Transport Committee - Plug-in vehicles, plugged in policy?Written evidence from the British Vehicle Rental and Leasing Association (BVRLA)

1. Overview of Response

1.1 The British Vehicle Rental and Leasing Association represents the interests of more than two million business car drivers and the millions of people who use a rental vehicle each year. Its members are active supporters in the drive to decarbonise road transport. BVRLA members and their customers, purchase over 45% of new vehicles registered in the UK every year.

1.2 Our rental and leasing members play a vital role in helping to make available the greenest vehicles in a cost effective manner so that UK businesses and consumers can benefit by accessing this green fleet. CO₂ emissions from BVRLA members’ fleets are on average 12% lower than the UK car fleet. We believe this behavioural change has helped to underpin and support the government’s greenhouse gas (GHG) reduction targets as set out in the Climate Change Act 2008.

1.3 We believe that it is vital to set out a long-term direction for policy that has CO₂ reduction at its heart and to avoid using one specific method of achieving this goal. Different vehicle powertrains will continue to emerge and it is vital that current and future policy remains technology neutral and equally neutral to the method of acquisitions available to the business vehicle user.

1.4 We remain concerned that the Government is in danger of seriously stifling growth and take up of ultra-green cars as it has announced in the Budget Report 2012.1

(a)First Year Allowance (FYA)—Only cars with a CO₂ rating of 95 g/km or less are eligible.—this represents a 13.6% reduction against the current threshold This is sharp reduction is applied too soon and does not attempt to reflect the current economic climate facing UK businesses. Instead, we feel it would be far more sensible to remove the cliff edge CO₂ drops by looking to gradual reduction in the CO₂ eligibility and that this should be carried over a longer period of time to support businesses migrate to a greener car fleet.

(b)FYA Leased Cars—From 2015 firms involved in leasing, which may include renting, will be prevented from claiming the FYA from 2013. This will narrow the funding and acquisition options available to businesses. Specifically, this will adversely impact SMEs who rely on leasing cars as a means to help free up their working capital.

1.5 Company Car Tax—Moving the 0% rate band for zero emitting cars and 5% band for cars emitting less than 75 g/km to 13% from 2015 not only creates a cliff edge, but this sharp rise in the tax liability will see an equally sharp decline in the take up of ultra-green cars by the fleet sector.

1.6 These changes announced in the Budget will adversely impact the take up of ultra-green cars. The BVRLA believes that it is vital that taxation which is offered as an incentive to encourage take up greener vehicles is purposeful, clear, effective, certain and efficient.

1.7 Sound tax policy should target CO₂ reduction in recognition that the most efficient methods are likely to change over time. This creates a stable framework that can withstand the tests of time and gives the best opportunity to find the most efficient and cost-effective methods of reducing CO₂. It is essential that taxation is closely linked to market progress in the development of ultra-low carbon vehicles and that HM Treasury regularly review the progress to ensure buying incentives are working and are affordable.

1.8 Plug-in-vehicles will form part of the solution, but will not be the only solution to help decarbonise road transport, as this technology is more expensive (largely due to the high capital costs) when compared to a small highly efficient internal combustion engine vehicles, and is likely to be less practical as the range of miles and size of available vehicle, is extremely is limited.

2. Who we are and what we do

2.1 The BVRLA is the trade body for companies engaged in the leasing and rental of cars and commercial vehicles. Its members provide rental, leasing and fleet management services to corporate users and consumers. They operate a combined fleet of 2.5 million cars, vans and trucks, buying nearly half of all new vehicles sold in the UK.

2.2 BVRLA rental members operate vehicles which have CO₂ emissions that are 12% lower than the UK car fleet. BVRLA leasing members also operate vehicles that are cleaner, the CO₂ emissions in 2011 were on average 138.1g/km which outstrips the average new car emissions for the same year which were 144.2g/km.

2.3 BVRLA members also play a vital role in influencing the second hand buyer, vehicles which our members purchase end up in the second hand market and therefore influence the choices of consumers. The greener the vehicles which are purchased by our members the greener the UK car fleet becomes.

3. How Incentives and Clear Policy can Help Change Behaviour

3.1 If the Government is to reach its CO₂ targets by 2020, then it is vital for it to develop policy which is both clear and joined up across Whitehall. If the UK is to make substantial progress towards a low carbon economy then it is paramount the market is afforded clarity and certainty. For example, tax incentives should be well signalled and provided for significant period eg five years rolling notice, with any changes to the incentive introduced on an incremental basis to avoid dramatic cliff edges.

3.2 Policy should be developed to help solve problems associated with the poor take up of plugged-in cars or other innovative vehicle and fuel technologies. This is vital, especially if the rate of road transport growth projected by the Eddington Report continues, and road use in the UK approximately doubles by 2050.

3.3 The take up of plugged in vehicles in the UK market has been slow in comparison to all new car sales. Between 1 January 2011 to 31 March 2012, 1276 claims have been made through the Plug-in Car Grant scheme, with Society of Motor Manufacturers and Traders (SMMT) data showing that 1,412 cars eligible for the Grant were registered over the same period.

3.4 We believe the following market barriers may help to explain why plugged in vehicles remain a niche market:

(i)lack of clarity and commitment to national corporate and personal tax incentives and other programmes such as “free or preferential” car parking spaces and London congestion charging scheme exemption;

(ii)high purchase prices and concerns over resale or residual values, largely due to the uncertainties associated with battery technology;

(iii)limited number of miles which is associated to range anxiety and more importantly lack of flexibility;

(iv)impractical operation and inconvenience of recharging;

(v)limited choice of models and size; and

(vi)concerns related to vehicle safety and reliability.

3.5 We note that the Office for Low Emission Vehicles (OLEV) was set up as a cross-Whitehall team to manage this programme of measures. Specifically comprising people and funding from the Departments for Transport; Business, Innovation and Skills; and Energy and Climate Change; and that OLEV is responsible for taking forward a national policy on this shared agenda.

3.6 If these original aims are to be effective then we believe OLEV needs to focus more closely on the market barriers from a customer pull or demand side perspective. Having already identified a low take-up of the vehicles eligible for the Plug-in Car Grant then we believe it would make sense to address the areas highlighted in our response with more support to the purchasers and operators of the product, which would include our members and their customers as well as retail purchases.

3.7 The BVRLA is concerned with the recent changes announced on the company car tax bands for plugged in vehicles. The Government announced in the Budget2 that from April 2015, the five-year exemption for zero carbon and ultra-low carbon emission vehicles will come to an end. The appropriate percentage for zero emission and low carbon vehicles will be 13%. Therefore, from 2015 unless an employee is based or works in London there is no incentive other than a reduction in fuel costs for running a plugged-in vehicle. In addition, given the high purchase costs of these vehicles an employee is effectively penalised for making a green choice.

3.8 In our EV Guide3 we researched the total cost of ownership for a plugged-in vehicle and compared it with an ultra-low emission vehicle which showed that a Volkswagen Blue Motion’s cost of ownership was £5,078 cheaper than a Nissan Leaf over a period of three years. This figure will increase further in 2015 when the Nissan Leaf moves from a nil benefit in kind charge for company car tax to £4,017. Even the ultra-low emitting vehicles in the company car tax regime which move from the 5% band to 13% band in March 2015 are being unduly penalised and it is likely that employees will move away from these vehicles after the changes take place.

3.9 These changes along with the announcement that the corporation tax bandings are changing do not send reassuring signals to would be purchasers of plugged in vehicles and instead will start to erode confidence.

3.10 The BVRLA is disappointed at the government’s failure to mandate the extended warranties and NCAP 4 safety standards required to give customers real confidence in this emerging technology. Without more assurances and support for vehicle safety, longevity and residual value, a front-end financial incentive may not be sufficient to kick-start the market. Many companies set NCAP-based minimum safety standards for their fleet vehicles, which could preclude many ultra-low carbon vehicles that only meet the basic criteria outlined by the government.

3.11 The association has also had concerns about the lack of guidance on how the grant will work in practice. For example, how the grant will be treated for VAT purposes. The government needs to act on the lessons learnt from the scrappage scheme, which was launched without adequate guidance. This was unfortunately perpetuated when the scheme was extended to vans.

4. Role of Leasing and Renting (and Impact on FYA)

4.1 Ultra-low Emission Vehicles4

4.1.1 The majority of our members now make available “ultra-low” emission vehicles on their fleet, of which the most common is the petrol hybrid Toyota Prius. Our rental members have also made plugged-in vehicles and other ultra-low emitting cars available for customers to access and use.

4.1.2 Our members have reported considerable growth in corporate interest in lower emission vehicles, and plugged-in vehicles—and that corporate clients particularly welcomed the opportunity to be able to try vehicles, without having to take on the purchase costs, maintenance and other issues.

4.1.3 In contrast, other corporates state that they like those options to be available, however in practice, people were more likely to want to rent vehicles that were familiar, and that their primary focus was likely to be “hassle-minimisation”: “It’s like the healthy option on the menu—people want it to be there, but they don’t necessarily choose it.”

4.2 Current Market Demand

4.2.1 Whilst our rental members have taken the commercial risk of making these vehicles available on their rental fleet, our members have reported the following concerns:

Potential lack of customer demand;

Availability of charging points and a potential lack of standardisation of charging points (such that different vehicles might require different types);

The second-hand market for vehicles—poor marketing and information being made available by the motor manufacturers to support the second hand buyer;

Battery life (and lack of information about battery life) and lack of extended warranties to help build confidence;

Range constraints (and customer concerns about range constraints); and

The different charging speed options, their relative cost and their potential effects on battery life. (For example, one company described the three main charging options—“trickle” (eight to 12 hours), “fast” (four to five hours) and “rapid” (30 mins), where the quicker options would be more expensive to offer, would require a more powerful electric supply and might be detrimental to battery life—but—for obvious reasons, would be more attractive to consumers.)

4.2.2 We note that the Committee on Climate Change has estimated that 1.7 million plugged-in vehicles will be needed by 2020 to meet the Carbon Budget target. This target is not only ambitious, but will not be realised, given the current low sales volumes of this type of vehicle. To put this into context, it would require sales of over 200,000 plugged-in vehicles every year until 2020—c.10% of new car sales. Given the current financial constraints on the Government and low level of consumer confidence, we feel the Government needs to look at a range of policy instruments and taxation incentives to help stimulate adoption of this technology. This would, for example include supporting and promoting the use of rental vehicles and ensuring it preserves the current First Year Allowance for the corporate sector including leasing companies to utilise.

4.3 Clear market signals and certainty

4.3.1 The BVRLA believes that for tax incentives to work well and deliver volume take up, incentives need to be well signalled and changes to incentives need to be made on an incremental basis. The examples below provide further detail.

4.3.2 First year allowances in the corporation tax regime have not followed the above requirements. Businesses were offered 100% first year allowances for vehicles which emitted under 110g/km CO₂ in 2010 but only for a limited time. In this year’s Budget this was extended until March 2015 but the threshold was reduced to under 95 g/km CO₂, which represents a 13.6% reduction. These changes do not give businesses the necessary certainty to change buying habits because the drop from 110g/km CO₂ to 95g/km CO₂ is too dramatic and should be more gradual.

4.3.3 An example of where this has worked well is the company car tax regime. Changes to the bands which cars fall in are made gradually, normally no more than 5g/km of CO₂ and the changes are signalled three years in advance. Making changes in this way gives businesses the confidence to add vehicles to their fleet knowing that can plan their total tax liability.

4.3.4 The last company car tax report published in 2004 showed that the average CO₂ emissions figures from company cars are estimated to be around 15g/km lower as a result of the company car tax reform. HM Revenue and Customs research also suggested that around 60% of company car drivers who were given a choice of car by their employers were influenced by the company car tax reform and chose cars with lower CO₂ emissions figures. Even allowing for some company car drivers not being given a choice of car by their employers, it suggested that by the end of 2004 the company car tax reform had already prompted nearly 50% of all company car drivers to choose company cars with lower CO₂ emissions figures.

4.3.5 Given the apparent success of the company car tax regime we would urge government to carry this concept over to the vehicle purchaser where a minimum of five years rolling notice of incentives/taxation regime is needed to support policy setting. It is far better to move in small planned steps than have cliff edge changes forced through with only one years notice as is currently being experienced in the company car tax regime.

5. Experience of Plugged-in Vehicles

5.1 The primary objective of the Plugged-in Places (PiP) scheme was to promote plugged-in vehicles across the UK and facilitate coordination with local authorities, energy and utility companies, and local operators with the development and expansion of the UK’s charging infrastructure in key potential markets across the country.

5.2 The development of the charging points was vital to support the take up of plugged-in vehicles especially as it builds confidence with the ease and convenience at which motorists can recharge their vehicles. However, installing charging points, even for PiP regions, has proven to be a complex, expensive and lengthy process due to planning laws.

5.3 On-street rapid and/or quick charging points are likely to be needed to make charging in public spaces a realistic option for plugged-in vehicle users. However, it must be understood that once a charging point is being used, for example while the customer is shopping, or using railway car park, etc, that charging point will not be available to any other user. This is a limitation that will need addressing either by developing additional charging points to match demand, or an alternative innovative solution which is affordable and one that will not place an undue strain on the electricity grid.

5.4 Local authorities should be encouraged to develop a host of policies to encourage plug-in (and other low-carbon) vehicles, other than merely installing charging points. These could include conveniently or free parking and automatic exemption from congestion or low emission zones.

5.5 Some of our rental members have worked closely with Transport for London (TfL) in receiving match funding to install charging points in rental locations within London. Rental members were able to demonstrate that due to the high utilisation of their vehicles, 55 different customers over the six to eight months the vehicle is on fleet, the points are effectively publicly available.

5.6 Where lessons can be learnt from the experience in London is that there was not enough signposting and support from TfL so that people in London knew there was a rental company with an plugged-in vehicle on fleet offering a “try before you buy” solution. The website which alerts people to where charging points are available did not mention rental companies and we feel this was a missed opportunity for encouraging take up of plugged-in vehicles.

5.7 We do not believe that plug-in vehicles should be seen as the silver bullet solution or panacea to the decarbonisation challenge in transport, but instead be seen as one of the technologies that will help meet this challenge.

5.8 Internal-combustion engine (ICE) vehicles will remain the technology of choice for motorist over the next 10 to 15 years. Motor manufacturers will continue to innovate and bring a range of new technology to the market, especially as they try to meet EU CO₂ mandatory targets. We believe that engine sizes will continue to become smaller and the vehicles become lighter coupled with greater use of turbocharging technology to maintain the power to weight ratio.

5.9 It is important to note that there are many cross-benefits that will apply to all power trains: weight reduction, engine downsizing (for all vehicles that use an ICE), advances in battery technology (hybrids, plug-in hybrids and all-electric vehicles), low rolling resistance tyres, and improved aerodynamics.

6. Closing Comments

6.1 We trust our comments add value to Committee’s inquiry into whether Plugged in Vehicles Low carbon vehicles offer a potential means by which road transport can be decarbonised. If the Government expects to see tens of thousands of plugged-in vehicles on the roads by 2015 as part of its Plugged-In Vehicle Infrastructure Strategy then we believe much more work is required to help stimulate and support the marketplace. One of which would be to recognise the vital role leasing and rental firms is playing and for policy and tax incentives to be made available on a fair level playing field with other forms of financing acquisition.

7. Glossary

7.1 Leasing Members

7.1.1 In general, vehicle leasing is an arrangement where the user simply hires the use of the vehicle and assumes operational responsibility for a predetermined period and mileage at fixed monthly rental from the owner (the leasing company). Legal ownership is, in the majority of cases, retained by the leasing company.

7.2 Short Term Rental Members

7.2.1 Rental members offer hourly, daily, weekly and monthly rental of vehicles to corporate customers and consumers. As explained above, rental members are the owners of the vehicle.

June 2012