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Buyers of expensive manual and electric bicycles through salary sacrifice schemes will have their tax benefits sharply reduced under plans being drawn up by Rachel Reeves ahead of the Budget this month.
The chancellor is expected to introduce a new cap on how much people can spend on a bicycle through the Cycle to Work scheme, according to people familiar with Budget preparations.
The original upper threshold of £1,000 was scrapped in 2019, allowing the purchase of even the most expensive bikes. But now ministers do not believe subsidies of several thousand pounds are the best use of taxpayer money.
“Cycle to Work should be about helping ordinary commuters switch to greener travel, not giving tax breaks to high earners buying £4,000 e-bikes for weekend rides in the Surrey Hills,” said one government figure. “Taxpayers shouldn’t be footing the bill for luxury leisure.”
Launched by Sir Tony Blair’s Labour government in 1999, the Cycle to Work scheme allows employees to purchase a bike and accessories with an interest-free loan from their employer.
Monthly payments are then made through work payroll, with the cost deducted from the employee’s gross salary every month, before income tax and national insurance are applied.
The programme saves 42 per cent of the cost of the bike for higher rate taxpayers and 30 per cent for basic rate taxpayers.
HM Revenue & Customs estimated there were about 209,000 claimants under the scheme in 2023-24, the most recent year for which data is available, up from 167,000 in 2019-20. The amount of money the Cycle to Work scheme cost rose from £55mn in 2019-20 to £130mn in 2024-25.
The original £1,000 cap was axed six years ago because of complaints that it excluded large numbers of the bikes that customers wanted to buy for commuting, including e-bikes and cargo bikes capable of carrying children.
Good-quality bikes with electric assistance typically cost at least £2,000, while cargo bikes with electric assistance and seating for several children can cost £5,000 or more.
But retailers of high-end bikes have long acknowledged that some higher-rate taxpayers were exploiting the perk to fund cut-price purchases of performance road bikes costing £10,000 or more.
The expected cut to the scheme will come at a time when cycle retailers have struggled with falling volumes of sales and depressed prices after a surge during the pandemic created a glut of bikes and components.
Will Pearson, co-owner of London-based Pearson Cycles, a designer and retailer of high-end bikes, said any new upper limit on the scheme needed to be set at a “sensible level”, but warned that it would harm progress towards encouraging more environmentally friendly travel.
“The government should leave the scheme alone or, ideally, improve the incentives rather than restrict them,” Pearson said. “Customers are far more likely to consistently use their bikes if they are of a certain quality, reliable and efficient . . . This often comes at a higher price tag.”
The Treasury declined to comment on Budget “speculation”.
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Reeves is already determined to cap the tax benefits of salary sacrifice schemes for pension schemes in the fiscal event on November 26, as she looks to fill a hole in the public finances estimated at between £20bn and £30bn.
Employees can put up to £60,000 into their salary sacrifice pension scheme per year, and tax relief is available on all of that contribution at present.
But Reeves is set to raise £2bn by introducing a new threshold of £2,000, above which contributions will incur national insurance at the usual rates — 8 per cent on pay under £50,270 and 2 per cent on earnings above that.
The change was mooted in May this year in a consultation by HMRC, which outlined the £2,000 threshold. The cap would mean no extra national insurance for a worker earning £35,000 who had sacrificed 5 per cent of their salary, the tax agency said.
But pension specialists have warned that the impact will be much more significant for high earners.