News analysis: Essential economy drive

Escalating fuel prices are forcing employers to make sure that their company cars are being used as efficiently as possible, says Tynan Barton

Drivers saw in the new year with a double increase in fuel price. On 1 January, a rise in fuel duty saw 0.76p/litre added to both petrol and diesel, then VAT increased from 17.5% to 20% on 4 January. A further 1p/litre rise in fuel duty is planned for April, but Chancellor George Osborne has indicated he may axe this.

Fuel prices have hit record highs at a time when cost-efficiency is at the top of every employer’s agenda, but steps can be taken to control company car costs. Chris Chandler, principal consultant at Lex Autolease, said: “Fuel is often seen as an inevitable expense. Yes, it is inevitable in that you have to put fuel in a car to make it go, but the actual scale of the cost is not inevitable. There are plenty of things [employers] can do to increase the fuel economy of the car.”

Managing fuel payments is perhaps the most complicated area for employers. If employees are reimbursed at a fixed mileage rate, the cost increases can be borne by them, rather than the employer. As fuel prices have risen, drivers have also been hit by HM Revenue and Customs advisory fuel rates that see the mileage rate for diesel cars with an engine over 2000cc fall by 1p. These drivers will feel the pinch both at the pumps and in the amount their employer reimburses them.

Employers that offer fuel cards also need to be aware of price variations between petrol stations, because this may not be of immediate concern to drivers who do not pay for the fuel themselves. As a short-term measure, employers could discourage staff from filling up at more expensive sites to minimise the cost per litre, said Stewart Whyte, a director and membership secretary of the Association of Car Fleet Operators.

To combat high fuel prices, employers also need to ensure cars are fit for purpose in terms of maintenance, regular servicing and correct tyre pressures, and check on driver requirements. For example, virtual online meetings or conference calls have reduced the need for staff to drive to business appointments. In the last five years, David Yates, marketing director at ALD Automotive, has seen a 22% drop in the contract mileage employers are writing on vehicle agreements. He attributes this partly to people questioning whether a journey is necessary.

Consider leasing agreement

But if an employer wants to amend its fleet policy as regards the number of miles an employee drives, it will need to consider its leasing agreement. Alastair Kendrick, director of employment tax service at Mazars, said: “If, for example, an employer agreed a term at 75,000 miles and people are now not going to be doing that because you are curtailing their business travel, then the employer needs to renegotiate the lease terms with the lease provider.”

Employers can also move to smaller, more fuel-efficient cars. “More drivers are considering their needs, so there is a downsizing trend from executive cars to hatchbacks,” said Yates.

But employers should ensure staff are not driving long distances in an unsuitable car. “This can be counter-productive,” said Kendrick. “[Employees] may have to take sick leave due to fatigue caused by driving long distances in smaller cars.”

A short-term measure is to consider the timing of meetings, he added. “If employees are travelling in the rush hour, they will be going slower on a motorway and burning up more fuel than if they have a meeting at midday.”

An employer also has to ensure drivers behave in a way that improves fuel consumption. “Manage the driver and make sure you collect data on vehicle fuel consumption and mileage,” said Chandler. “Look at miles per gallon to identify those who are driving efficiently, and those who are not.”

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