Green company cars could save UK firms £3bn a year

UK plc could save up to £3bn a year by exploiting a new tax break that came into effect this weekend and seeks to encourage firms to switch to greener company cars.

That is the finding of new research undertaken by the Energy Saving Trust which argues that firms will miss out on millions of pounds of cost savings if they fail to switch their company car fleet to vehicles that emit 120 grams of CO2 per kilometre or less.

The report, entitled Behind the Wheel II, claims that under changes to the tax system designed to encourage adoption of greener company cars UK firms could save up to £250m a year through reduced National Insurance contributions and £780m from lower fuel bills by switching to vehicles such as the Toyota Prius and Honda Civic Hybrid that emit less than 120 grams of CO2 per kilometre.

Meanwhile, UK employees driving greener company cars would stand to save £645m through reduced Benefit in Kind income tax contributions and £1.2bn on the fuel bill for driving their cars privately.

According to the report the net result of the changes would be a reduction in UK carbon emissions of around 4.9m tonnes a year.

The report echoes a similar study late last year from accountants Grant Thornton, which calculated that under the new tax regime a firm procuring an running a fleet of 50 company cars could save almost £60,000 over four years by switching from a mix of the UK's 10 most popular company cars to a fleet based on an average mix of the 10 greenest cars available.

It found that while the greener car fleet would cost fractionally more up front the extra costs would be more than offset by reduced tax costs and lower fuel bills.

Nigel Underdown, head of transport advice at the Energy Saving Trust, said firms could no longer afford to ignore the cost savings greener fleets would offer.

"Running vehicles costs a lot of money and with fuel prices over £1 a litre it's not going to get cheaper any time soon," he said. "In addition, companies in the business-to-business sector won't get far when tendering for big contracts unless they can prove their environmental credentials."

However, the Energy Saving Trust report also revealed that many firms are ill prepared to take advantage of the potential cost and commercial benefits associated with running a green fleet. Through a survey of 400 board level executives it found that only seven per cent of firms offer employees a financial reward to choose a smaller or lower carbon vehicle, while over half of firms that provide company cars do not yet have a CSR policy in place.