June 17, 2016

Tax rise threat following diesel emission concerns

New government tax proposals could target ‘dirty diesels’

Government concerns over diesel emissions, especially in urban areas, could lead to higher taxes for drivers in future.

That was the stark warning from Transport Secretary, Patrick McLoughlin, who warned that the Treasury would need to consider taxes on diesel vehicles in the future following concerns over emissions.

In an interview in the London Evening Standard, the Minister said that it had been a mistake for the previous Labour government to incentivise the sale of diesels, which had led to more than 11m diesel cars currently being on UK roads.

And he said that many drivers were now considering whether they should continue to choose diesel cars going forward because of pollution fears, with more thinking of switching to alternative forms of fuel.

Diesel sales continue to grow

Since diesel cars were first incentivised by Labour chancellor Gordon Brown 15 years ago because of their lower CO2 emissions, they have become the workhorse of British businesses.

Diesel sales to companies have far outstripped those of their petrol counterparts because of their lower tax bills, longevity and more frugal fuel consumption.

Indeed, the latest official figures from the Society of Motor Manufacturers and Traders reveal that the nation’s love affair with diesel shows little sign of slowing down.

For the first five months of this year, some 559,352 diesel cars were sold in the UK, up 3.3 % from the 541,351 bought in the first five months of 2015. And in the month of May alone, diesel sales were up 5%, outstripping demand for petrol models which fell 0.6%.

There were 101,922 new diesels sold in May, compared to just 97,084 in the same month last year. At the same time, sales of petrol engined models fell to 96,031 units from the 96,597 new models sold in May last year.

Meanwhile, sales of alternative fuelled vehicles, including electric vehicles and hybrids, continue to rise and were up by 12% to 5,632 new units in May, compared to 5,025 last year, as drivers increasingly consider cleaner alternatives.

Wrong direction?

While the Transport Secretary said he could not speak for the Treasury, he did say that it was ‘something that the chancellor will need to look at in due course”.

Diesel emissions have been blamed for the premature deaths of up to 7,000 people a year in the capital alone, with many more affected in other densely populated urban areas. The problem is nitrogen oxide (NOx) and other oxides of nitrogen contained in diesel emissions.

The Government recently announced proposals to tackle high levels of diesel pollution in major city centres across the UK, including London, Birmingham, Leeds, Nottingham, Southampton and Derby.

The plans ask local authorities to look at a series of initiatives, including creating clean air zones, introducing low emission buses and taxis, and using data to create new road layouts.

Under the plans, local authorities could also consider:
• Networks of electric car charging points
• Upgrading cycling infrastructure
• Introducing or expanding park and ride schemes

London has already signalled its intentions to clean up emission levels in the capital, with new Mayor, Sadiq Khan, outlining new proposals to substantially increase the size of the clean air charging zone in a bid to tackle the air pollution problems the capital faces.

Response to the news

Motoring organisations and other groups have criticised the news that diesel cars could face further punitive taxes, with the AA saying that drivers could end up paying the price for policy mistakes of the past.

Having been told that diesels were better for the environment because they produced less CO2, it was now grossly unfair to move the goalposts a few years later, saying that diesel was now the demon, the AA said.

The RAC, meanwhile, said that banning cars from towns and city centres, one of the proposal being considered, was potentially damaging for businesses and for individuals, especially without any clear guidance on long-term solutions.

Latest emissions regulations already in force

The latest Euro6 emissions regulations for diesel cars and vans came into force from last September and are specifically targeted at unwanted tailpipe emissions, especially nitrogen oxides.

The new rules cut the permissible limits for NOx dramatically, from the current 180mg/km to just 80mg/km, with the aim of limiting the impact on the environment and public health.

However, the motor industry seems to have lost a certain amount of public confidence over the issue, after it was revealed that diesels emitted up to six times more pollution than previously thought because of deficiencies in the vehicle emissions testing system, with some manufacturers having used software to bypass the test provisions.

What’s the best advice for fleets going forward?

Diesel is still the dominant force in fleet motoring in the UK and looks set to remain so for some time to come. In many cases it is still the best tool for the job, especially over long distances.

However, this is an increasingly complex area as Government seems to be re-thinking its approach to diesel vehicles in the longer term and this could severely impact on fleet policies in the future.

CLM’s advice is to always discuss issues of this nature with a fleet management specialist, as they will be able to call on many years of experience and expertise of dealing with such issues, and are able to provide advice on the best course of action.

This may be to alter the fleet mix, and to include more petrol engined models especially when shorter distances are being travelled. Or it may be to investigate in more detail the addition of alternative fuelled vehicles to the fleet policy list, as these may present an increasingly attractive proposition going forward.

If you would like to discuss the most appropriate policy for your fleet, then please get in touch.