Autumn 2021 Budget Summary
With the population of the UK still struggling to recover, personally and financially, from the pandemic and striving to put Covid-19 behind them, the Chancellor, Rishi Sunak, delivered his second Budget of the year on 27th October 2021.
Acknowledging the scale of government debt, which is higher than it has been for 70 years, the Chancellor announced a strong economic forecast for the UK, which is now "expected to return to pre-Covid levels by 2022", adding unemployment is set to be much lower than forecast and that wages had grown "in real terms" over the last 18 months.
The Chancellor promised that the government will stimulate the economy with historic levels of investment in public services and continued support for business to drive the forecast economic growth, but would also continue to focus on its Net Zero Strategy as it strives to "build back greener". Placing a particular emphasis on "levelling up", so that people could "reach their full potential wherever they live", the Chancellor sought to tackle the cost of living crisis, which has seen the cost of energy more than double and inflation rise sharply, by increasing the National Living Wage and reducing the Universal Credit income taper.
But, amidst the raft of measures announced to rebuild the post pandemic economy, what was the impact for the fleet sector? Unsurprisingly, given this was the second Budget of 2021 there were very few direct measures, although the continued freeze in fuel duty and extension of the Annual Investment Allowance will be almost universally welcomed, as will the announcement of additional funding to encourage the transition to electric vehicles and the investment in infrastructure and roads.
We have summarised below the most relevant tax and spending measures announced in this Autumn Budget, but would add that these must be considered in line with the measures announced in the Spring Budget, which, when added to the introduction of the Health and Social Care Levy tax rises announced in 2021, mean the UK will face its highest overall tax burden since the 1950s.
Although it was announced in the Spring Budget that UK income tax rates and thresholds will remain frozen until April 2026, the Chancellor confirmed that the rate of tax applied to dividend income will rise by 1.25% from April 2022 to ensure those with dividend income make a contribution toward the funding of health and social care.
National Insurance Contributions (NIC)
NIC thresholds will increase in line with inflation from April 2022, although it should be borne in mind that the Upper Earnings Limit, the threshold at which employees begin to pay reduced rate NIC, and the Upper Profits Limit will remain at current levels in line with the freeze applied to the UK higher rate tax threshold.
As announced on 7th September 2021, and recently approved by Parliament, the new Health and Social Care Levy will be added to both employee and employer Class 1 NIC, as well as Class 1A, Class 1B and Class 4 NIC from April 2022, increasing each of these rates by 1.25% for one year.
Health and Social Care Levy (HSCL)
The new HSCL will be separated out from NIC and charged at a rate of 1.25% from April 2023. From that time the HSCL will also apply to the earnings of those working above the State Pension Age, and NIC rates will return to their 2021/22 levels.
Van benefit charge
From 6 April 2022 the van benefit charge will rise in line with inflation to £3,600 (from £3,500).
Fuel benefit charge
With effect from 6 April 2022 the multipliers will rise in line with inflation, to:
- van benefit fuel multiplier - £688 (from £669); and
- car fuel benefit multiplier - £25,300 (from £24,600).
With pump prices at an 8 year high, it was announced that fuel duty on petrol and diesel will be frozen again. This is the twelfth consecutive year of the freeze, cumulatively saving the average UK car driver £1,900 per year.
Vehicle Excise Duty (VED)
From April 2022, VED for cars, vans and motorcycles will rise in line with inflation.
This means that the first year rate for cars registered from 1 April 2017 will increase by up to £120, the standard rate will increase by £10 and the 'expensive car' supplement, which applies to cars with a list price exceeding £40,000, will increase by £20. However, zero emission cars continue to be exempt from VED, and the supplement, until April 2025.
The standard rate of VED for cars registered before April 2017 will rise by up to £30.
The annual VED for Euro 4 or Euro 5 vans is frozen, but will increase by up to £15 for all other vans.
Heavy goods vehicle (HGV) VED has been frozen again for a further year until April 2023, and the HGV Levy will be suspended for another 12 months from 1 August 2022.
Annual Investment Allowance (AIA)
The availability of the temporary enhanced AIA will be extended until April 2023, thereby encouraging businesses to bring forward capital investment .
Businesses may claim the AIA on both general and special rate plant and machinery and it is therefore an effective 100% allowance. Although it isn't available for expenditure on cars, commercial vehicles, such as vans, should qualify for the AIA.
Certificate of conformity
The Chancellor announced that tax legislation will be amended to recognise a new GB certificate of conformity that will be introduced through a new permanent and comprehensive GB vehicle type approval scheme to be brought into effect at some point during 2022. These changes will also ensure that any figure representing a vehicles CO₂ emissions will be disregarded unless it is derived from The Worldwide Harmonised Light vehicle Testing Procedure (WLTP).
Although there has been a certain amount of nervousness within the fleet industry as to whether the government might change the Optional Remuneration Arrangements ("OpRA") threshold, there was no announcement, meaning the legislation does not apply to cars with emissions of 75 g/km or less.
This preserves the substantial income tax and NIC advantages associated with salary sacrifice cars, particularly zero emission cars, ensuring its resurgence in popularity.
Net Zero Strategy: Build Back Greener
In a Budget presented to the House less than a week before COP26 takes place in Glasgow the government committed £6.1 billion to greener transport, supporting the policies and strategy set out in the Transport Decarbonisation Plan.
Incentives to increase the take up of electric vehicles
To support the uptake of electric vehicles an additional £620 million was announced, on top of the £1.9 billion committed last year, for public charging in residential areas and targeted plug-in vehicle grants. Many expect this may signal the end of the plug-in car grant as we know it, but further detail will be provided later this year when the government publishes an EV infrastructure strategy document.
£817 million of the £1 billion Automotive Transformation Fund will be set aside to support the electrification of UK vehicles and related supply chains. The government also reiterated its commitment to end the sale of new petrol and diesel cars and vans from 2030 and committed to the introduction of a new zero emission mandate to be introduced from 2024 to encourage manufacturers to increase the percentage of zero emission vehicles they sell, whilst also confirming that all the government's own car and van fleets will be zero emission by 2027.
Offering a so called step change in green transport investment the government also announced:
- £1.2 billion for greener bus transformation, including infrastructure improvements;
- £355 million to fund more zero-emission buses, with an additional £70 million for regional zero-emission buses and infrastructure in 5 specific areas of the UK;
- £2 billion for cycling and waking, including hundreds of miles of segregated bike lanes;
- £416 million for research and development of low and zero-emission transport technologies, including zero emission HGV technologies; and
- £180 million to kick-start the development of commercial-scale UK sustainable aviation fuel plants and a clearing house to test and certify new fuels.
Public spending on transport
With a continued emphasis on "levelling up" the Department for Transport, like every other government department, will receive a real terms spending increase which will see it awarded additional funding to "improve the journeys people make every day and enhance connectivity between our cities and regions" alongside "taking action to decarbonise the transport sector".
The Chancellor promised £59 billion to boost connectivity across all parts of the country, with rail enhancements, primarily in the Midlands and the North, and strategic road investment delivering over 60 upgrades across the country. The additional money will help fund the following projects:
- £5.7 billion investment to fund sustainable transport in England's city regions, including upgrading and extending tram networks in the West Midlands, Manchester and Sheffield;
- £2.6 billion investment to upgrade vital local roads, including the Isham, Bognor Regis and Chippenham Bypasses;
- £2.7 billion investment in local road maintenance to fill in millions of potholes, and fund the repair of dozens of bridges and resurfacing of thousands of miles of roads; and
- £12 million investment to reopen passenger services and stations in Hampshire and the South West, and a further £650,000 to fund feasibility studies to examine the benefits of reopening another 13 lines across the country that were previously closed as a result of the Beeching cuts.