Britain Softens Threat to the Company Car
When Chancellor of the Exchequer Nigel Lawson submitted the budget to the House of Commons the other day, few items rated as much media attention as the company car.
For days there had been warnings in Britain’s popular press that those who enjoy the use of company cars could expect to see taxes on the privilege doubled. But as it turned out, the government raised the levy by only 30% for the fiscal year that began Wednesday, causing another flurry of articles breathing a sigh of relief.
“If you’re expecting to be hanged and all you get is a good thrashing, you’re pleased,” commented Bob Oxford, an editor at Fleet News.
In the United States, where the company car is the privilege of a relative few, the subject may be a matter of marginal interest at best. But not here.
Industry sources estimate that as many as six new cars out of every 10 sold in Britain are bought by companies for the benefit of their employees--compared to fewer than two out of 10 in the United States. One working man or woman in seven in Britain has a company car, whether it is needed on the job or not.
The Economist magazine calls the company car the “most British of perks,” and the Telegraph weekend magazine refers to it as a “national obsession.”
“Those who have them,” the Telegraph said, “claim that life would be impossible without them; those who do not, blame them for all sorts of social ills.”
The company car is so woven into the fabric of life here that class-conscious Britons are almost as interested in the type of car a person drives as in his accent, or where he went to school.
“Try as they might to affect indifference, corporate infighters have to take an informed squint at who is driving what,” the Telegraph said. “It is a reliable--and remarkably finely tuned--indication of status. And it is so conspicuous . . . . It may be considered gauche to flaunt your salary, but everyone can see your company car.”
In some industries, such as financial services, almost anyone earning more than about $25,000 a year is automatically deemed deserving of a company car, even if he has an office job, according to Norman Donkin, managing director of Lease Plan UK Ltd. and a co-editor of Monk’s Guide to Company Car Policy.
The bigger the job, the fancier the car. Nearly half of company chairmen get a high-line Jaguar, according to Monk’s. Others are able to pick any car they want up to a top value of nearly $70,000.
British Cars Favored
Managing directors--the equivalent of company presidents in the United States--generally get more modest Jaguars or the equivalent, while other senior executives have to make do with something like a Ford Granada. The bread-and-butter company cars, the ones favored for salesmen and engineers who really need a car for the job, are smaller Ford and Vauxhall models, Donkin said.
British companies tend to favor British-made cars for their company fleets, which is another reason why the company car attracts such seemingly disproportionate attention.
The once-proud British auto industry has seen more than 50% of its domestic market go to imports. And if it were not for their domination of the $14-billion-a-year company car business, the domestic manufacturers would be feeble competitors indeed.
Not surprisingly, the auto industry lobbied strongly against any big increase in the company car tax. A survey by Hertz suggested that there might be “a catastrophic effect on the U.K. car market” if firms stopped providing company cars.
A total of 546 people with company cars were interviewed for the survey, and more than half said they would buy a used car if deprived of their company car. Nearly a third said they would buy a smaller, less powerful--and cheaper--model if they had to pay for it out of their own pockets.
Car Considered Equipment
A spokesman for the Society of Motor Manufacturers noted that in such circumstances “many would probably buy imported cars.”
Britain’s love affair with the company car goes back to the Conservative government of Prime Minister Edward Heath in the early 1970s. To encourage investment, the Heath government allowed companies to deduct from taxable profits the total cost of its new equipment. That included cars.
Then, the next year, the government introduced the first of a series of wage freezes that were to hold down paychecks through much of the decade. Since companies could not raise salaries, they rewarded employees with company cars.
As a result, about one car out of every seven on Britain’s roads is owned not by the driver but by his employer. Twenty years ago the figure was one in 28.
The government is no longer quite so generous about company cars. Last year, for example, it doubled the tax that users have to pay on them. But it still subsidizes the benefit to the tune of many hundreds of millions of dollars a year.
Critics argue that the company car is a drain on public funds and, moreover, wastes energy and adds to traffic congestion. That is because company cars tend to be bigger and more powerful than other cars.
Monthly Tax Bill
The latest changes mean that the traveling salesman with the lowest-rated company car will have to pay about $25 a month in personal taxes on it, up from about $19 a month. A company president whose luxury car is strictly a perk might have to pay $520 a month in taxes for it, up from $390.
But even if you add insurance, maintenance, financing and other costs of ownership, the company car user still comes out on top. And as Donkin noted, by now the company car “is so ingrained in the corporate philosophy here that it’s going to take a lot to dislodge it.”
In the Hertz survey, 15% of salesmen said that given a choice between two similar jobs, they would “be tempted to take the one with slightly less money and a nicer car.”
More than 80% of senior executives said they would automatically expect a car to be part of any job offer, and nearly half said they would think “there was something wrong with a company that didn’t offer company cars.”
