HAMPSHIRE COUNTY COUNCIL

Decision Report

1. Executive Summary

1.1 The purpose of this paper is to set out the proposals to align the rates paid for business mileage to the HM Revenue and Customs (HMRC) rates in the context of the Efficiency Board's work to identify cost efficiencies in HCC.

1.2 This paper seeks to:

_ Set out the proposals to align HCC's business mileage rates to the HMRC rates

_ Provide the context of the proposals in relation to the wider work to identify cost efficiencies

_ Highlight the key considerations of such changes, including consultation with the trades union and potential impact on staff

2. Contextual Information

2.1 Recommendations in this paper form part of the wider work to identify cost efficiencies in HCC and the workforce elements of these. It is proposed that an early briefing takes place with the unions to consider this proposal and the wider workforce efficiency agenda in light of the Council's overall efficiency programme. This paper is presented on the basis that agreement can be reached with the trades union, however, it needs to be recognised that compromises may need to be considered.

2.2 Under the Employment in Hampshire County Council 2007 agreement (EHCC 2007) the mileage rates payable for business mileage are calculated as a percentage of the NJC Essential User rate for 1000-1199cc motor cars, as detailed below. The NJC reference rate is currently 37.1p per mile.

2.3 As part of the Council's efficiency programme, to reduce workforce costs, one of the related work streams is a reduction in travel costs through a lower mileage rate.

2.4 HMRC publish mileage rates known as "mileage allowance payments" (MAPs). Mileage rates paid above these levels are deemed by HMRC to be of financial benefit to the employee and are taxed accordingly.

2.5 For private cars and motorcycles the HCC mileage rate is higher than the rate published by HMRC and as a result must be reported to the employee and the HMRC on form P11d. The mileage rate for lease cars and bicycles is slightly lower than that of HMRC.

3. Mileage Rates for 2009/10

3.1 The percentage, mileage rate and the corresponding HMRC rate are set out in the table below:

N.B. It should be noted that the reference NJC rate is lower than the HMRC rate but this is because the NJC allowance includes an additional lump sum payment of £906 per annum.

3.2 Consultations with other authorities have highlighted that a number of these already reimburse their staff for business mileage at the current HMRC rates. Adoption of the HMRC rates would bring HCC in line with these authorities. Of our neighbouring authorities, Southampton and Portsmouth rates for private cars are higher than the HMRC rates and slightly higher than HCC's rates. A reduction in our rates could have a negative impact on staff retention although the risk of this is deemed to be low.

4. Proposed approach

4.1 It is proposed that HCC align the mileage rates paid for business mileage in private, leased cars and motorcycles to HMRC rates. Alignment of mileage rates with HMRC rates would remove the need for a annual review, with any adjustment taking place automatically.

4.2 Based on the current HMRC rates and HCC's mileage data for 2008/09 the proposals and impact are as outlined below.

4.3 Private car

4.3.1 It is proposed to reduce the mileage rate from 53.8p to the current HMRC mileage rate of 40p per mile for the first 10,000 miles per annum and 25p per mile thereafter. These changes would deliver an estimated saving to HCC of £1.7 million per annum once fully implemented.

4.3.2 Further savings of approximately £150k per annum would be made in employers' national insurance contributions.

4.3.3 The current mileage rates paid by HCC produce a taxable benefit for staff. Alignment with the HMRC rate removes the taxable benefit for employees and the requirement for HCC to report this to the employee and HMRC on form P11d.

4.4 Leased cars

4.4.1 HMRC publish what are known as "advisory rates" for leased cars. Whilst HMRC have higher rates for larger vehicles to avoid rewarding use of larger vehicles and for ease of administration and consistency it is proposed that the advisory rate for cars with engine sizes of 1400cc or less be adopted for all leased cars. This would result in the leased car mileage rate increasing from the current 9.5p to 10p per mile.

4.4.2 Arrangements are in place to remove the current subsidise scheme. The unsubsidised scheme works on the basis that whilst the employee receives the appropriate mileage rate, currently 9.5p, the difference between that and the HCC rate of 53.8p is contributed to the lease cost for the vehicle with the employee paying the rest of the lease charge.

4.4.3 The change from 9.5p to 10p per mile will deliver longer term savings of some 25% of the cost to HCC for new leased cars. However, for those existing leased cars there would be a small increase to HCC of approx. £7k per annum as we are unable to change the existing leased car costs.

4.5 Motorcycles

4.5.1 Under the proposal the HCC rate per mile for motorcycle mileage for business purposes would decrease from 29.7p to the current HMRC mileage rate of 24p per mile. This change would deliver an estimated saving to HCC of £1k per annum.

4.6 Bicycles

4.6.1 It is not proposed to align the HCC mileage rate paid for bicycles of 9.5p to the HMRC rate of 20p. Unlike cars and motorcycles there are very limited running costs e.g. no fuel and vehicle tax for bicycles. The HMRC mileage rate for bicycles is only 4p lower than that for a motorcycle which seems disproportionate in relation to the additional running costs associated with a motorcycle.

4.7 Definition of business mile

4.7.1 HCC and HMRC's definition of a business mile differ. The Council's policy is to reimburse excess mileage travelled on a business journey over and above normal home to office mileage. HMRC rules allow that all mileage to and from a "temporary workplace" can count as business for tax purposes, i.e. anyone not visiting their normal office could claim all mileage. Claiming for travel between home and normal place of work is not normally payable under either regime.

4.7.2 The HMRC's definition is more generous than the Council's. Consequently, where appropriate, staff have been given the opportunity to record both figures on their travel claim form, the Council's being used to calculate the amount payable with HMRC's being used in the necessary tax and national insurance calculations. The process does, however, add complexity to the claiming rules which in turn increases the chances of error.

4.7.3 It is not proposed that HCC move to the HMRC's definition of business mileage. Consultation with a number of other authorities, including neighbouring authorities, supports this approach. Like HCC they work on the basis of only paying for excess mileage over and above normal home to office mileage.

4.7.4 HCC will look to remove the facility for staff to record both figures on their travel claim form and highlight in the relevant guidance that employees should record this information and liaise directly with HMRC.

4.8 Passenger payments

4.8.1 HMRC rules permit a payment for carrying fellow employees in a car or van on journeys which are also work journeys for them. A payment of 5p per business mile is payable for each passenger.

4.8.2 As part of the proposal to align HCC's mileage rates to the HMRC rates it is proposed that the passenger payment of 5p per mile also be introduced, with departments being consulted as to whether payments should be limited or not to only one passenger or be unlimited, taking account that SAP is configured to make payments for as many passengers as are carried.

4.8.3 It would be difficult to estimate how frequently this would be used but if a passenger payment was claimed for 10% of HCC's total mileage the estimated cost would be £65k per annum.

5. Other Rates

5.1 Since the EHCC 2000 agreement came into effect, a number of variations to the EHCC rates have evolved, which leaves HCC vulnerable to challenge on grounds of equal treatment. Different rates are paid to certain groups of staff e.g. casual staff and music teachers, some of which are higher and others lower. Establishing different mileage rates creates additional administrative burden as such payments cannot be processed through the on line ESS travel system. There is also a potential risk of challenge on grounds of equal treatment.

5.2 If the Council agrees to align its mileage rates to the HMRC rates it is proposed that the opportunity be taken to apply these mileage rates to all staff, excluding those covered by TUPE arrangements during the initial period of employment with HCC, following transfer under TUPE regulations. This change would result in an estimated saving to HCC of £20k per annum.

6. Cost considerations

6.1 Full year savings of around £1.8 million would be made by the County Council on mileage payments if they were aligned to the current HMRC MAP rates, once fully implemented.

6.2 Alignment of mileage rates with HMRC rates would result in any adjustments automatically being applied to the HCC rates. Any changes to the HMRC rates, up or down, would have potential cost implications for the Council.

7. Wider considerations

7.1 The proposed changes would be challenging on the basis that approximately 7,500 employees incur some excess business mileage. Consultation with the unions and communication with staff will therefore be critical. Detailed analysis of the impact on staff has already commenced and information provided to departments for review and assessment of potential implications.

7.2 The likely impact of the proposed change on sustainability is hard to judge and harder to quantify. The use of a single flat mileage rate in itself gives a financial incentive to using fuel efficient cars. The savings on production of P11ds will add a measure of sustainability. Overall, the environmental impact of the proposals will be positive.

7.3 Teachers are currently aligned to EHCC mileage rates. However, this is not a formal agreement and as a result consideration will need to be given on how the adoption of the new proposed rates can be achieved for Teachers.

7.4 Consideration also needs to be given to Members. They are paid the same mileage rate as EHCC and so it would be expected that they would move to HMRC rates with staff. However, it needs to be borne in mind that HMRC allows members to claim home to work place mileage (members have more than one workplace).

8. Recommendations

8.1 EHCC are asked to agree:

_ in principle, the proposed changes to the mileage rates for business miles as outlined in this paper, recognising that negotiations with the trade unions may require amendments to the overall proposals.

_ in principle an implementation of such changes in the new financial year, recognising that negotiations with the trade unions may result in amendments to the proposed date.

CORPORATE OR LEGAL INFORMATION:

Links to the Corporate Strategy

IMPACT ASSESSMENTS:

1. Equalities Impact Assessment:

N/A

2. Impact on Crime and Disorder:

N/A

3. Climate Change:

a) How does what is being proposed impact on our carbon footprint / energy consumption?

The likely impact of the proposed change on our carbon footprint/energy consumption is hard to judge and harder to quantify. The reduction in the rate paid for business miles could potentially result in a reduction in the number of business miles undertaken by staff. The use of a single flat mileage rate in itself gives a financial incentive to using fuel efficient cars. The introduction of a passenger payment for carrying fellow employees will hopefully encourage staff to share more journeys, potentially reducing the total number of business miles undertaken. The savings on production of P11ds will add a measure of sustainability. Overall, the environmental impact of the proposals will be positive.

b) How does what is being proposed consider the need to adapt to climate change, and be resilient to its longer term impacts?

See above.