Refreshing your fleet policy

The conventional view of the fleet market has changed significantly in just the last two or three years, with very many new options to be considered. One of the biggest changes has been the trend to consider business mobility as an holistic corporate objective, rather than the vehicle-centric ways which used to be the limit of the market.
    
In general end-user businesses now seek full solutions to the issues of moving employees and goods around, rather than on narrower issues like whether to have petrol or diesel cars. The fleet supply chain has become sophisticated beyond belief with most products and services based wholly or partly on tax issues: in every sense the government’s focus on CO2 from transport has produced quite spectacular results.

Examine the risks
Many other issues have developed, such as managing road risks, the rising costs of insurance, and the tightening of funding. All of these factors should be examined by all businesses from time to time to ensure that exposure to cost risk as well as on-road risk is minimised.
    
The issue is even more relevant to public sector employers like the NHS. The severe constraints on funding together with the prospect of significant organisational change puts even more emphasis on reviewing the options in detail, to maximise value for money and business efficiency.
    
Given the current market and the range of choice, the place to start is not with the vehicles – but with a clear picture of what the demand for business mobility actually is in your operation. Not for other organisations, not your neighbours, but yours. Every organisation  has its own pattern of annual mileages, its own mix of long and short journeys, a blend of pure transport fulfilment and remuneration through private use. It is becoming clearer that we are moving away from the one-size-fits-all approach, to something much more sophisticated and efficient.
    
Until recently most change was centred around getting the vehicles cheaper (whether through purchase price or leasing rates). Consortium arrangements such as the recent framework agreements through OGC/ Buying Solutions and others, have provided pre-approved and efficient routes to market – but that should now be secondary to reviewing the actual needs now and for the mid-term future, rather than an automatic re-tendering of supply contracts.

View the bigger picture
In both public and private sectors, smarter fleets are re-examining the wider picture to see where bigger changes and cost savings can be achieved. For example, in some private sector areas there are options to outsource vehicle provision completely to the employees, through cash allowances or highly formulated schemes. Conversely, there is also a move to in-source vehicle provision through salary sacrifice arrangements – often by extending the scheme to all employees and not just those who need a company car. In most cases these are not idealised for the public sector – so should be examined with great care for full relevance to the defined requirements.
     
The increase in attention to the grey fleet – employees using their own cars in exchange for a mileage reimbursement – has shown that there is in fact a whole spectrum of potential solutions to meet different requirements.

A question of tax
There are many opportunities to examine the options as there is now a wide market of tax and fleet consultants offering analysis, industry expertise and outcome comparisons to help the overall optimisation process.
One of the problems of many of these comparisons has been the assumptions made about the tax-free mileage allowances – the AMAP scheme – which is often taken as a benchmark level for costing. Until the Budget, this HMRC system allowed tax-free payments of up to 40 pence per business mile (up to 10,000 business miles in the tax year, with any mileage over 10,000 in the year payable at 25 pence per business mile) to be tax and NI free for employer and employee.
    
Many schemes were set up on the assumption that these would continue at these rates for some time to come. However, as we saw, this was not guaranteed at all. The initial rate (for up to 10,000 business miles in the tax year) was increased to 45p/ml – a 12 per cent increase. How this tax-free rate change interacts with the actual rates paid in many parts of the NHS will need to be assessed by careful analysis of local circumstances; broad-brush simple calculations are unlikely to give a meaningful answer.
    
It should not be assumed that this is the end of the matter. As business mileage patterns have been changing in recent years, there are rumours of HMRC re-evaluating this particular tax-free system more radically.
While the recent rise is doubtless good news for employees, it represents an additional cost for employers. With employee’s own budgets under pressure due to inflation and higher monthly food and heating bills, for example, staff may look to subsidise their income by clocking up additional business mileage.

It is therefore essential that employers communicate the importance of journey planning and journey management to employees.

Grey fleet
The Office of Government Commerce has been aware for some time of the culture within some public sector organisations for employees to travel unnecessary miles in their own cars on business.

Its report entitled ‘Grey Fleet Best Practice’ (accessible from www.ogc.gov.uk) says: “Often grey fleet is not the most cost effective method of transport available to an employee.”

However, the report also confirms the need for management control by going on to say that grey fleet travel maybe preferred by employees for a range of reasons, including:
•    Employees not being aware of other, more cost-effective, alternative methods of transport that are available which could include car rental, car leasing and public transport
•    Own car travel being ‘easy’ with effective journey planning probably not undertaken
•    Mileage rates offered may act as an incentive for employees to drive their own cars, especially where these are older (and therefore cheaper to run).

The report concludes: “Without appropriate demand management measures, this can lead to rising mileage in employee-owned cars, as well as rising mileage costs.”

Simultaneously, with keeping costs under control public sector organisations have also been charged by the government with reducing their carbon footprint.

Transport is one of the most significant causes of greenhouse gases so journey management not only contributes to cost management but also a reduction in an organisation’s carbon footprint.

Government is also looking to encourage car sharing with the little-known allowance for passenger payments currently in place for employees at 5p per passenger per mile being extended to volunteers in a Budget announcement.

Too often a number of employees travel individually by car to business meetings or appointments. However, advanced planning could mean that car travel is shared and the drivers can benefit from an additional mileage allowance.

Fuel prices
Of course, all of the above is happening against a background of very significant increases in forecourt prices for petrol and diesel in the last 12 months. Given the current volatility in North Africa/the Middle East there are real concerns about the continuing upward pressure on mainline transport fuels – in fact there are developing concerns about its very availability.
    
Of course the costs of petrol and diesel have been on a relatively consistent upwards trend in recent years and most fleets have recognised the need to look at saving money. But in reality, many have stopped after that first look. Hence it is vital for NHS employers to understand the current profile of demand for business travel before making new decisions about the methods of vehicle provision. An essential journey as defined five years ago may now have to be re-defined as a ‘nice-to-have’ – and vice versa.  
    
The realities of the current financial situation, the changing face of NHS service delivery, and the increasingly strident demands for control of climate-change emissions really do justify close scrutiny to ensure the travel policy is fit for purpose. The top levels of management need to accept responsibility for keeping the travel policy in line with function, costs and environmental aspects.  
    
Where a business has never had a mileage and/or fuel management policy, it can be a daunting prospect to try to tighten up on expenses claims and look more closely on the amounts being spent – and what mileages are being delivered. In the NHS the common practice is to pay on a rate-per-mile basis and this does reduce administration. But over the last few years, most model ranges have seen a big increase in fuel economy (as a function of lower CO2). The approved fuel mileage rates may therefore start to look generous for some quite large model groupings – so the flat-rate reimbursements may be over-generous.

2011 is therefore a year to review the whole picture, and consider how to reduce costs, CO2 and administration. This is never an easy or quick option to undertake carefully, as all the factors of all the valid options need to be assessed as part of the exercise. Failing to make sure that every cost type is included can only give a wrong result – not just for the start, but for the fleet lives of all the cars under the sub-optimal arrangements.

Alternative power
The market has continued to focus on petrol and diesel as the main fuels. The big alternative fuels of a few years ago (LPG, CNG, high-concentration bio-fuels) have tended to become niche products with true benefits to fleets limited to specific circumstances. Hybrid power has continued to make penetration into the fleet market, but again needs to be selected where its characteristics suit the operation environment (generally urban/stop-start conditions rather than open-road driving conditions).
  
2011 will see the arrival on many new all-electric models, range-extended models where the internal combustion engine becomes little more than an on-board generator, and diesel hybrids. These new and developed technologies offer big opportunities – but in their right place. They are not first choice for extensive motorway driving, for example.

Adverse weather
As well as the poor economic outlook, the weather has not been kind to business travellers. Snow in January and December 2010 caused a great deal of disruption to travel plans, and destroyed effective productivity for these periods.
One of the big questions to engage the fleet market was the value – or otherwise – of snow tyres – more correctly terms cold-weather tyres.

Their objective is to provide increased grip on light snow and ice, allowing progress to be maintained when other vehicles are struggling. When the road is blocked by abandoned vehicles, of course, they offer no benefits at all.

Some of the suggested solutions include cars and vans being provided with a duplicate set of wheels with the cold weather tyres so that they can be changed on a seasonal basis. That can be expensive and difficult (where do you store the set that’s not in use?) Another solution is to use snow socks – a sort of lightweight version of snow-chains. These are of course much cheaper and require no storage.

But why consider a policy on these now? Stocks are not huge and by the time the next major snow-storm or cold weather spell comes along in winter 2011/12, everyone else will be after them.

In this area, as in every facet of good business mobility management, planning ahead really is the key to success.

Summary
As can be seen, public sector employers and employees face significant increases in their vehicle and car travel costs. Even if low emission, fuel-sipping cars are selected, costs in many cases will rise over the coming years.

It is essential that fleet decision makers and HR departments communicate directly with drivers and educate them – not only about the cost increases but, crucially, how that expenditure can be managed downwards.

That means producing at-work driving policies that require staff to use the most economic and efficient method of travel, taking into account the cost of travel, environmental impact and journey time.

The financial rewards for public sector organisations are huge but it is no good putting in place a new travel strategy if it is not communicated to drivers who, in turn, are also not educated as to how their own costs, particularly in relation to company car benefit-in-kind tax are likely to rise.

Changing established practices is no easy task. But, given the current economic climate, there has never been a better time to put in cost-saving measures that may preserve jobs and boost funding for frontline services.
    
ACFO has long provided a support network for fleet operators in all sectors. Through networking at regional meetings and on-line, there are many opportunities for knowledge transfer from one level of fleet to another. Experience shows this is irrespective of size: many smaller fleets can teach a few of the big boys a few lessons in improving overall performance through changes in technique, monitoring or communicating with employees who drive on business.

For more informaion
E-mail: info@acfo.org
Web: www.acfo.org