In recent months, the press has referred to ‘stealth taxes’, whereby tax thresholds are frozen. As earnings and wealth grow, more people are being pushed into the next threshold up and without noticing, they are paying more tax.
One such ‘stealth tax’, is the 45p a mile fuel allowance, which hasn’t changed since 2011. Not many people are talking about yet, but is affecting our working population who travel for their job, more than you might realise.
Comparing the Annual Cost of Motoring in 2011 vs 2024
The UK government introduced the 45p per mile mileage allowance (or Approved Mileage Allowance Payment, AMAP) in 2011 to help cover the cost of running a vehicle for work-related journeys. However, with the cost of motoring increasing significantly over the years, some drivers are questioning whether this allowance remains adequate in 2024. This article examines how the 45p per mile rate compares to the actual cost of motoring in 2011 and 2024.
The 45p Per Mile Mileage Allowance in 2011
When the 45p mileage rate was set in 2011, it covered the basic expenses involved in running a car, including fuel, insurance, maintenance, depreciation, and road tax.
- Fuel Costs: In 2011, the average price of petrol was around £1.30 per litre, and cars typically achieved around 35 miles per gallon (mpg), translating to a fuel cost of approximately 17p per mile (RAC Foundation).
- Insurance: The average annual insurance premium was £500-£600, adding roughly 4p-5p per mile for the average driver covering 12,000 miles annually (RAC Foundation).
- Total Cost of Motoring: The overall annual cost of running a car was estimated to be between £4,750 and £6,300, which meant the cost per mile was 40p-52p. Thus, the 45p allowance was generally sufficient to cover the running costs, particularly for fuel, with some margin for insurance and maintenance (RAC Foundation).
At the time, this allowance allowed most drivers to cover their motoring expenses, especially for short to medium journeys.
The Cost of Motoring in 2024
By 2024, however, the motoring landscape has changed drastically, with increased fuel prices, insurance premiums, and higher repair and maintenance costs driving up the cost of running a vehicle.
- Fuel Costs: Petrol prices have risen to £1.60-£1.80 per litre, with the cost of fuel per mile now sitting at 20p-23p, even for more fuel-efficient vehicles averaging 40 mpg (NimbleFins).
- Insurance: Insurance premiums have surged, with the average cost now between £700-£900, adding 6p-8p per mile for drivers covering 12,000 miles per year (NimbleFins).
- Total Cost of Motoring: The average annual cost of motoring for petrol and diesel cars has risen to between £6,600 and £8,300, which means the per-mile cost for petrol or diesel vehicles is now approximately 55p-69p. For electric vehicles, the overall cost is somewhat lower at 33p-45p per mile, largely due to reduced fuel (electricity) and maintenance costs (RAC) (NimbleFins).
Does the 45p Mileage Allowance Cover 2024 Costs?
In 2024, the 45p per mile rate no longer adequately covers the cost of motoring, particularly for petrol or diesel vehicles, where the cost per mile has risen well beyond the allowance. There is a shortfall of 10p to 24p per mile, meaning drivers are covering a significant portion of their vehicle expenses out of pocket when using their cars for work-related journeys.
For those driving electric vehicles (EVs), the allowance is closer to the actual cost per mile, but even here, rising electricity prices and high depreciation rates mean that the 45p allowance only just covers expenses.
Key Cost Increases Driving the Shortfall
- Fuel Prices: The volatility of global fuel markets, especially following events like the Ukraine crisis, has caused spikes in petrol and diesel prices over the last few years, which have only moderately stabilized by 2024 (RAC).
- Insurance Costs: A 63% increase in insurance premiums since 2020 reflects both inflation and rising repair costs for modern vehicles (NimbleFins).
- Maintenance and Depreciation: Cars have become more technologically advanced, leading to more expensive parts and labor. Maintenance costs have increased by 31%, and depreciation rates have jumped 25%, adding significantly to the cost of car ownership (NimbleFins).
Conclusion: A Call for Adjustment
While the 45p mileage allowance was appropriate for the cost of motoring in 2011, the sharp rise in motoring costs over the last decade means that it no longer reflects the reality of 2024. Drivers, particularly those using petrol or diesel cars, are effectively subsidizing their own work-related journeys, covering a growing gap between the allowance and actual expenses.
The growing disparity between the mileage allowance and the real cost of motoring suggests that it may be time for the UK government to revisit and adjust the mileage rate to better reflect today’s costs. Doing so would relieve financial pressure on employees who rely on personal vehicles for work and ensure that the system remains fair and workable in the modern motoring environment.
Contact
This article has been drafted by Lucy Field-Richards. If you’d like to review your future financial plans, contact Lucy at [email protected]
References:
- NimbleFins: (NimbleFins)ps://www.nimblef (NimbleFins)2. NimbleFins: How Motoring Costs Have Changed from 2020 to 2024
- ONS Data on Fuel Prices and Cost of Living Adjustments (2020-2024)