Petrol and diesel car ban - what does it mean for business?

Company Fleet 

The ban on petrol and diesel cars by 2030, which has been suitably well-trailed, was announced by the Government in November .

There are essentially three key elements to this strategy to rapidly decarbonise the United Kingdom. The three strands are:

• The phase-out date for the sale of new petrol and diesel cars and vans has been brought forward to 2030 (originally 2040).
• By 2035 all new cars and vans must be fully zero emission at the tailpipe.
• However, during the intervening period between 2030 and 2035, new cars and vans can be sold if they have the capability to drive a significant distance with zero emissions (for example, plug-in hybrids or full hybrids). As yet, we don't know the ‘significant distance' but this will be defined following consultation.

What steps should businesses take to meet these three steps to zero tailpipe emissions?

“We would encourage any business to move to an electrified fleet as soon as possible,” advises Rob Marshall, Operations Director at Gateway2Lease. “The sooner a business starts to make the transition, the easier it becomes. At this stage it can simply be the strategy outline to make the move rather than making a knee-jerk adoption of an electrification policy that is not appropriate for your fleet. But it's certainly not something that should be locked away in a drawer for another day.”

Marshall says that on a normal three year leasing cycle, starting 2021, there are some four vehicle changes before 2035 when all vehicles must be zero emission.

Using this change cycle can inform the electrification strategy, says Rob, outlining a plan below:

• 2021-2024 - establish electrification plan for the fleet; investigate workplace charging; start transitioning some drivers into hybrids, PHEVs or EVs - incorporate learnings into next phase
• 2024-2027 - complete process of fleet electrification
• 2027-2030 - Start transitioning away from hybrids and PHEVs to fully zero emission vehicles
• 2030-2033 - Complete transition to fully zero tailpipe emission fleet.

“What we're saying here is that change is eminently possible within the timeframe, even though it might appear impossibly tight. And while many nay-sayers might point to the cost of vehicles or lack of charging infrastructure, the technology is moving swiftly and the cost of vehicles is coming down, while the number of public charge points is increasing all the time,” adds Rob.

Gateway2Lease as a business is already on the pathway to full electrification. Earlier this year the company had two charge points installed at the premises of its new office. Both Operations Director Rob, and Managing Director Kelly Marshall, are changing to electric Tesla Model 3s in the new year.

Rob is currently driving an Outlander PHEV for the benefit in kind savings and Kelly is currently in a BMW on a personal lease, but will move back into a company car when she takes delivery of the Tesla. Staff members are also being encouraged to think electric when the time comes to renew their lease cars.

What are the benefits of going electric?

The obvious one is the improvement to local air quality. Driving an EV helps bring down the polluting effect of vehicles, particularly in urban areas where high levels of particulate matter - PM2.5 emitted from combustion engines - is known to cause a variety of respiratory and cardiovascular issues.

But there are other benefits such as reduced operating costs, both for the business and driver. While headline rentals can look more expensive than an equivalent diesel vehicle, the actual running costs over the term of the lease, taking into account fuel, lower maintenance costs, and reductions for VAT and tax relief where applicable, can actually make them price comparable over the term, if not cheaper.

But there are further benefits to consider, such as the driver's benefit in kind taxation. On both EVs, especially, but also on PHEVs, the levels of taxation are highly attractive.

For example, the Renault Zoe electric supermini would cost its 20% tax-paying driver just £213 a year over a three year cycle starting with the 2021/22 tax year; a Tesla Model 3 would cost a 40% tax paying driver just £868 a year over the same period.

“Such low levels of company car taxation are one of the reasons we would encourage SME business directors, who may have previously opted out of the company car for taxation purposes, to reconsider opting back into a company car as it would be financially advantageous,” adds Rob, “while also addressing local air quality issues.”

What are the immediate options for electrification?

There are three areas that can be explored depending on the preparedness of your fleet for electrification and, of course, its immediate suitability.

Self-charging hybrids

Self-charging hybrids, as suggested by their name, use a small battery that runs in tandem with the engine to help increase efficiency and lower emissions. But the battery does not require external charging. Instead a combination of engine power and recouping energy from regenerative braking keeps the battery fully functioning. It also allows the car to start up and move away in zero emission mode.

Toyota and Lexus are two real pioneers of hybrid technology in the UK, with cars such as the Toyota Prius and Lexus RX crossover SUVs.

Plus points are no requirement to charge up battery; downsides are higher operating costs and higher BIK than other electric options.

Plug-in electric hybrids (PHEVs)

These vehicles are often seen as the stepping stone into fully electric vehicles. A larger battery than in a standard hybrid allows the vehicle to drive a number of miles in zero emission mode. The range can be anything from 28 miles to in excess of 40. The battery requires external charging.

Benefit in kind taxation is based on a combination of CO2 emissions and how far the car can travel in zero emission mode.

“I've been driving a Mitsubishi Outlander PHEV,” explains Rob, “and it has been brilliantly economical. I live close enough to the office to be able to drive to work on the battery charge and can then recharge it at work before driving home in zero emissions mode. I have found it highly effective.”

Plus points are better running costs than standard self-charging hybrids and lower company car taxation; downsides are drivers not charging the electric battery to realise the running cost and environmental benefits.

Electric vehicles (EVs)

Electric vehicles, or battery electric vehicles (BEVs) as they are sometimes referred to, use a battery to drive an electric motor. The battery requires charging from an external source, such as a home charger.

Benefit in kind taxation is highly tax friendly - the company car taxation band for the 2020/21 tax year is 0%; it rises to 1% in 2021/22 and then to 2% from 2022 through to April 2025. So there is a significant attraction for drivers to reduce their taxation through an EV as a company car.

Plus points are low running costs and negligible employer NIC, very low driver BIK, and environmental considerations; downsides are higher access costs to EVs, car availability and range concerns.

Setting the electrification plan in motion

The ban on petrol and diesel engines from 2030 will undoubtedly cause some concern for businesses. But as we have outlined, none is insurmountable, as long as the planning process is started now.

“We think it's important that businesses really start to prepare for electrification immediately, because if not, driver requests for electric vehicles, fuelled by the low BIK rates, will make electrification an issue anyway,” says Rob.

“There are some eventualities to be overcome, we acknowledge that, and for some drivers an EV might not be suitable at this particular time. But as a leasing and fleet management company we would want to encourage you to think about the change now - and if you have any questions, please do not hesitate to get in touch with us. We will be happy to assist you and answer any questions you may have.”

Further information on electrification

Gateway2Lease has a range of electric vehicles to lease which you can consider, ranging from cars to vans, or if you would prefer to talk to one of our leasing specialists, then please call on 01299 407 360 . We can help start you on your electric journey.

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