9 min. read

Will the mobility budget initiate the end of the company car’s reign?

2,300,000,000 €. That is the estimated amount of traffic-congestion costs for Belgium in 2018[1]. It might not come as a surprise: Belgium and mobility have never been a match made in heaven. With Brussels being the capital of Europe, in addition to ill-conceived roadways and financially attractive company car policies, the amount of traffic jams has only been increasing over recent years[2]. Transportation is not only the black sheep financially speaking; it also accounts for a quarter of all greenhouse gas emissions in Europe[3] and a large share of local and in-city air pollution[4], as has already been outlined in one of Greenfish’s previous White Papers [5].

It is clear, traffic jams don’t do much good. For many years, they have been an important item on the political agenda. As a response, the Belgian government launched the mobility budget at the beginning of this year as a potential part of the solution. In this paper, we delve deeper into what it is exactly, who benefits from it, and whether or not it might offer a valid alternative to the hailed company car.

To do so, let us dive into the world of the take-home vehicle!

The company car controversy

In 2016, Belgium had a total of 5.7 million cars, including 650,000 company cars. It is estimated that 100,000 company cars enter, exit or are driven within the Brussels region every single day[6]. These company cars have been the topic of a lot of heated discussions over the past years. Employees who own one can probably hardly imagine going without it. Additionally, a firm offering a company car also benefits from economic advantages such as tax-deductibility and profiles itself as an attractive organisation. However, these cars can also be seen as a loss of tax revenue for the government and, with their numbers continuously increasing, they are inherently linked to the mobility issue[7]. Moreover, due to higher corporate income taxes and stricter emissions standards, company cars are getting more expensive for companies. At the same time, the way mobility is looked upon is changing and employees place a higher value on flexibility in terms of their mobility options[8].

Given these observations, the mobility allowance was introduced in March 2018 by the Belgian government in order to facilitate a shift in mobility patterns. More commonly known as the ‘cash for car’ measure, it allows employees who have a company car, or who qualify to have one, to relinquish it in return for a sum of advantageously taxed money[9] that can be freely spent. This amount depends on the value of the car that is handed in, and rises if a fuel card is available (see insert).

Cash for car example

If employes who have a Volkswagen Golf with a list price of 29,300 and a fuel card opt for the cash for car plan, they will receive a total yearly reimbursement of  €6,027. After tax is taken out, a monthly budget of 481,50 remains.

While the former company vehicle covered the daily commute by car, private transportation and other car costs, this budget needs to cover all transportation expenses. It seems that exchanging the car for cash would only make economic sense in a few specific cases, (e.g. if the daily commute is short and very few private kilometres are driven with a relatively expensive company car). This, in combination with the inflexibility of the measure stipulating that the car option is completely lost, has made the success of the mobility allowance very limited so far. According to a study conducted by Acerta[10], after being implemented for the last 1.5 years, the cash for car measure has only been able to persuade 0.14% of Belgian employees.

As a response and in order to offer a more resilient alternative, the Belgian government introduced the mobility budget on February 28th of this year. Here, the goal is to facilitate the usage of alternative modes of transportation without necessarily having to give up the use of a car.

Solving the controversy with the mobility budget

As for the mobility allowance, the goal of the mobility budget is to act as an incentive for employees who own a company car to opt for different means of transportation. It is a non-compulsory initiative,  that is to be agreed upon both by the employee and the employer, and is possible under certain conditions[11].

The difference with the allowance is that the employee is given the opportunity to spend the budget on a combination of mobility solutions, divided into three pillars, as shown in Figure 1 below. These pillars include the option for (1) a car, (2) alternative means of transportation and (3) a cash payment of the remaining amount at the end of the year, after a social security deduction. The determining of the budget itself also follows a different calculation compared to the mobility allowance.

Figure 1: Overview of the mobility budget system, including its three-pilar spending options. TCO = Total Cost of Ownership

 

First, the size of the budget needs to be calculated: it is valued at the total cost of ownership (TCO) of the car that is or would be entitled to an employee. The TCO considers the annual costs necessary to finance the car and to operate it, including fuel, maintenance and insurance costs. Therefore, the budget differs for each employee and depends on their commuting distance.

Once the budget has been determined, the employees are free to choose how they would spend it on any combination of the following three pillars.

Pillar 1: Eco-friendly car

Employees can choose to exchange their current company car for a model that pollutes less or for a fully electric car. Additionally, the CO2 emissions of the new car should be less than 105 g/km, decreasing towards 95 g/km by 2021, complying with Europe’s fleet-wide emission targets for new cars[12]. Here the company should properly investigate what type of cars comply with this norm, at what cost and how much of the budget would then still be available for pillars 2 and 3. For example, in 2017, worldwide new car emissions averaged at 118 g C02/km with only 10 percent of cars emitting less than 105 g C02/km[13].

The limit itself has already sparked some discussions.  Car manufacturers struggle to reach the target, with high financial penalties looming over their shoulders[14]. Besides, it seems that there are still loopholes in the implementation, and the whole Dieselgate scandal, for which VW is currently going to trial[15], of course, did not help. Fortunately, with the new Worldwide Harmonised Light Vehicle Test Procedures (WLTP), the emission measurement method has been clarified[16]. It should be noted, though, that even if proper implementation will make the car fleet more environmentally friendly, it will not solve the current congestion issues.

Pillar 2: Sustainable transportation and nearby housing

The second pillar focusses on alternative and sustainable modes of transportation. The remaining budget can be used for public transport subscriptions and tickets, car/bike-sharing programs, taxi, bike purchase, vehicle rental (for max. 30 days) and even for housing costs if the home is located within 5 kilometers, as the crow flies, of the normal place of employment. All expenses in this pillar are fully untaxed and are free of social security contributions, which further increase the attractiveness of this offer.

Pillar 3: Remaining cash

If there is a remaining amount of money at the end of the year, it is paid out in cash to the employee in January of the following year. No taxes need to be paid on it, but it is subject to a special social security contribution of 38%, which is to be fully borne by the employee. The rather high contribution thus discourages the usage of the mobility budget for cash. If employees wish to fully manage their own mobility and receive only cash in return, the mobility allowance would be a better fit.

Mobility budget example:

The same Volkswagen Golf is used by employees for commuting from Leuven to Brussels every day. Now, it is handed in for the mobility budget. At a yearly financing cost of 20% of the catalogue value (€5,860) and an operating cost of €1,324 per year (commuting fuel, tax, insurance) a total mobility budget of 7,184 is available (yearly TCO for the employer). These employees do not opt for a greener car but choose a yearly train subscription of €1,150 in combination with a leased electric folding bike for €840 per year. From time to time, they still need a car to go to a client or for personal use. Via a carsharing platform with a monthly usage of 20 hours, they spend €550 annually.

At the end of the year, the remaining budget is equal to 4,644. They now have two options: they can wait until the remaining amount is paid out in cash, after a social security contribution of 38% is paid on this amount, resulting in a final cash payment of €2,879 in January of the following year, or they can use the remaining mobility budget to buy their own bike (as allowed by the budget), without having to pay the social security contribution first.

The mobility budget thus offers a flexible alternative to fulfill your mobility needs next to the traditional company car and the cash for car plan. Although this solution seems to be a convincing alternative given its flexibility, it might scare off an employer. Hence the need to foresee roadmaps and tools to ease its implementation without drastically increasing the fleet manager and HR manager’s workload.

How to facilitate the transition?

Previously, many companies opted for a rather strict system of fringe benefits and mobility policies. If a position was affiliated with a company car, you would take it with no option for alternatives and no questions asked. Today, flexibility and cafeteria plans for benefits are highly valued by employees. Being able to choose a different or smaller vehicle, a bicycle, or public transportation might offer an appealing element in staying competitive as a company. The mobility budget serves as a legislative backbone for this. Of course, implementing it practically and managing it properly are still a different matter.

Luckily several mobility apps (e.g. Edenred, Optimile or XXImo) have been launched recently and have jumped on the mobility budget bandwagon as well. Considering the governmental measures, they offer a user-friendly platform where the employer can manage the cards and mobility expenses, which therefore minimises the administrative backload for the company. The employees then get a prepaid card or use an app, through which they can freely pay for alternative modes of transport, while being capped by their mobility budget.

So… there is nothing holding us back anymore! At Greenfish Brussels, 23% of our consultants have already ditched the car, 18% (percentage points) of which opted for the mobility budget following its introduction at the beginning of October 2019. They now use an electric folding bike to get to the station, hop on the train and cycle or take the tram to cover the last kilometres. If properly planned and depending on the case, using such a multimodal approach allows the employees to save quite a bit of time in their commutes. Plus, at the end of the year, there is still the remaining budget to be paid out in cash.

Greenfish also supports other companies in their transition towards a more sustainable mobility plan. Based on their employees’ daily routes, we profile company fleets and create optimal and personalized commuting scenarios for each employee. This way, companies can create adequate mobility plans that will motivate all current colleagues, attract the best talents, and reduce scope 3 emissions at the same time.

Summing up

The mobility budget was launched at the beginning of this year as an alternative to the company car and the cash for car measure. Where the cash for car plan seems to be viable only in a few specific cases and was regarded as a hard measure, the mobility budget offers a range of flexible mobility opportunities that can be adapted to each individual. Will it solve the congestion issue? Not on its own, but it is for sure a step in the right direction! A multitude of actions will be needed; for instance, think about improved multimodal hubs and cycling infrastructure, cheap Park-and-Rides near city centres with proper public transport connections and smart mileage-based charges… At Greenfish we believe that the mobility budget in addition to such measures can ensure sustainable commuting without the need to sacrifice more time, money or comfort on transport. What do you think?

Delphine Struyf – Green Solution Project Assistant at Greenfish
Jasper Verlinden – Junior Consultant at Greenfish
Nassim Daoudi – Chief Executive Officer at Greenfish

 

[1] The cost of traffic congestion in Belgium, B. Hoornaert; A. Van Steenbergen, September 2019

[2] Traffic congestion on the rise in Belgium, Touring Mobilis, 2018

[3] Greenhouse gas emission statistics – emission inventories, Eurostat, 2017

[4] Road traffic, Environment Law, 2018

[5] Mobility Part 2 – Commuting: car sharing for better way forward, Greenfish, 2018

[6] Company cars: identifying the problems and challenges of a tax system, T. Hermans, X. May, March 2019

[7] Evolution newly subscribed company vehicles, Febiac, 2019

[8] Employment Flexibility and Job Security as Determinants of Job Satisfaction, Social Indicators Research, February 2016

[9] Tax of 4% of 6/7th of the exchanged car catalogue value

[10] Cash for car, Acerta, September 2019

[11] The employer should already have been offering company cars (for at least 36 months, with an exception for start-ups) and the employee must have been provided with a company car before (for at least 12 months during the past 3 years, with exception of newly recruited employees).

[12] Road transport: reducing CO2 emissions from vehicles, European commission, 2019

[13] Car fuel data, CO2 and vehicle tax tools, Vehicle Certification Agency, 2018

[14] How carmakers can reach their 2021 CO2 targets and avoid fines, Transport & Environment, September 2010

[15] Trial opposing VW to 400,000 ‘Dieselgate’ plaintiffs opens in German, Euronews, September 2019

[16] WLTP staat voor Worldwide Harmonised Light Vehicle test procedure, FEBIAC, 2017