How business will suffer the unintended consequences of the Court’s ruling on Commission Disclosure

A personal opinion by Martin Brown, Chair of Fleet Alliance

SIR Keir Starmer led the Labour party to victory at the recent General Election with a promise of growth and a decade of national renewal to “get Britain’s future back”.

But the Prime Minister’s plans could be derailed by the Court of Appeal’s ruling on Commission Disclosure, which will have the unintended consequence of reducing market funding for business vehicles, and raising prices as a result.

While the Court’s decision sought to protect vulnerable individuals being sold finance to support the purchase of a used car, it unintentionally destabilised the market used by SME and corporate companies to fund vehicles on long term rental.

As a result of upholding the three claimants’ appeals, funders are withdrawing, or making finance availability difficult to access, in the motor finance credit sector for new and used car purchases, and creating havoc in the business sector that depends on the ability to travel to generate economic growth.

The largest funders have effectively paused financing business cars

It is perhaps with no little irony that In the recently revealed FN50 league table of the biggest leasing companies in the UK, Ayvens and Lex Autolease – the two largest with a combined fleet total of 575,606 – have both paused their engagement with the leasing market.

This may change, of course, but it shows the unintended consequences of a ruling directed at individual consumers escalating into the funding of business vehicles.

We’ve had unintended consequences before, of course

It’s not the first time – nor will it be the last – where the results of a decision, however well intentioned, have had unforseen consequences.

The Volker Rule, for instance, was introduced in America following the financial crash. It was intended to prevent risk-taking by banks and prevent another crash. But it had the effect of reducing liquidity in some markets which made it harder to buy and sell assets and potentially pushed risk-taking into less regulated areas of the financial system.

Another very good example is Quantitative Easing – or QE. The intention was to inject money into the economy and let it trickle down the financial system to stimulate growth. Instead, it created asset bubbles and tended to concentrate wealth in the hands of individuals and corporations that were already super-rich. At the same time it disenfranchised those individuals and businesses that were less well off economically.

So let’s not make the same mistake with risk protocols around motor finance affecting the business to business leasing sector.

Business leasing is fundamental to the UK economy

The leasing and rental companies which belong to the British Vehicle Rental & Leasing Association (BVRLA) contribute £49bn to the UK economy each year, thanks to purchasing 50% of new vehicles and employing around 500,000 people. The combined fleet is in excess of 4m vehicles.

Leasing brokers, such as Fleet Alliance, are responsible for funding 380,000 vehicles on a rolling annualised basis, worth some £10.64bn at showroom prices. Brokers have also helped support the growth in light commercial vehicle sales – the backbone of the British economy – with an uptick of nearly 6% according to latest BVRLA data.

The majority of new contracts sold by leasing brokers are to companies. Such enterprises have sophisticated requirements that are met by the fleet management services bundled into the provision of vehicles which are funded by the commission payable.

In many cases, without even revealing the amount of commission, the competitive tenders that Fleet Alliance undertakes are sense-checked by the wins that we make. Because we can provide a better service at a lower price while reducing the client’s overall costs.

We supply fleet management, driver licence checks, short-term rental and decarbonisation advice as part of the service in what is a sophisticated arrangement with finance and procurement departments.

And a long way from an unsophisticated consumer attempting to finance a used car on a hire purchase agreement.

But the unintended consequence of the Court’s ruling is affecting the supply of finance to these very business to business transactions, which in turn affects the growth prospects of the economy.

For example, the construction industry is responsible for around 6-7% of GDP with a gross value added of almost £108.7 billion. By its very nature, construction requires vehicles; without access to vehicle funding provided by leasing brokers and funders, it will have a significant impact on the Prime Minister’s growth plans.

So I’m urging the FCA, supported by the efforts of the BVRLA, to provide the effective guidance that allows our industry to continue supplying cars and vans that help drive the British economy.

If the FCA cannot provide effective leadership, then the economy will suffer the unintended consequences of reduced funding in the market as suppliers exit – and potentially higher prices as a result.