Why are car drivers subsidised so heavily?

[anme]

Why are car drivers subsidised so heavily?

What I don't understand is why companies normally compensate staff for personal car use at a rate of 40p per mile (possibly higher now). I think that rate is set by HMRC. For this trip, that would be £160, much more than the train. According it this thread, the actually price of driving is less than half that.

Why are car drivers subsidised so heavily? It seems a rate of around 15p per mile would be more appropriate.

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This was an accidental post, intended for another thread... But as it seems to be a live discussion, I guess it won't be deleted...

 

[St Rollox]

Local hospital was asking for volunteer drivers.
Silly me thought it was for those who liked doing good deeds for free.
Seems they were paying 90p a mile.
One chap, retired cop, did 40000 miles in a year.
Or so he claimed.

 

[edwin_m]

These are indeed HMRC rates. They are intended to cover the full costs of owning a car, spread over a typical annual mileage. Hence this includes costs like purchase/depreciation, insurance, servicing, which do not depend very much on the mileage driven. There must also be some huge assumptions made in setting these rates, since both the annual mileage and the type/cost of car varies hugely between different drivers.

If someone has a car anyway the marginal cost of using it for a particular trip is much lower, and the perceived marginal cost is lower still - for a short trip no more than any parking fees, though for a longer trip most people would estimate the cost of petrol too. For many leisure journeys this is the cost that most people will use when deciding whether to go by car or train, and not surprisingly the car wins most of the time.

There is also a lower HMRC rate for people who receive an annual allowance from their employer to have a car available for work purposes. The annual allowance is supposed to cover the fixed costs and the mileage rate the per-mile costs. Last time I looked a couple of years ago the lower rate was 20.5p per mile, though I think some of these rates vary a little by vehicle type.

 

[anme]

Local hospital was asking for volunteer drivers.
Silly me thought it was for those who liked doing good deeds for free.
Seems they were paying 90p a mile.
One chap, retired cop, did 40000 miles in a year.
Or so he claimed.

I checked the rates allowed by HMRC. See http://www.hmrc.gov.uk/rates/travel.htm
It's now 45p for the first 10000 miles per year, then 25p for the rest.
I guess the hospital could pay more but it would be taxable.

 

[anme]

These are indeed HMRC rates. They are intended to cover the full costs of owning a car, spread over a typical annual mileage. Hence this includes costs like purchase/depreciation, insurance, servicing, which do not depend very much on the mileage driven. There must also be some huge assumptions made in setting these rates, since both the annual mileage and the type/cost of car varies hugely between different drivers.

If someone has a car anyway the marginal cost of using it for a particular trip is much lower, and the perceived marginal cost is lower still - for a short trip no more than any parking fees, though for a longer trip most people would estimate the cost of petrol too. For many leisure journeys this is the cost that most people will use when deciding whether to go by car or train, and not surprisingly the car wins most of the time.

There is also a lower HMRC rate for people who receive an annual allowance from their employer to have a car available for work purposes. The annual allowance is supposed to cover the fixed costs and the mileage rate the per-mile costs. Last time I looked a couple of years ago the lower rate was 20.5p per mile, though I think some of these rates vary a little by vehicle type.

I understand that - but it seems very unfair that insurance, depreciation, etc are covered if the car is already owned. Effectively the fixed costs are being subsidised. In my experience, car drivers saw this policy as a way to make free money and would deliberately avoid using public transport for business trips if they could.

Hopefully this loophole will be closed soon and no more than the additional costs incurred will be allowed.

 

[GB]

You seem pretty bitter about it all.

 

[soil]

What I don't understand is why companies normally compensate staff for personal car use at a rate of 40p per mile (possibly higher now). I think that rate is set by HMRC. For the trip in question, that would be £160, much more than the train. According it this thread, the actually price of driving is less than half that.

Why are car drivers subsidised so heavily? It seems a rate of around 15p per mile would be more appropriate.

There's a difference between the total cost and marginal cost.

My car I bought second-hand for £13,000 after the previous owner had paid £26,250 new.

That's £13,250 over 3.7 years. Call it £14k in reality when you figure in the lower-trade in cost.
It had covered 26,000 miles in that time, at a rather measly mpg of 25mpg. So £6,136 on fuel.
Servicing £299.
Insurance @ £500/year, £1850
Vehicle Excise Duty@£170/year £629

Total cost:

£14000
£6136
£299
£1850
£629

=£22, 914
=88p/mile

That's the real cost of owning that particular car. And if you expect someone to drive their car for work purposes, it's appropriate to pay them for that.

For me there's been less depreciation but more service costs (new tyres).

If you went for a more sensible repmobile, a Ford Mondeo diesel on a 4 year contract costs:

£272.10 * 50 = £13,605

http://www.lingscars.com/Ford/Monde...ion_Hatchback_5dr_1997cc-personal.html#models

Insurance for 4 years, £1600
Servicing £500
Fuel @ 45mpg for 40,000 miles = 889 gallons @ £5.90 gallon = £5,244

Total = £21,000
For 40,000 miles = 52.5p/mile

Total costs per mile are much higher than 40p/mile in most cases.

You can of course do it for much less by buying an old car and therefore reducing depreciation to almost zero, but that's not a normal scenario.

Most people in the position of expensing company mileage are driving newish saloons.

 

[Murph]

15p/mile (which was based on 40mpg in the other thread) is quite unrealistic. If a company wants to obtain the benefit of the use of my private vehicle, they have to fully compensate for its use, not just barely covering the fuel costs if I'm lucky. If they don't like that, they are welcome to pay for whatever taxis, buses, trams, trains, etc, are required to get there and back, or provide a company vehicle and fuel cost.

The HMRC rules are in place to cover someone who does significant business mileage, as well as a rare trip. Once the mileage is significant, the other costs involved with servicing, depreciation, etc become significant, and must be factored in.

 

[anme]

15p/mile (which was based on 40mpg in the other thread) is quite unrealistic. If a company wants to obtain the benefit of the use of my private vehicle, they have to fully compensate for its use, not just barely covering the fuel costs if I'm lucky. If they don't like that, they are welcome to pay for whatever taxis, buses, trams, trains, etc, are required to get there and back, or provide a company vehicle and fuel cost.

The HMRC rules are in place to cover someone who does significant business mileage, as well as a rare trip. Once the mileage is significant, the other costs involved with servicing, depreciation, etc become significant, and must be factored in.

Why? You will be paying for those anyway.

It's interesting to ask why companies pay these rates at all, when public transport is so much cheaper. I have worked for large companies that do not allow the use of personal cars for business trips at all. If you wanted to drive somewhere on business, you had to take a hire car (or find some other means to travel). They did this because it worked out cheaper for them.

 

[Murph]

Why? You will be paying for those anyway.

It's interesting to ask why companies pay these rates at all, when public transport is so much cheaper. I have worked for large companies that do not allow the use of personal cars for business trips at all. If you wanted to drive somewhere on business, you had to take a hire car (or find some other means to travel). They did this because it worked out cheaper for them.

All those costs you seem keen to exclude can be significantly lower without the business mileage, and the resale value of the vehicle will be significantly higher. The only cost which remains the same is the road tax.

The bottom line for me is that my vehicle won't turn a wheel for a company unless they pay in full for everything, not just fuel (and 15p/mile isn't even realistic for fuel for most private cars). Why should an employee subsidise a company's travel costs in any way?

 

[soil]

Why? You will be paying for those anyway.

It's interesting to ask why companies pay these rates at all, when public transport is so much cheaper.

Cheaper?

London - Manchester is £308 return by train.

It's 400 miles at 45p/mile (that's the current HMRC approved rate).

That's £180.

 

[asylumxl]

Cheaper?

London - Manchester is £308 return by train.

It's 400 miles at 45p/mile (that's the current HMRC approved rate).

That's £180.

£308 for an Anytime Return yes, but not every journey will need such a ticket. The next ticket down would be £77.30, an Off Peak Return.

 

[SS4]

£308 for an Anytime Return yes, but not every journey will need such a ticket. The next ticket down would be £77.30, an Off Peak Return.

And since an Anytime Return would only ever be used at peak time the car cost should involve sitting in traffic jams, especially since the journey is between two major areas, indeed the only two cities in England if you believe the media

 

[anme]

Cheaper?

London - Manchester is £308 return by train.

It's 400 miles at 45p/mile (that's the current HMRC approved rate).

That's £180.

I agree that £308 return from London to Manchester is a totally outrageous price and indeed the car is cheaper in this case.
--- old post above --- --- new post below ---

All those costs you seem keen to exclude can be significantly lower without the business mileage, and the resale value of the vehicle will be significantly higher. The only cost which remains the same is the road tax.

The bottom line for me is that my vehicle won't turn a wheel for a company unless they pay in full for everything, not just fuel (and 15p/mile isn't even realistic for fuel for most private cars). Why should an employee subsidise a company's travel costs in any way?

There are fixed costs and there are marginal costs. My question is why companies should pay any fixed costs for someone who already owns a car. Marginal costs are ok.

 

[edwin_m]

15p/mile (which was based on 40mpg in the other thread) is quite unrealistic. If a company wants to obtain the benefit of the use of my private vehicle, they have to fully compensate for its use, not just barely covering the fuel costs if I'm lucky. If they don't like that, they are welcome to pay for whatever taxis, buses, trams, trains, etc, are required to get there and back, or provide a company vehicle and fuel cost.

The HMRC rules are in place to cover someone who does significant business mileage, as well as a rare trip. Once the mileage is significant, the other costs involved with servicing, depreciation, etc become significant, and must be factored in.

That's exactly why HMRC allow the company to pay a lump sum towards fixed costs plus a lower rate per mile, or to pay a higher mileage rate with no lump sum.

My employer pays the higher mileage rate to certain grades of staff but if these people need to make a longer car jounrney a hire car will be organised for them. Others are paid the car allowance and expected to use their own cars when a car journey is necessary, or to hire one at their own expense, and in either case are only reimbursed at the lower mileage rate.

I have heard in other companies that staff who are provided with a company car or car allowance are expected to drive on all business trips, which to my mind is unfair and also counter-productive if people can do useful work on a train but not when driving.

 

[Murph]

There are fixed costs and there are marginal costs. My question is why companies should pay any fixed costs for someone who already owns a car. Marginal costs are ok.

The only fixed cost is the road tax. Everything else is increased by the business mileage, including the depreciation of the vehicle itself.

 

[Xenophon PCDGS]

I understand that - but it seems very unfair that insurance, depreciation, etc are covered if the car is already owned.

Do I read what you say correctly about insurance in your quote above, as you appear to be saying that insurance is something that is not incurred when a car is fully paid for, which is obviously not the case for legal reasons. The cost of insurance is a cost that has to be borne by all motorists.

Can you be so kind as to clarify that particular point in your posting.

 

[Metrailway]

£308 for an Anytime Return yes, but not every journey will need such a ticket. The next ticket down would be £77.30, an Off Peak Return.

True but a large percentage of business travel is undertaken during peak times. So an Off Peak Return would be useless for many business travellers.

Another problem is that many business trips are done on short notice so booking Advance tickets (if available) may not elicit a large saving over the Anytime fare.

 

[anme]

The only fixed cost is the road tax. Everything else is increased by the business mileage, including the depreciation of the vehicle itself.

Well, depreciation, for example, has a fixed element and a marginal element. Your car will depreciate even if you leave it on the drive.

 

[theblackwatch]

True but a large percentage of business travel is undertaken during peak times. So an Off Peak Return would be useless for many business travellers.

Another problem is that many business trips are done on short notice so booking Advance tickets (if available) may not elicit a large saving over the Anytime fare.

Another issue is that the person is unlikely to be travelling from their home/office next to a station to another place next to a station for a meeting - so there would be added time and cost to travel from/to these places.

 

[Murph]

Well, depreciation, for example, has a fixed element and a marginal element. Your car will depreciate even if you leave it on the drive.

Sure, but it is increased by mileage, therefore it is appropriate that the company contributes towards this. The standard motor industry pricing guides have a standard mileage for every vehicle make+model+age combination, and adjustment tables for above or below that standard mileage.

Servicing does have a fixed cost element, but there is a significant element which is roughly proportional to mileage. Here's a list of just some of the components/systems which have a cost roughly proportional to mileage (or hours of running): Tyres, brakes, suspension, steering, wheel bearings, wipers, water pump, power steering pump, fuel pump, air conditioning compressor, alternator, distributor, HT coils, plugs, filters. Some of those might normally last, for example, 25k or 50k or even 100k miles, so the cost per mile isn't huge, but it's still there and appropriate for the company to cover it.

Insurance is a complicated one, but may well be higher by losing the ability to opt for a limited mileage and/or non-business-use policy.

 

[Seacook]

Why? You will be paying for those anyway.

The fixed costs are VED, insurance and MOT charges (and, perhaps, interest on a loan to buy the car). Everything else is variable, usually affecting the residual value (RV): the higher the mileage, the lower the RV; the better the condition, the higher the RV (maintenance and servicing costs rise with mileage). Then there is increased risk to take into account: being involved in an RTA while driving on business will affect future insurance costs and some measure of compensation is appropriate.

 

[radamfi]

I think the 'unfairness' is that expenses for car usage have been set high enough to cover the cost of using a particularly expensive car to run and own. This means that almost all people using the car for business will make some money out of it, and those using economical cars will make quite a lot. Whereas those using public transport can only claim back the cost of the ticket, and therefore make no money personally. That can only encourage car usage for business even for trips where public transport is more attractive.

 

[soil]

And since an Anytime Return would only ever be used at peak time the car cost should involve sitting in traffic jams, especially since the journey is between two major areas, indeed the only two cities in England if you believe the media

It costs pretty much the same (maybe a few % extra in fuel) to drive at peak times compared with off-peak times.

Unlike trains, road capacity is not price-controlled.

The train is faster, station-to-station, but few people would travel station to station - a big advantage of the car is that you can drive direct to your destination.

Manchester is hardly uniquely expensive, a ticket to/from pretty much any city to London, Anytime, is more expensive than 45p/mile.
--- old post above --- --- new post below ---

I think the 'unfairness' is that expenses for car usage have been set high enough to cover the cost of using a particularly expensive car to run and own. This means that almost all people using the car for business will make some money out of it, and those using economical cars will make quite a lot. Whereas those using public transport can only claim back the cost of the ticket, and therefore make no money personally. That can only encourage car usage for business even for trips where public transport is more attractive.

The issue is that as a business expense you cannot pay more than the actual cost.

The cost of public transport is transparent. The cost of motoring is less so.

If you cut mileage rates, people would refuse to use their private cars. This would result in higher costs to the business.

HMRC is not in the business of transport policy planning.

 

[Butts]

It must be remembered that some people may work in positions that do not lend themselves to the use of public transport.

When I worked in the Leisure Industry and finished after 11, outside metropolitan areas, the car was sometimes the only choice. I would be asked to cover at another club miles from my home.

Also if you need to get somewhere really early the same situation can occur with lack of PT.

 

[richw]

The OP seems to be missing that people would use no where near as much wear and tear items if not using for work purposes. If I didn't use my car for work basis I would do less than 6000 miles per annum, with work I total 18000-20000 miles per annum. Therefore I use approx. three times as much brakes, three times as much tyres. There is also the additional insurance premium for business purposes. Parkers has listed my car to depreciate at £20 per 100 miles, so that's around £2500 for the year is extra depreciation for my business mileage. I get 40mpg at current price here in Cornwall of £1.39 per litre (£6.32 per gallon).

The business mileage is therefore trebling my annual maintenance on wear and tear items, so my company should rightly so reimburse me for those additional costs.
--- old post above --- --- new post below ---

The fixed costs are VED, insurance and MOT charges (and, perhaps, interest on a loan to buy the car).

Insurance premiums increase if you declare you are doing business mileage which failure to do so will see your insurance void.
MOT charges are not totally fixed, if I had done many miles I would expect to be either maintaining my car additionally on wear and tear items required for MOT through the year, or higher probability of failing if I hadn't done the maintenance therefore increasing that expenditure, most certainly not guaranteed to be fixed.

 

[Seacook]

Insurance premiums increase if you declare you are doing business mileage which failure to do so will see your insurance void.

I didn't know about the increased insurance; being over and above normal costs, it should be recompensed.

MOT charges are not totally fixed, if I had done many miles I would expect to be either maintaining my car additionally on wear and tear items required for MOT through the year, or higher probability of failing if I hadn't done the maintenance therefore increasing that expenditure, most certainly not guaranteed to be fixed.

I mentioned increased maintenance for the same reasons you give - I was trying to covey that the actual cost of the MOT test is not affected, but keeping the vehicle in good repair is.

 

[edwin_m]

I think the 'unfairness' is that expenses for car usage have been set high enough to cover the cost of using a particularly expensive car to run and own. This means that almost all people using the car for business will make some money out of it, and those using economical cars will make quite a lot. Whereas those using public transport can only claim back the cost of the ticket, and therefore make no money personally. That can only encourage car usage for business even for trips where public transport is more attractive.

That may or may not be true in reality, but some people perceive it to be true and this may influence their choice of car or public transport for a business journey.

The other factor complicating this is the value of time. Many people can make productive use of the time on a train journey but they can't while driving (or flying). However this too can cut both ways. If working on a fixed price contract then minimising unproductive time maximises profit, but the reverse applies for time-charge contracts unless the client places some kind of restriction on charging for travel time.

 

[richw]

I didn't know about the increased insurance; being over and above normal costs, it should be recompensed.

I think mine increased by approx. £100 for the year adding on the business mileage. My policy doesn't cover any goods or stock, but I don't carry any such items. There was a further premium for covering goods or stock in transit.

 

[Llanigraham]

Admit it, anme, you are just anti-car, and don't want to see anything that pays towards them, in any way?

And an example of why a car is sometimes better than a train:
Quarterly I have to attend a meeting in London on a Friday afternoon.
I could catch the train locally to get to London, but because the meeting doesn't finish until after 1900 I can't catch a train back home. Therefore I claim 45p/mile to drive to a station that allows me not to have to leave London until 2000.