Fleet Insider May 2018: Industry update. The policies that matter to Fleet Operators and Drivers

Fleet Insider May 2018: Industry update The policies that matter to Fleet Operators and Drivers

CONTENTS Introduction Contributors 1. The Market 1.1. Economic outlook 1.2. Inflation 1.3. Car registrations 1.4. Light commercial vehicle registrations 1.5. Fuel prices 2. Legislation 2.1. Optional Remuneration Arrangements 2.2. Approved Mileage Allowance Payments 2.3. Company Car Tax 2.4. Vehicle Excise Duty 2.5. Road user levy 2.6. Fuel Duty 2.7. Capital allowances 2.8. Insurance premiums 2.9. Lease accounting standards 3. Infrastructure 3.1. Government investment 3.2. The infrastructure pipeline 3.3. Roads 3.4. Rail 3.5. Airports 4. The Environment 4.1. Carbon dioxide emissions 4.2. Worldwide Harmonised Light Vehicle Test Procedure 4.3. NOx emissions 4.4. Real Driving Emissions tests 4.5. Plug-in car grant 4.6. Charge points 4.7. London 4.8. Air Quality Plan 4.9. Clean Air Zones 5. Technology 5.1. Alternatively-fuelled vehicles 5.2. Connected and autonomous vehicles 6. Safety 6.1. Road casualties 6.2. International comparison 6.3. The causes of accidents 6.4. Driving tests 6.5. Commercial drivers hours Sources and Further Reading Glossary Acronyms

www.hitachicapitalvehiclesolutions.co.uk Introduction 2017 was a very big year for the fleet industry. It saw the introduction of new tax rules for Optional Remuneration Arrangements, a new system of Vehicle Excise Duty, and tougher emissions tests for new cars. It also saw the publication of the Government s new Air Quality Plan, with its announcement of a ban on the sale of new petrol and diesel cars and vans by 2040. We are now almost halfway through the year, and 2018 is shaping up to be no less significant particularly when it comes to efforts to tackle harmful air pollution. This is the year that councils must draw up their plans to improve local air quality, including Clean Air Zones in some cities. It s also a year that has seen tax increases for diesel cars, as well the announcement of a forthcoming tax increase for the most polluting lorries. And that s not all that fleet managers will have on their minds. Price inflation, the rise of electric vehicles, the possibilities of autonomous motoring all of these topics, and more, are covered in this Fleet Insider report for 2018. It is designed to be a reliable, one-stop guide to the developments of today and tomorrow, to help you and your organisation to navigate an ever-changing landscape. Whether it s the latest vehicle registration statistics or the Government s plans for Company Car Tax, we see it as our responsibility to keep fleet professionals informed. That s the purpose of this Fleet Insider report, our many other briefing papers, and our Expert Blog at www.hitachicapitalvehiclesolutions.co.uk/blog. We hope they prove useful. Jonathan Southall Marketing Business Partner Jonathan.southall@hitachicapital.co.uk www.hitachicapitalvehiclesolutions.co.uk 2

Fleet Insider 2018: Industry update Contributors Suzanne Phillips National Fleet Consultant consultancy_team@hitachicapital.co.uk Suzanne is a qualified accountant with more than 12 years experience in the fleet industry. She and the Hitachi Capital Vehicle Solutions consultancy team work closely with customers to review their fleet policies and redesign them for the future, as well as to find the best blend of funding methods for their fleets. James Bligh National Sales Manager, Specialist Asset Solutions 07825 341301 james.bligh@hitachicapital.co.uk James comes from a farming background and started his career at Goodyear GB, where he worked in the HGV, specialist plant and agriculture markets. Over the past 27 years, he has worked at Dawson Group, Via GTI and BNP Paribas Lease Group. James is now a member of Hitachi Capital Vehicle Solutions Specialist Asset Solutions team, focusing on HGV and specialist plant leasing. Paulo Larkman Fleet Consultant paulo.larkman@hitachicapital.co.uk Paulo has more than two decades of experience in the financial services sector, including 15 years in the fleet industry. He has worked both for global businesses and independently, providing expertise to leasing companies, banks and other organisations. Having spent seven years as Director of Fleet Consultancy Services at Lombard, he is now helping Hitachi Capital Vehicle Solutions to deliver value to its customers. 3

www.hitachicapitalvehiclesolutions.co.uk The information, materials and opinions contained in this report are for general information purposes only. They are not intended to constitute legal or other professional advice, and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances. All images subject to copyright. The views expressed in this paper are those of Hitachi Capital Vehicle Solutions. Whilst every effort has been made to ensure the accuracy of the information within this document, it is offered as guidance only. Hitachi Capital (UK) PLC does not accept any responsibility for any loss which may arise from reliance on information or materials in this document. Hitachi Capital Vehicle Solutions is a trading style of Hitachi Capital (UK) PLC. Authorised and regulated by the Financial Conduct Authority. Financial Services Register no. 704348. The register can be accessed through http://www.fca.org.uk. Registered Office: Hitachi Capital House, Thorpe Road, Staines-upon-Thames, Surrey, TW18 3HP. Registered in Cardiff under company no. 1630491. 4

Fleet Insider 2018: Industry update 1. The Market 5

www.hitachicapitalvehiclesolutions.co.uk 1. The Market Official UK GDP growth forecasts Source: Office for Budget Responsibility 1.1. Economic outlook The British economy has slowed significantly in the last three years. According to the latest figures from the Office for National Statistics (ONS), the UK s Gross Domestic Product (GDP) grew by just 1.8% in 2017, compared to growth of 3.1% in 2014. In March 2018, alongside the Chancellor s Spring Statement, the Government s Office for Budget Responsibility (OBR) published its latest forecasts for the British economy. It forecast GDP growth of 1.5% in 2018, and then growth of between 1.3% and 1.5% in each of the next four years. As Figure 1 shows, these latest forecasts are very similar to the ones that the OBR published Figure 1: Official UK GDP growth forecasts alongside the Autumn Budget in November, but significantly lower than the ones it published two years ago. These forecasts should be handled with caution, however. The terms of the UK s withdrawal from the European Union (EU) are still to be determined, so the trajectory of the economy is even more uncertain than usual. 1.2. Inflation As Figure 2 (on the following page) shows, inflation rose sharply during 2016 and 2017, reaching its highest rate since April 2012. According to the Consumer Prices Index including owner occupiers housing costs (CPIH) the ONS s most comprehensive measure of inflation prices increased by 2.3% in the 12 months to March 2018. That s the same as the 2.3% increase over the previous 12 months, and much higher than the 0.8% rise in the 12 months before that. 6

Fleet Insider 2018: Industry update 12-month change in Consumer Prices Index including owner occupiers housing costs Source: Office for National Statistics Figure 2: 12-month change in Consumer Prices Index including owner occupiers housing costs This relatively high inflation has largely been due to two factors. The first is the depreciation of the pound, which has made imports more expensive. The second is a rise in global food and oil prices. 1.3. Car registrations The weakness and uncertainty in the wider economy has had an impact on the UK car market, with new car registrations declining from record highs in 2016 and early 2017. According to figures from the Society of Motor Manufacturers and Traders (SMMT), shown in Figure 3, 2.45 million new cars were registered in the 12 months to April 2018. That s 9.2% fewer than the 2.70 million that were registered in the previous 12 months. This drop is explained by the steep decline in registrations of new diesel cars, which have seen their popularity reduce significantly in recent months, largely due to concerns about air pollution. 26% fewer diesels were registered in the year to April than in the previous 12 months. Diesel s share of the new car market fell to 38%, its lowest since at least 2007. Meanwhile, registrations of alternatively-fuelled vehicles (AFVs) grew by 31%, to 126,200. AFVs accounted for 5.1% of new car registrations in the year to April their highest ever share for a 12-month period. Although overall registrations have fallen, the share accounted for by fleets has grown in recent years. Fleets represented 52% of all registrations in the 12 months to April, up from 47% four years New car registrations in the UK, rolling 12-month total Source: The Society of Motor Manufacturers and Traders Figure 3: New car registrations in the UK, rolling 12-month total 7

www.hitachicapitalvehiclesolutions.co.uk Registrations of light commercial vehicles in the UK, rolling 12-month total Source: The Society of Motor Manufacturers and Traders Figure 4: Registrations of light commercial vehicles in the UK, rolling 12-month total 1.4. Light commercial vehicle registrations The current economic turbulence has also hit the commercial vehicle market. According to the SMMT s figures, 359,429 new light commercial vehicles (LCVs) were registered in the year to April 2018, 2.7% fewer than in the previous 12 months. Despite this slight decline, annual LCV registrations remain higher than at any point prior to 2015. After particularly strong growth in 2014, 2015 and early 2016, registrations of large vans (those weighing more than 2.5 tonnes) fell by 3.7% in the year to April. Registrations of the smallest vans (those weighing less than 2 tonnes) fell more sharply, by 12%, while for medium vans (those weighing between 2 and 2.5 tonnes) the number grew by 3.6%. 8

Fleet Insider 2018: Industry update Weekly road fuel prices, pence per litre Source: Department for Business, Energy & Industrial Strategy Figure 5: Weekly road fuel prices, pence per litre 1.5. Fuel prices Reflecting rising oil prices and the depreciation of the pound, pump prices rose significantly in 2016. After declining a little in the first half of 2017, they have since risen again, and are now at their highest since November 2014. According to figures from the Department for Business, Energy & Industrial Strategy, shown in Figure 5, the average price of a litre of petrol was 123.3 pence on 7 May 2018, up from 117.1p a year earlier. Meanwhile, a litre of diesel now costs 127.0p on average. A year ago, it was 119.3p. 9

www.hitachicapitalvehiclesolutions.co.uk 2. Legislation 10

Fleet Insider 2018: Industry update 2. Legislation 2.1. Optional Remuneration Arrangements In Autumn Statement 2016, the Chancellor, Philip Hammond, announced new policies relating to Optional Remuneration Arrangements (OpRA), which include both Salary Sacrifice and cash alternative schemes. The new rules came into effect on 6 April 2017. They state that, where a benefit is provided in lieu of salary or a cash alternative, Income Tax and employers National Insurance Contributions (NICs) will now be charged on the taxable value of the benefit or the amount of salary sacrificed or cash alternative foregone whichever is higher. The policy was grandfathered so that the changes will not apply to car schemes that were in place before 6 April 2017 until April 2021. However, existing schemes that are varied or renewed before April 2021 will be subject to the new system, with allowances made for certain types of variation, such as accidental damage. Ultra-low emission vehicles (ULEVs) those emitting less than 75 grams of carbon dioxide per kilometre (g CO 2 /km) are exempt from the changes entirely. In September 2017, HMRC conceded that, for tax purposes, the amount of salary sacrificed (or cash alternative foregone) should only reflect the financing portion of the vehicle charge. Other costs such as maintenance, insurance and road tax are not included. Despite these changes, Salary Sacrifice remains a good option for obtaining a lowemission company car. Such schemes enable people to buy cleaner, more efficient cars at better prices, whilst enabling companies to attract and retain the best talent. Approved Mileage Allowance Payments (AMAPs), 2018-19 Type of vehicle First 10,000 miles Above 10,000 miles Car or van 45p 25p Motorcycle 24p 24p Bicycle 20p 20p Source: HM Revenue & Customs Figure 6: Approved Mileage Allowance Payments (AMAPs), 2018-19 2.2. Approved Mileage Allowance Payments Employers can make payments to employees who use their own vehicles for business, to help cover such expenses as fuel costs. So long as these payments fall within allowed rates, determined by HMRC, then they can be paid free of both tax and NICs. Any excess is a taxable benefit. 19 are shown in Figure 6. For tax purposes, the 45p rate for cars and vans drops to 25p after the first 10,000 business miles. However, for National Insurance purposes, it remains at 45p for all business miles. Employees can claim Mileage Allowance Relief (MAR) if their employer pays them below the approved amount. The Approved Mileage Allowance Payment (AMAP) rates for 2018-11

www.hitachicapitalvehiclesolutions.co.uk Appropriate percentages for Company Car Tax, 2017-18 to 2020-21 Source: HM Revenue & Customs Figure 7: Appropriate percentages for Company Car Tax, 2017-18 to 2020-21 2.3. Company Car Tax All company cars pay Benefit-In- Kind (BIK) tax, commonly known as Company Car Tax (CCT), according to their CO 2 emissions. As Figure 7 shows, CCT rates are rising rapidly. For example, a petrol car emitting 100g CO 2 / km will see its appropriate percentage rise from 19% in 2017-18 to 25% in 2020-21. At Autumn Statement 2016, Hammond announced a new set of CCT bands that will apply from 2020-21. These will create greater differentiation between the appropriate percentages for different low-emission vehicles. The rates for 2020-21 were established in the Finance (No. 2) Act 2017, and are shown in Figure 7. In 2020-21, the rates for cars with CO 2 emissions between 1 and 50g/km will be based on the number of zero-emission miles they are capable of from 2% for 12

Fleet Insider 2018: Industry update those that can go 130 miles or more without emissions to 14% for those that can only manage less than 30 miles. Meanwhile, the rates for cars emitting more than 90g CO 2 /km will rise by 1 percentage point, up to the maximum of 37% for the most polluting cars. Since 2001, a 3-percentage point supplement has been added to the CCT rates of all diesel vehicles. At Autumn Budget 2017, the Chancellor increased this diesel supplement to 4 percentage points, effective from 6 April 2018. However, the cleanest new diesel cars those that meet the Real Driving Emissions Step 2 (RDE2) standards are now exempt from the diesel supplement. 2.4. Vehicle Excise Duty A new system of Vehicle Excise Duty (VED) was introduced for cars registered on or after 1 April 2017. Its bands are shown in Figure 8. In their first year of registration, under the new system, cars are taxed according to their CO 2 emissions, up to a maximum of 2,070 for those emitting over 255g CO 2 /km. In subsequent years, a standard annual rate of 140 applies. Only zero-emission cars are exempted from any payments. A 310 supplement is imposed on cars with a list price of over 40,000. This applies for the first five years in which the standard rate is paid. And so, a car Vehicle Excise Duty rates for cars registered on or after 1 April 2017 Source: HM Treasury Figure 8: Vehicle Excise Duty rates for cars registered on or after 1 April 2017 13

www.hitachicapitalvehiclesolutions.co.uk Standard VED rates for vehicles registered before April 2017 Source: HM Treasury Figure 9: Standard VED rates for vehicles registered before April 2017 costing over 40,000 attracts a levy of 450 ( 140 + 310) in its second year and in every year until that period is over. The payment will then revert to 140. At Autumn Budget 2017, Hammond announced that new diesel cars will be moved up one band for the purposes of calculating their first-year VED rates. This means that buying a new diesel car will involve more VED than buying a new petrol one with the same CO 2 emissions. RDE2-compliant diesels will be exempt from this change, however. The previous system still applies for cars registered before 1 April 2017. The systems that were in place for vans and heavy goods vehicles (HGVs) are still in place too. Autumn Budget 2017 confirmed the VED rates for 2018-19 for vehicles registered before 1 April 2017. These are shown in Figure 9. In line with inflation, these rates will increase by 5 for cars emitting between 121 and 165g CO 2 /km; by 10 for those emitting between 166 and 225g CO 2 /km; and by 20 for those emitting more than 225g CO 2 / km. They will also rise by 10 for most vans. VED rates for HGVs remain frozen this year. 2.5. Road user levy Since 1 April 2014, HGVs weighing 12 tonnes or more have had to pay the road user levy. The amount due depends on the weight of the vehicle and its number of axles. Following a call for evidence, the Government announced in March 2018 that it will cut the levy for the cleanest HGVs, while increasing it on others. As of 1 February 2019, HGVs that meet the Euro VI emissions standards will receive a 10% discount on the road user levy, while those that do not will face a 20% increase. 14

Fleet Insider 2018: Industry update Fuel Duty rate, pence per litre Source: Department for Business, Energy & Industrial Strategy Figure 10: Fuel Duty rate, pence per litre 2.6. Fuel Duty In Autumn Budget 2017, Hammond announced that Fuel Duty would remain frozen at 57.95p per litre until at least April 2019. As Figure 10 shows, it has now been kept at this rate for eight years in a row. The rate is currently scheduled to rise in line with inflation from April 2019 onwards. However, the Chancellor may decide to postpone this rise once again in his 2018 Budget. 2.7. Capital allowances Businesses can claim tax relief on plant and machinery that they buy including cars. The size of capital allowance available depends on the car s CO 2 emissions. Between 1 April 2015 and 31 March 2018, cars with emissions of 75g CO 2 /km or less were eligible for a 100% first-year allowance (FYA). This means that, in the first year of ownership, companies could offset the full cost of ULEVs against their profits, for the purpose of calculating tax. Cars with emissions of 75 to 130g CO 2 /km were eligible for relief at the main rate of 18%, while those with emissions over 130g CO 2 /km qualified for the special rate of 8%. From 1 April 2018, the emissions threshold for cars to qualify for the FYA was reduced to 50g CO 2 /km. The FYA is currently scheduled to end on 31 March 2021, although the Government is due to review the case for extending it beyond that date at Budget 2019. The threshold for the main rate allowance was also reduced on 1 April 2018, from 130g CO 2 /km to 110g/km. The rules are different for lease cars. A business can deduct the full cost of leasing its cars when calculating its Corporation Tax liability, as long as those cars emissions fall under the main rate threshold for capital allowances. Cars with emissions above the threshold are subject to a 15% 15

www.hitachicapitalvehiclesolutions.co.uk lease rental restriction, meaning that only 85% of the leasing costs can be deducted. On 1 April 2018, the threshold for the lease rental restriction fell in line with the change to the main rate allowance, from 130g CO 2 / km to 110g/km. Alongside other changes to the tax system, particularly BIK rates, these changes could encourage companies to choose lowemission vehicles. 2.8. Insurance premiums The standard rate of Insurance Premium Tax (IPT) rose from 10% to 12% on 1 June 2017, as announced by Hammond in Autumn Statement 2016. This came on top of previous increases announced by George Osborne in his last two Budgets, and means that the rate will have doubled from the 6% it stood at in 2015. Although IPT is a tax on insurance companies, this measure will push up premiums including for car insurance as insurers pass on the increased cost to their customers. The Association of British Insurers (ABI) estimated that the latest IPT increase would add 8 to the average car insurance premium. It s not just standard vehicle insurance that is affected: some breakdown services are offered as insurance products, and are therefore also subject to IPT. All of this will influence the Whole Life Cost considerations that fleet managers have to make. According to the ABI, the average private comprehensive car insurance premium in 2017 was 481, up 9% from 441 in 2016. In March 2018, the Government put before Parliament the Civil Liability Bill, which aims to cut the cost of car insurance by capping pay-outs for compensation and banning settlements without medical evidence. The Government claims that these measures would cut premiums by an average of 35 a year. 2.9. Lease accounting standards The International Accounting Standard Board (IASB) s new International Financial Reporting Standard IFRS 16 will apply to reporting periods beginning on or after 1 January 2019. It replaces the International Accounting Standard 17 (IAS 17). IFRS 16 will only apply directly to organisations that use International Financial Reporting Standards. However, the new rules will eventually filter through to the UK s Generally Accepted Accounting Principles (GAAP) too. The firms that are affected will be affected quite significantly. Currently, leases are categorised as either operating leases or finance leases. Operating lease costs are expensed through profit-and-loss accounts, and are therefore kept off balance sheets. Finance leases are effectively treated as loans, and therefore appear on balance sheets. Under IFRS 16, however, most leases will have to be recognised on lessess balance sheets. Exceptions include short-term leases (generally less than 12 months) and those of low-value assets (according to IASB guidance, these will typically cost less than $5,000 when new). In addition, informal lease extensions and ancillary leasing services, such as maintenance, will not need to be reported on balance sheets. 16

Fleet Insider 2018: Industry update 3. Infrastructure 17

www.hitachicapitalvehiclesolutions.co.uk 3. Infrastructure Public sector net investment, % of GDP Source: Office for Budget Responsibility 3.1. Government investment The plans that Philip Hammond inherited from his predecessor as Chancellor, George Osborne, would have cut government investment from 1.9% of GDP in 2016-17 to just 1.5% by 2019-20. Hammond has changed course, however, and now intends to keep investment steady at around 2% of GDP, before increasing it to 2.4% in 2020-21 as shown in Figure 11. At Autumn Statement 2016, Hammond established a new National Productivity Investment Fund (NPIF) of 24 billion to be invested in housing, transport, digital communications, and Figure 11: Public sector net investment, % of GDP research and development between 2017-18 and 2021-22. At Autumn Budget 2017, Hammond committed another 7 billion to be spent in 2022-23, taking the total NPIF to 31 billion. Autumn 2017 National Infrastructure and Construction Pipeline, constant 2016/17 prices Source: Infrastructure and Projects Authority Figure 12: Autumn 2017 National Infrastructure and Construction Pipeline, constant 2016/17 prices 3.2. The infrastructure pipeline According to the Infrastructure and Projects Authority s latest figures, published in December, there are currently 694 public and private infrastructure projects and programmes in the pipeline, worth a total of 463 billion. 245 billion of that spending is expected to take place by the end of 2020-21. As shown in Figure 12, the largest direct beneficiary of this spending is the energy sector, with 18

Fleet Insider 2018: Industry update 108 projects and programmes in the pipeline totalling 191 billion. This includes the new Hinkley Point C nuclear power plant in Somerset, which is being funded by 17.5 billion of private investment and is expected to come online by the end of 2026. It also includes 19.5 billion worth of offshore wind projects all privately funded. The next largest sector for investment is transport: there are currently 241 transport projects in the infrastructure pipeline, worth a total of 135 billion. Spending on these projects between 2017 and 2021 is expected to be 78.5 billion. 3.3. Roads The NPIF includes 1.3 billion of investment in the nation s road network, consisting of 1.1 billion to improve local roads and 220 million to tackle key pinch-points on strategic roads. These NPIF investments come on top of the 6.2 billion of road funding the Government is providing to local authorities between 2015 and 2021. This consists of four government schemes: the 4.7 billion of Local Highways Maintenance Funding allocated through a needs-based formula, a 575 million challenge fund, a 578 million efficiency incentive fund, and a 250 million Pothole Fund. From December 2017 to March 2018, the Department for Transport (DfT) consulted on the creation of a Major Road Network to sit between the Strategic Road Network and the Local Road Network, with a specific funding stream for improvements. 3.4. Rail The single largest infrastructure project in the country is the new High Speed 2 (HS2) rail line from London to Manchester and Leeds, which will be funded by 55.7 billion of government investment. The legislation for Phase 1 of HS2 connecting London to Birmingham and the West Midlands completed its more than threeyear journey through Parliament in February 2017. Services on the line are due to begin in 2026. Phase 2a will extend the line north from Birmingham to Crewe. Legislation for this section was introduced by the Government in July 2017 and is currently progressing through the House of Commons. This section of the line is scheduled to open in 2027. Phase 2b will take the line on to Manchester and Leeds, and is due to be completed by 2033. Construction of Crossrail which will integrate mainline railways to the east and west of London through two tunnels beneath the capital is now more than 90% complete. The first services, between Heathrow and Paddington, are due to begin in May 2018, with further routes added between December 2018 and December 2019. Once 19

www.hitachicapitalvehiclesolutions.co.uk operational, the line will be renamed the Elizabeth Line. In March 2017, Transport for London (TfL) submitted a business case to the Government for Crossrail 2, which would connect Surrey to Hertfordshire through central London. The Mayor of London enthusiastically supports the project, but the Government has stopped short of committing its support, and Crossrail 2 was notably absent from the Conservative manifesto for last year s General Election. Autumn Budget 2017 stated that the Government will continue to work with Transport for London on developing fair and affordable plans for Crossrail 2, including through an independent review of funding and financing. An Independent Affordability Review was established in March 2018 and is expected to conclude in the summer. A further 36.0 billion is due to be spent on other rail infrastructure projects, mainly aimed at increasing capacity on existing routes and electrifying more of the network. 3.5. Airports In October 2016, the Government announced that it would support plans for a third runway and sixth terminal at Heathrow, as recommended by the Airports Commission in 2015. The Draft Airports National Policy Statement (NPS), published in February 2017 and revised in October 2017, set out the Government s support for Heathrow expansion, but it requires parliamentary approval to be adopted. The Government has said that it expects a vote on the NPS in the House of Commons in the first half of 2018. In March 2018, the House of Commons Transport Committee published its report on the draft NPS. It recommended that Parliament approve the NPS, as long as the Government addressed a number of concerns, including about the costs of Heathrow expansion. Aside from that proposal, there are 5.5 billion of airport programmes in the pipeline, including capital investments at Heathrow, Gatwick and Manchester airports. 20

Fleet Insider 2018: Industry update 4. The Environment 21

www.hitachicapitalvehiclesolutions.co.uk 4. The Environment Average new car CO 2 emissions, g CO 2 /km Source: The Society of Motor Manufacturers and Traders Figure 13: Average new car CO 2 emissions, g CO 2 /km 4.1. Carbon dioxide emissions New cars sold in the UK in 2017 emitted an average of 121.0g CO 2 /km, according to the SMMT. That represents a 0.7% increase since 2016, although it is still 27% lower than the new car average in 2007, as shown in Figure 13. However, a further 21% reduction 5.9% a year would be needed to reach the EU target of 95g CO 2 /km by 2021. The slight increase in 2017 is due in part to two key trends. First, a shift away from diesel cars and towards petrol ones, which tend to have higher CO 2 emissions. Second, a shift away from small, fuel-efficient minis and superminis and towards larger, less fuel-efficient SUVs. The reduction in emissions over the longer term has been driven by two main factors: improvements in the fuel efficiency of petrol and diesel engines, and the growth of low-emission AFVs, especially electrics and hybrids. For vans, the EU-wide targets are for newly registered vehicles to emit an average of 175g CO 2 / km or less by 2017 and 147g CO 2 /km or less by 2020. 4.2. Worldwide Harmonised Light Vehicle Test Procedure The United Nations Economic Commission for Europe has developed a new Worldwide Harmonised Light Vehicle Test Procedure (WLTP) to more accurately measure the CO 2 emissions and fuel efficiency of new vehicles. Since 1 September 2017, the WLTP has replaced the New European Driving Cycle (NEDC) for new models of car or van. From 1 September 2018, all newly registered vehicles will have to undergo the new tests. As with the NEDC, the WLTP takes place in the laboratory. However, it has been designed to be more representative of real-world driving, with higher speeds, longer distances and more rapid acceleration and deceleration. It also takes into account the effects of optional equipment on emissions and fuel efficiency. At Autumn Budget 2017, the Government announced that NEDC figures for CO 2 emissions will continue to be used for the purposes of calculating CCT and VED until April 2020, at which point it will switch to WLTP figures. Until then, new vehicles will have their WLTP results converted to NEDC-equivalent figures for tax purposes, using a simulation model called CO 2 MPAS. 4.3. NOx emissions The Euro 6 emission standards, which limit emissions of nitrogen oxides (NOx) and other particulates, came into force for all cars and the lightest vans (those weighing less than 1,305kg) registered after 1 September 2015. For heavier vans (those weighing between 1,305kg and 3,500kg), Euro 6 standards apply to those registered after 1 September 2016. 22

Fleet Insider 2018: Industry update The NOx limit for new diesel cars is 80mg/km 55% lower than the Euro 5 limit of 180mg/km. However, the average real world emissions from Euro 6 diesels are much higher than this limit, at around 500mg/km. 4.4. Real Driving Emissions tests The European Union has introduced new Real Driving Emissions (RDE) tests to account for the fact that NOx emissions can be significantly higher on the road than in the laboratory. These tests came into force in September 2017 for new models, and will apply to all new vehicles from September 2019. Manufacturers are initially being given some leeway in these more stringent tests. A conformity factor of 2.1 applies to the Euro 6 NOx limit for the first two years, meaning that emissions can exceed the limit by up to 110%. The EU is currently devising its Euro 7 standards. These should be introduced before 2021. Plug-in car grant levels from March 2016 Source: HM Revenue & Customs Figure 14: Plug-in car grant levels from March 2016 4.5. Plug-in car grant The Government currently offers grants of up to 4,500 towards the cost of an ultra-low emission car. There are three categories of ULEV eligible for the plug-in car grant, defined by a car s CO 2 emissions and its zero-emission range. These categories, and the grants available for each, are shown in Figure 14. From the launch of the grant in January 2011 to the end of April 2018, 144,026 new eligible ULEVs have been registered in the UK, according to the SMMT. There is also a plug-in van grant, offering 20% of the cost of a van Registrations of cars eligible for the plug-in car grant, rolling 12-month total Source: The Society of Motor Manufacturers and Traders Figure 15: Registrations of cars eligible for the plug-in car grant, rolling 12-month total 23

www.hitachicapitalvehiclesolutions.co.uk that emits less than 75g CO 2 /km and has a zero-emission range of at least 10 miles, up to a maximum of 8,000. The DfT currently lists 37 models of car eligible for the grant, as well as nine eligible models of ultra-low emission van. As Figure 15 shows, the rate of ULEV registrations has increased rapidly in the past few years. 47,269 grant-eligible cars were registered in the 12 months to April 2018 a 31% increase on the previous 12 months and a 1,111% increase since 2013. At Autumn Budget 2017, the Chancellor provided 100 million to continue the plug-in car grant until 2020. 4.6. Charge points There are now more than 16,300 charge points for electric vehicles in the UK, at more than 5,600 locations on the road network. The Government currently offers grants to help individuals and businesses install charge points. The Electric Vehicle Homecharge Scheme offers grants worth 75% of the cost of installing a charge point at home, up to a maximum of 500. The Workplace Charging Scheme offers businesses vouchers worth 300 for each of the first 20 charging sockets they install. At Autumn Statement 2016, Hammond announced a new 100% FYA for businesses installing charge points. This is available until April 2019. In October 2017, the Government introduced the Automated and Electric Vehicles Bill, which would give it the power to order motorway service stations and other large fuel retailers to provide more public charge points. The Bill has passed the House of Commons and is currently making its way through the House of Lords. In Autumn Budget 2017, the Chancellor established a new 400 million Charging Investment Infrastructure Fund, with 200 million of government investment and 200 million from the private sector 4.7. London Almost all of Greater London is covered by its Low Emission Zone (LEZ), which has been in operation since 2008. Vans over 1,205kg that do not meet Euro 3 emissions standards must pay a 100-a-day charge to drive in the zone, whilst lorries over 3,500kg that do not meet Euro IV must pay 200 a day. 24

Fleet Insider 2018: Industry update On 8 April 2019, a new Ultra- Low Emission Zone (ULEZ) will come into effect in central London. A 12.50-a-day charge will apply to cars and vans that do not meet Euro 4 (for petrol) or Euro 6 (for diesel) standards, and a 100-a-day charge will apply to lorries that do not meet Euro VI. On 23 October 2017, a 10-a-day Emissions Surcharge (also known as the Toxicity Charge or T-charge ) was introduced for vehicles driving in the Congestion Charge Zone that do not meet Euro 4/IV emissions standards. This will remain in place until the ULEZ comes into effect. The Mayor of London, Sadiq Khan, is proposing to increase the emissions standards for lorries in the LEZ in October 2020, and to extend the ULEZ to the North and South Circular Roads for cars and vans in October 2021. These plans were put forward for consultation between November 2017 and February 2018, but the outcome has not yet been announced. Khan is already looking to go further than his current ULEZ proposals. His Transport Strategy, published in March 2018, includes plans for Zero Emission Zones in town centres from 2020 and in central London from 2025, as well as an ambition for London to have a zero-emission transport system by 2050. 4.8. Air Quality Plan After much legal wrangling, the Government published its new Air Quality Plan for tackling nitrogen dioxide (NO 2 ) concentrations on 26 July 2017. The centrepiece of the Air Quality Plan is the roll-out of Clean Air Zones in five cities, as well as local action plans in the 23 other areas in England that are breaching NO 2 limits. Each local authority has until the end of 2018 to publish its plans. The Government has established a new 255 million Implementation Fund to help councils draw up and deliver these plans, and a 240 million Clean Air Fund to support businesses and individuals affected by them. Among the other policies in the Plan was a ban on the sale of new petrol and diesel cars, to be brought in by 2040. In February 2018, following a legal challenge to the Plan from ClientEarth, the High Court ruled that the Government must urgently order another 33 local authorities to take action to reduce air pollution. The Government has instructed these councils to produce action plans by the end of July. The Welsh Government is currently drawing up its own Clean Air Plan, and the High Court has given it until the end of July 2018 to publish the final version. 4.9. Clean Air Zones In December 2015, the Government ordered five English cities to introduce Clean Air Zones by 2020: Birmingham, Leeds, Southampton, Nottingham and Derby. These Zones will involve targeted policies such as introducing incentives for ULEVs, retrofitting buses and improving road layouts. It is up to each local authority to decide the specific mix of policies that apply within its particular Clean Air Zone, but the Government has published a framework setting out the principles that they must follow. Some Clean Air Zones may include charges on the oldest, most polluting vehicles, but the Government has made clear that such charges should only be introduced if air quality targets cannot be met without them. It has also stipulated that, like in London s ULEZ, vehicles that meet Euro 6/ VI emissions standards will be exempted from any charges. In addition, Scotland s first LEZ is due to be introduced in Glasgow from the end of 2018, while the Welsh Government has announced that it intends to introduce a Clean Air Zone in Cardiff by the end of 2021. 25

www.hitachicapitalvehiclesolutions.co.uk 5. Technology 26

Fleet Insider 2018: Industry update 5. Technology New car registrations in the UK by fuel type, rolling 12-month total Source: The Society of Motor Manufacturers and Traders Figure 16: New car registrations in the UK by fuel type, rolling 12-month total 5.1. Alternatively-fuelled vehicles AFVs continue to grow in popularity, representing an ever-increasing share of the new car market. According to figures from the SMMT, shown in Figure 16, 5.1% of all new cars registered in the 12 months to April 2018 were AFVs. That s up from 3.6% the year before and 1.6% four years ago. 126,200 new AFVs were registered in the year to April, up 31% from the 96,507 that were registered in the previous 12 months. These include not only cars powered by electric batteries or hybrid engines, but also Hydrogen Fuel Cell Vehicles (HFCVs). The Honda Clarity Fuel Cell is set to join the Toyota Mirai and the Hyundai ix35 HFCV on Britain s roads this year. For more information about Government policies to support the uptake of AFVs, please see Chapters 2 and 4. 27

www.hitachicapitalvehiclesolutions.co.uk Projected stock of connected cars in the UK Source: Statista Figure 17: Projected stock of connected cars in the UK 5.2. Connected and autonomous vehicles More and more cars are being connected to the internet through 3G and 4G networks. As Figure 17 shows, Statista expects the number of connected cars in the UK to grow to almost 21 million by 2022. Companies such as Microsoft and General Motors (GM) are developing Dedicated Short- Range Communications technology that will allow vehicles to pass large amounts of information to each other and to roadside infrastructure very quickly. In November 2017, UK Autodrive a consortium including Ford, Jaguar Land Rover and Tata tested new connected vehicle technology on the streets of Coventry. This included systems that display real-time road information on the car s dashboard, tell the driver when traffic lights will turn green and warn the driver of approaching emergency vehicles. Further tests are planned in Milton Keynes in 2018. The development of self-driving cars is also accelerating. Waymo (formerly Google s autonomous vehicle project) has now completed more than 5 million driverless miles on public roads, Uber has been trialling self-driving taxis in Pittsburgh since September 2016, and GM has built the first autonomous cars to be mass-produced in an assembly plant. Ford is piloting a self-driving delivery service in Miami in 2018, and plans to launch an autonomous vehicle for ride-hailing and delivery in 2021. The Government has stated its intention to put the UK at the forefront of automated vehicle ownership. The NPIF announced in Autumn Statement 2016 (see Chapter 3) included 100 million of support for connected and autonomous vehicles. In the Automated and Electric Vehicles Bill currently before Parliament (see section 4.6), the Government is legislating to extend compulsory car insurance to cover autonomous vehicles. In March 2018, the Government also commissioned the Law Commission of England and Wales and the Scottish Law Commission to conduct a three-year review of driving laws to identify any further reforms that are needed to prepare for autonomous vehicles. 28

Fleet Insider 2018: Industry update 6. Safety 29

www.hitachicapitalvehiclesolutions.co.uk 6. Safety Reported road casualties in Great Britain by severity Source: Department for Transport Figure 18: Reported road casualties in Great Britain by severity 6.1. Road casualties 1,792 people were killed on Britain s roads in 2016, according to the latest official figures from the DfT. That s 3.6% more than were killed in 2015, but still 5.7% fewer than were killed in 2011. The total number of road casualties including deaths, serious injuries and slight injuries fell by 2.6%, from 186,189 in 2015 to 181,384 in 2016. That figure for 2016 is the lowest on record, going all the way back to 1979. As Figure 18 shows, casualties have stagnated in recent years after a period of dramatic reduction between 2000 and 2013, when the number of annual road deaths was halved. In part, that stagnation is due to increased road use. Drivers travelled a record 324 billion miles on British roads in 2016, up 2.2% from 2015. Taking this into account, the rate of road deaths has held steady, while the overall casualty rate has fallen by 4.7%. There were 5.5 deaths and 555 injuries per billion miles driven in 2016, compared to 5.5 deaths and 582 injuries in 2015. In 2016, 529 people were killed and 43,519 injured in accidents involving a driver or rider driving for work. The DfT estimates the total cost of road traffic accidents in 2016 at 36 billion. This includes 4.6 billion in lost economic output directly caused by the accidents. 30

Fleet Insider 2018: Industry update Road deaths per million population, 2016 Source: Department for Transport Figure 19: Road deaths per million population, 2016 6.2. International comparison The UK has some of the safest roads in the world. As Figure 19 shows, there were 28 deaths per million people in 2016, compared to 37 in Japan, 39 in Germany and 52 in France. The USA saw 109 road deaths per million people in 2015. 6.3. The causes of accidents The most common factor recorded by police officers as contributing to road accidents is a failure on the part of the driver or rider to look properly. In 2016, this contributed to 42% of all road accidents. Other common contributing factors were: failure to judge another person s path or speed (21%); carelessness, recklessness or hurry (18%); a poor turn or manoeuvre (16%); and loss of control (12%). However, loss of control was the most common contributing factor in road fatalities. It is recorded as contributing to 30% of all fatal accidents. 6.4. Driving tests A new driving test regime came into effect in December 2017, designed to better prepare people for modern motoring. Among the changes is the addition of a section that tests the candidate s ability to follow directions from a sat nav. In addition, the European Parliament voted in March 2018 to approve new rules designed to modernise professional driver training across the EU. The European Council is expected to adopt this new Directive in June 2018. 6.5. Commercial drivers hours HGV drivers must follow the rules for driving hours set out in European Commission Regulation 561/2006. This limits them to a maximum of 56 hours of driving per week and 90 hours per fortnight. It also mandates at least 45 minutes of rest every 4.5 hours. In the past, traffic examiners could only issue fines for driving hours offences committed on the day of a check. However, the rules changed on 5 March 2018. Examiners can now issue fines for up to five offences committed in the last 28 days. 31

www.hitachicapitalvehiclesolutions.co.uk Sources and Further Reading Quarterly national accounts: October to December 2017 Office for National Statistics, 29 March 2018 Tax information and impact note for HGV levy: changes incentivising cleaner vehicles Department for Transport, 28 March 2018 High Speed 2 (HS2) Phase 2b and beyond Louise Butcher, House of Commons Library, 10 August 2017 Economic and fiscal outlook: March 2017 Office for Budget Responsibility, 13 March 2018 Consumer price inflation, UK: March 2018 Office for National Statistics, 18 April 2018 UK new car registrations up in April as market jumps after last year s VED turbulence Society of Motor Manufacturers and Traders, 4 May 2018 UK new light commercial vehicle market grows in April Society of Motor Manufacturers and Traders, 4 May 2018 Weekly road fuel prices Department for Business, Energy & Industrial Strategy, 9 May 2018 Autumn Statement 2016 HM Treasury, 23 November 2016 Travel mileage and fuel rates and allowances HM Revenue & Customs, 6 April 2017 Finance (No.2) Act 2017 legislation.gov.uk, 16 November 2017 Autumn Budget 2017 HM Treasury, 22 November 2017 Vehicle Excise Duty HM Revenue & Customs, 8 July 2015 HGV Road User Levy Act 2013 legislation.gov.uk, 28 February 2013 Capital allowances for business cars HM Revenue & Customs, 2 November 2016 The raid on the responsible continues third rise in Insurance Premium Tax in under two years heaps more pressure on just about managing families Association of British Insurers, 30 May 2017 Cost of motor insurance goes into overdrive as premiums reach new high of 481. Association of British Insurers, 24 January 2018 Civil Liability Bill House of Lords, 20 March 2018 Pocket Guide to IFRS Standards: the global financial reporting language Paul Pacter, IFRS Foundation, 2016 Public sector finances, UK: March 2018 Office for National Statistics, 24 April 2018 National Infrastructure and Construction Pipeline 2017 Infrastructure and Projects Authority, 6 December 2017 Proposals for the Creation of a Major Road Network Department for Transport, 23 December 2017 High Speed 2 (HS2) Phase 1 Louise Butcher, House of Commons Library, 10 August 2017 High Speed 2 (HS2) Phase 2a Louise Butcher, House of Commons Library, 19 January 2018 Crossrail 1 & 2 Louise Butcher, House of Commons Library, 12 April 2017 Grayling: progress on Transpennine route upgrade and Crossrail 2 to advance in lockstep Department for Transport, 2 March 2018 Airports Commission: Final Report Airports Commission, 1 July 2015 Revised Draft Airports National Policy Statement Department for Transport, 24 October 2017 Airports National Policy Statement House of Commons Transport Committee, 23 March 2018 New Car CO 2 Report 2018 Society of Motor Manufacturers and Traders, 27 February 2018 Taxable benefits and vehicle excise duty: regime for measuring carbon dioxide emissions HM Revenue & Customs, 22 November 2017 Low-emission vehicles eligible for a plug-in grant Gov.uk April EV registrations Society of Motor Manufacturers and Traders, 4 May 2018 Plug-in car grant eligibility guidance Office for Low Emission Vehicles, 1 March 2016 Charging Point Statistics 2018 Zap-Map, 10 May 2018 32

Fleet Insider 2018: Industry update Electric Vehicle Homecharge Scheme Guidance for customers: November 2016 Office for Low Emission Vehicles, 3 November 2016 Workplace Charging Scheme Guidance Document for Applicants, Chargepoint Installers and Manufacturers Office for Low Emission Vehicles, 21 November 2016 Automated and Electric Vehicles Bill House of Lords, 30 January 2018 Mayor: Ultra-Low Emission Zone will start in 2019 to tackle toxic air Mayor of London, 3 November 2017 Mayor launches Ultra-Low Emission Zone expansion consultation Mayor of London, 30 November 2017 Mayor s Transport Strategy 2018 Mayor of London, 13 March 2018 UK plan for tackling roadside nitrogen dioxide concentrations Department for Environment, Food & Rural Affairs, 26 July 2017 Additional measures to support individuals and businesses affected by local NO 2 plans: Summary of responses to the consultation Department for Environment, Food & Rural Affairs, 23 March 2018 UK Government loses third air pollution case as judge rules air pollution plans unlawful ClientEarth, 21 February 2018 Clean Air Zone Framework Department for Environment, Food & Rural Affairs, 5 May 2017 First Low Emission Zone for Glasgow Scottish Government, 10 October 2017 Digital Market Outlook Statista UK Autodrive begins public road trialling in Coventry UK Autodrive, 17 November 2017 Approaching the finish line what 2018 has in store UK Autodrive, 15 January 2018 Waymo reaches 5 million self-driven miles Waymo Team, Medium, 27 February 2018 Pittsburgh, your Self-Driving Uber is arriving now Uber, 14 September 2016 GM says it s ready to mass produce self-driving cars Brent Snavely, USA Today, 13 June 2017 We re Going to Miami: The First Proving Ground for Our Self-Driving Service Sherif Marakby, Ford Motor Company, Medium, 27 February 2018 Government to review driving laws in preparation for self-driving vehicles Department for Transport, 6 March 2018 Reported Road Casualties Great Britain: 2016 Annual Report Department for Transport, 28 September 2017 Driving test changes: 4 December 2017 Driver and Vehicle Standards Agency, 15 April 2017 European Parliament votes to modernise training for professional drivers European Commission, 13 March 2018 European Union (EU) rules on drivers hours and working time: Simplified Guidance Department for Transport, 28 March 2017 Drivers hours: changes to fines for commercial drivers Driver and Vehicle Standards Agency, 5 February 2018 33