Cycle to Work needs “urgent systemic change”

It’s understating things to say that the UK’s salary sacrifice Cycle to Work initiative is under intense scrutiny at the moment.

Apparently initiated by updated FCA regulatory requirements, brought to wider attention when Cyclescheme updated its terms and stopped retail partners from charging additional fees for Cyclescheme customers, the current debate has seen the ACT (Association of Cycle Traders) call on the industry to unite to reform cycle to work as a priority. The Bicycle Association has also been grappling with the impact of FCA consumer duty on the initiative.

Now, a delegation from the ACT has met with the All Party Parliamentary Group Cycling & Walking co-chairs Fabian Hamilton MP and Selaine Saxby MP to set out the industry’s concerns about the implementation of the scheme and calling for immediate change.

More than 500 bike shops and others having now signed up to the ACT’s campaign for change to the Cycle to Work scheme.

Jonathan Harrison, Director of the ACT, who was joined at Westminster by independent retailers Mike Rice, chairman of Balfe’s Bikes, which has twelve stores across Greater London, and Mark James, partner in JE James, which has stores in Chesterfield, Rotherham and Sheffield, told the committee that there was an urgent need to improve the scheme.

“The ACT is calling for a collaboration of everyone in the cycle industry to work together to reform Cycle to Work as THE priority growth strategy for the cycle trade and to increase cycling for all,” Harrison told the committee.

In the coming weeks, the ACT will also be meeting with representatives of Cyclescheme, the Cycle to Work Alliance and the Green Commute Initiative.

Harrison added that he had not come armed with a solution but wanted “to highlight the challenges faced by independent cycle retailers, some of their views on what needs to be changed and to kickstart discussions to find a solution.”

He explained that the current scheme is too complicated: “Typically, the employer pays for the voucher, the provider owns the bike, the worker hires the bike, the voucher is paid back via salary sacrifice and there is often a misinterpretation around ownership and many users never truly understand how the scheme actually works.”

The end of the initial hire period is another area of complication which needs reviewing. Typically, workers enter an extended hire period after salary sacrifice finishes.

“During the extended hire period,” he continued, “the bicycle was still owned by the provider, with some providers charging fees providing an additional source of income whilst others do not. Often these fees come as a surprise to the end user.

“The scheme no longer fits the purpose for which it was originally intended – to get people to Cycle to Work. Since the pandemic working habits have fundamentally changed, with more people working remotely therefore the “to work” requirement is increasingly difficult to meet for many people.”

Mike Rice, chairman of Balfe’s Bikes, said it was “encouraging that the Association of Cycle Traders were invited to attend this meeting as the views of cycle retailers have been absent from these meetings for a very long time.

“With cycle retailers currently bearing all of cost of funding the scheme, with a significant erosion of profits and a large number of cycle businesses going bust or ceasing to trade over the past five years, it is no longer sustainable for cycle retailers to continue to fully fund the cost of the scheme and thus reform is required to enable cycling as a mode of transport or leisure activity to grow over the coming years.”

Mark James, from JE James, was a little less optimistic: “I hoped I would have been able to deliver a speech about how cycle to work was detrimental to the industry and most businesses within it. I was shocked by the lack of understanding of what and how the bike to work providers operate the schemes.

“We need every retailer to find their local MP’s surgery and use the information we have compiled to put our case face to face. No cycle retailer should pay for a scheme, full stop.”

“We need every retailer to find their local MP’s surgery and use the information we have compiled to put our case face to face. No cycle retailer should pay for a scheme, full stop. If anything we should be paid for the extra admin involved. I sadly would not want my two kids to follow in my or my footsteps, because the cycle to work schemes are sucking the life blood out of cycle shops.”

Harrison says that there is no question that encouraging cycling is beneficial in helping to achieve net zero goals, provide solutions for transport for those in need during the cost-of-living crisis as well as improving health and wellbeing but that the scheme needs to be more broadly structured and more inclusive.

Under the current scheme, salary sacrifice excludes many potential users, who are low paid or self-employed or their employer does not offer it. Many of those who would most benefit from lower cost transport or switching from public transport, cannot access the scheme as they are earning at minimum wage and if they sacrificed a portion of their salary, it would take them below the minimum wage. Ironically, Harrison added, this now includes a significant number of people working within cycle retail.

“We should be exploring ways to make the scheme more inclusive, ensuring that a broader range of people can benefit encouraging cycling for everyone,” he told the committee.

He continued by saying that there is a feeling amongst ACT members that there is an inequitable distribution of costs and profits associated with the Cycle to Work scheme. The ACT recently launched a campaign for change which now has well more than 500 businesses signed up, the majority of which are independent retailers, but which also includes several leading distributors who have shown their support by calling for all retailers to get involved.

“In the current marketplace many independent cycle retailers are reporting profits between 3% – 7% which is disproportionate when compared with the profitability of some of the providers. Very low margins in the cycle retailer sector and future increased costs with the rise in the UK minimum wage mean they can no longer absorb the charges levied by cycle to work providers.

Cycle retailers are an essential part of the cycle to work supply chain and have helped grow the scheme to where it is today. Fees need to be fair, transparent and consistent – the fees charged by different providers currently range from 4% to 15%, some schemes have a cap, others do not.

There is not a greater administrative burden in processing a cycle to work voucher for a £1,000 bicycle compared to a £10,000 bicycle, it would be fairer to establish a set fee to reflect the work of the provider.”

Manufacturers and distributors benefit from sales going through the scheme and perhaps, Harrison argued, they should pay some portion of the fees levied by cycle to work providers.

“At the moment there are no universal terms and conditions that scheme providers must adhere to, which is proving detrimental to ACT members.”

Harrison said he was optimistic that positive changes to the Cycle to Work scheme could be made for the benefit of all stakeholders: “With a fully joined up industry support plan we believe that we can significantly increase the volume of transactions that go through a new look cycle to work scheme, convert sceptical independent cycle retailers to promote the scheme and most importantly have a material impact upon the public cycling more, building a momentum that will grow and grow.

“As the representative of independent cycle retailers we would welcome the opportunity to work with government to address the current issues with the scheme to ensure that it is accessible to many more and provides a workable, sustainable margin for the many hundreds of small independent businesses operating in the sector.”

The Association of Cycle Traders represents the interests of around 4,000 cycle businesses throughout the UK, from mobile mechanics through to larger distributors with a particular focus on cycle retailers.

To support the ACT in this initiative and to become an ACT member, head here: cycleassociation.uk/join-the-act