Chancellor Rachel Reeves is reportedly preparing to scale back tax advantages for employees using salary sacrifice schemes to purchase expensive bicycles, both manual and electric. The move, expected to be announced in this month's budget, follows concerns that the current system is not the most effective use of public funds.
Targeting High-Cost Bicycles
According to a report in the Financial Times, the Treasury plans to introduce a new spending limit for bicycles bought through the popular Cycle to Work scheme. This initiative, originally launched by Tony Blair's Labour government in 1999, allows employees to obtain a bike and accessories through an interest-free loan from their employer, with repayments deducted from their gross salary before income tax and national insurance are applied.
A government figure familiar with the budget preparations stated, "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. Taxpayers shouldn’t be footing the bill for luxury leisure."
The Financials and the Loophole
The scheme's cost to the treasury has seen a significant increase, rising from £55 million in the 2019-20 financial year to £130 million in 2024-25. This surge followed the removal of the original £1,000 cap six years ago, which was axed after complaints it excluded popular models like e-bikes and cargo bikes capable of carrying children.
However, the absence of a cap created an opportunity. The scheme can save 42% of the cost of a bike for higher rate taxpayers and 30% for basic rate taxpayers. With high-quality bikes often costing at least £2,000 and cargo bikes around £5,000, retailers noted that some higher earners began exploiting the perk to purchase bicycles costing more than £10,000.
Industry Reaction and Environmental Concerns
The proposed changes have drawn mixed reactions from the cycling industry. Will Pearson, co-owner of London-based Pearson Cycles, a designer and retailer of high-end bikes, told the Financial Times that any new limit would need to be set at a "sensible level." He also warned of potential risks to the progression of environmentally friendly travel.
"The government should leave the scheme alone or, ideally, improve the incentives rather than restrict them," Pearson argued. "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 has been approached for comment on the forthcoming budget announcement, which will clarify the specific details of the new limit and its implementation timeline.
