Time for mean, green, dream machines?

This tax is one of a raft of green measures (see factfile 'Other green measures...') which Chancellor Gordon Brown announced last year and its ramifications are far-reaching. Some fleet managers are considering switching to diesel models, while others are offering drivers cars with smaller engines. Some are even considering the benefits of 'super green' hybrid vehicles.

The days of encouraging company car drivers to clock up their mileage to cut their 'benefit in kind' tax bill will end next April as drivers will no longer pay less tax for driving over 18,000 miles. Instead, company car drivers will be taxed on a percentage of their car's list price, and – crucially – it's CO emissions.

Under this system drivers will pay tax on a percentage of the list price of the car which is decided by its CO emissions. The more the car is worth the more tax you will pay, but the amount of CO it emits will deem the exact percentage of this price on which the driver is taxed. So, the more CO that is emitted the higher the tax. The minimum tax rate is 15 per cent of the car's list price and the maximum is 35 per cent.

To meet the lowest 15 per cent rate the car must have CO emissions of 165 grams/kilometre (g/km). In 2003 the 15 per cent lowest tax rate will fall to 155g/km and in 2004 it will fall to 145g/km, so the cleaner the car the better, as far as future tax years are concerned.

Cars that use environmentally friendly fuels such as gas, will receive further discounts that can take the figure below 15 per cent. These cars are the only exception to the rule.

Even diesel models will be taxed higher in 2002, as the government has slapped an extra 3 per cent tax on such vehicles. Cynics may argue that even if you do go 'greener' you are still penalised by an increased tax. However, in reality the extra 3 per cent will not have much effect. When comparing the CO emissions of diesel and petrol versions of the same model of car, the diesel version has lower CO emissions. The extra 3 per cent is also in recognition that diesel cars release more local air pollutants compared to petrol.

More diesel cars
So what does the new CO tax mean for managers? Firstly a rise in the number of diesel cars. Graham Masters, finance director at print, packaging and information services business Burall has changed the fleet policy so that drivers are now actively encouraged to take a diesel car. 'If you want one of the better cars you have to opt for a diesel,' says Masters. The policy is obviously working. Around 90 per cent of drivers are now taking a diesel car when it comes to selecting a new model.

But it is not just about CO emissions. Diesel cars are cheaper to run. Diesel fuel may be more expensive than petrol on the forecourt but drivers get more miles to the gallon. Masters says his diesel policy will also save drivers money on their private mileage, which they now have to claim separately.

There has been a marked increase in demand for diesel cars and some manufacturers are starting to run out of certain models

John Pout, Arval PHH

John Pout, head of sales at leasing company Arval PHH says demand for diesel cars has got so high that some manufacturers are feeling the strain. One in four of Arval PHH's fleet cars is a diesel and he expects to see this figure go up significantly.

'There has been a marked increase in demand for diesel cars and some manufacturers are starting to run out of certain models,' says Pout.

Diesel cars may be a solution, but they do have an image problem. They have long been tarred with a reputation that they are 'dirty', 'noisy' and 'slow' compared to petrol cars. This image seems to be fading. 'In some cases diesel cars out-torque petrol cars,' says Colin Hutton, business development manager at Hertz Lease, 'It is just a case of people giving them a try.'

Masters agrees and for the first time he is putting his money where his mouth is. He is taking his first ever diesel car because of the tax.

Manufacturers also seem to be taking notice. There is a move within Europe to switch to diesel and manufacturers are addressing this growing demand, for example Honda is launching a Civic diesel for the European market.

Smaller engines
Kodak is taking a slightly different approach by encouraging drivers to take a smaller engine car – a second trend which is developing as a result of the changes. The theory being, the smaller the engine, the lower the CO emissions.

Under the new policy drivers have a wide choice of cars but if they opt for one with a small engine they get to take the difference in price, in cash. 'We are seriously encouraging them to do so,' says Alan Ries, fleet manager at Kodak Limited.

But while Kodak advises its employees on the new tax, it leaves the final choice with the individual. 'We have to consider the recruitment retention part of the equation. The list has to look attractive,' he says.

People that live close enough to cycle to work and want to do so would have ditched their car and taken the money before now. If you live and work in London it is probably OK, but out in the suburbs the distances are longer

Alan Ries, Kodak Limited

A further consequence of the changes says John Lewis, director general of the British Vehicle Renting and Leasing Association (BVRLA), will be a decline in single badge fleets. He thinks that managers will have to take a wider range of cars to satisfy driver demand for low CO emissions, alongside comfort.

Super greens
They may look like a cross between the Bat Mobile and a tin can but the new super green cars (hybrid petrol/electric, gas and electric cars) have been singled out for tax cuts. It would seem that with their green credentials, low running costs and ever improving performance, they provide the answer to every fleet manager's prayers.

But it's not that simple. Lewis, for example, is full of praise for the new hybrid cars on the market, such as the Honda Insight and Toyota Prius, but thinks they deserve more significant tax cuts to act as an incentive.

'Quite honestly I don't think a 2 per cent cut is significant enough to act as an incentive. If the government is serious about getting these cars out there the way to do it is to match the tax to the emissions of the car.'

Masters agrees: 'The extra cost of purchasing such a car far outweighs the benefits,' he says. He also thinks there is some way to go in terms of performance – they are not quite the 'comfortable motorway cruiser' yet.

Ries also thinks it is too early: 'Once the technology is introduced into saloons it will be great, but they are not quite the cars for our sales staff and technicians yet.'

Hutton of Hertz Lease, points out that the infrastructure to support these cars is not readily available: 'Where are you going to buy your gas? Where do you plug in your electric car? You can only buy the gas in the bigger cities at the moment.'