Key workers and business drivers ‘left hundreds of pounds out of pocket’ by 12-year freeze in mileage rates

People who drive their own cars for work are being left hundreds of pounds out of pocket because business mileage rates have not been updated for more than a decade, according to a new report. 

The government-set expense rate has not been updated since 2011, which according to the RAC Foundation means drivers are being short-changed by almost 20p per mile. The rate for payments to those using their own car for business purposes has been frozen at 45p per mile for the last 12 years but the motoring research charity estimates that increases in running costs, such as fuel and insurance, and inflation mean it should now be 63p per mile. 

It says that this huge disparity is leaving many people, including those in critical public services roles, struggling to afford the cost of motoring. The charity’s director called for an urgent review of the rate as workers endure the cost of living crisis.

Based on the current tax-free rate, an employee covering 5,000 miles a year in their own car receives £2,250. At the 63p recommended by the RAC Foundation, they would get an additional £900.

Employers are free to pay higher mileage rates but many stick to the Treasury’s 45p to avoid any tax implications or complications. 

The study was conducted for a report by Unison into the impact of the rate freeze on frontline public service workers such as NHS, social care, police and local government employees. The trade union said one in five workers in that category are required to drive for their job.

It found that some staff are using up annual leave or calling in sick because they have run out of fuel and cannot afford to fill up their vehicles.

According to the Unison report, some social care employees have been forced to sell their cars to cover other payments, meaning they make fewer visits as using public transport increases travel times.

The RAC Foundation analysis was based on Office for National Statistics figures showing the cost of motoring was 41% higher in April compared with the same month in 2011.

Cost rises affecting drivers over that period include tax and insurance (up 183%), maintenance (up 48%), vehicle prices (up 16%) and fuel (up 12%).

RAC Foundation director Steve Gooding said: “We know that some of our most important workers – those employed in health and social services, and in supporting roles – are being left out of pocket by the failure of ministers to sanction an uplift in the amount per mile they can receive tax-free for getting around to do their job.

“These aren’t board members and well-paid executives in new saloons, but key workers in five to 10-year-old cars who can ill afford to be subsidising the rest of us for the cost of carrying out their critical roles.

“Tax cuts might be off the Prime Minister’s agenda for the time being but, surely, fair tax treatment for these key workers should be a significant concern for the Chancellor in the face of a recognised cost-of-living squeeze.

“We think the Treasury should commit to an urgent review of the mileage rate and not leave it another decade before revisiting it again.”

Unison general secretary Christina McAnea said: “Mileage rates are woefully out of date. No-one should pay a penalty effectively for doing their job, least of all those providing vital services.

“Petrol prices have skyrocketed. Care workers, nurses and other frontline employees can barely make their incomes stretch to cover the basics, let alone the costs of using their vehicles for work.

“The government must tackle low pay now, not threaten to hold public sector wages down. Essential staff shouldn’t be out of pocket for going to work.

“A failure to act now risks worsening the already dire staffing crisis.”

Employers can pay their staff whatever they want when reimbursing them for driving for work in their own cars, but many use the 45p per mile rate to avoid tax implications.

A Treasury spokesperson said: “Whilst employers can reimburse at a higher level, the Approved Mileage Allowance Payments aim to reflect the average costs of running a vehicle, which in turn helps keep the administrative burden low and reimbursing simple.

“As we work to bring down inflation, we have also taken decisive action worth £94 billion to support drivers with the cost of living, which is worth £3,300 on average per household over this year and last and includes a two-year 5p fuel duty cut worth £200 for drivers.”