chancellor has made it clear that investing in renewable energies, carbon capture, storage and transportation should be foremost on the agenda. Given the technological developments of the last few years and the increased rate of EV adoption, it is clear that we have now reached a tipping point and the UK’s electric infrastructure must get ahead of rapidly growing levels of demand.

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