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"Cycle to work schemes are sucking the lifeblood out of cycle shops": Bike shops tell Parliamentary Committee of "need for urgent systemic change" to Cycle to Work scheme

The Association of Cycle Traders was joined by figures from Balfe's Bikes and JE James to meet with MPs, two months on from Cycle to Work provider Cyclescheme preventing retailers from charging additional fees on bikes purchased under the scheme...

The Association of Cycle Traders (ACT) and senior figures from cycling retailers have met with MPs from the All Party Parliamentary Group for Cycling & Walking (APPGCW) to make their case about the "need for urgent systematic change" to the Cycle to Work scheme. The meeting comes two months after the ACT and bike shops hit back at one of the scheme's providers, Cyclescheme, for deciding to prevent retailers from charging additional fees on bikes purchased using the scheme, a move described by the representative of independent cycle retailers as the "straw that broke the camel's back".

APPGCW co-chairs Labour MP Fabian Hamilton and Conservative colleague Selaine Saxby met with ACT director Jonathan Harrison, Mike Rice of Balfe's Bikes, and Mark James of JE James, the context for the meeting that more than 500 bike shops have now signed up to the ACT's campaign for change to the Cycle to Work scheme.

And while November's announcement from one of the scheme's main providers Cyclescheme that it would be updating its policies – preventing retailers from charging additional fees on bikes purchased under the Cycle to Work scheme – is fresh in the mind, and was branded "incredibly short-sighted" and "infuriating" at the time, the meeting with MPs brought up a more wide-ranging list of concerns than just that.

London cyclists at traffic lights (copyright Britishcycling.org_.uk).jpg

"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," Mr Harrison told the committee meeting.

Highlighting challenges for retailers with the current operation, he added that the 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 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."

Most importantly he suggested the scheme no longer fits the purpose for which it was originally intended – to get people cycling to work. The ACT will also be meeting with representatives of Cyclescheme, the Cycle to Work Alliance and Green Commute Initiative "in the coming weeks" to progress discussions on the matter, but the message from cycling retailers present at the committee meeting was clear.

"Sucking the lifeblood out of cycle shops"

Mr Rice is the chairman of Balfe's Bikes, the cycling retailer with 12 stores across Greater London, and began by pointing out it is "encouraging that the ACT was invited to 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 the 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," he said.

Mr James, a partner at JE James, the cycling retailer with shops in Chesterfield, Rotherham and Sheffield, went even further and accused cycle to work schemes of "sucking the lifeblood out of cycle shops".

"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," he said.

"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 footsteps, because the cycle to work schemes are sucking the life blood out of cycle shops."

Mr Harrison of the ACT added that while he was not here to offer a solution, only to "to highlight the challenges faced by independent cycle retailers", it needs to be more inclusive and more broadly structured, he suggested.

Cyclists at traffic lights (©Toby Jacobs)

For example, under the current scheme, salary sacrifice means many low paid  workers are unable to access its benefits, a cohort that the ACT believes would particularly benefit from the Cycle to Work scheme, enabling a switch from public transport or other means of transport to cycled journeys. Likewise, self-employed or those whose employer does not offer the Cycle to Work scheme cannot access it.

“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.

The issue of inequitable distribution of costs and profits associated to the Cycle to Work scheme was also raised by Mr Harrison who said the "very low margins in the cycle retailer sector and future increased costs with the rise in the UK minimum wage means 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," he said. "Fees need to be fair, transparent and consistent – the fees charged by different providers currently range from four per cent to 15 per cent, 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."

He went on to suggest that since manufacturers and distributors also benefit from sales going through the scheme they should pay a 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," he said.

"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."

> New Cycle to Work 'Flexi Voucher' founder claims to offer "better experience for cyclists"... but existing provider says it "mimics" its own scheme and is not the "real thing"

The discussion follows on from the initial calls from many in the industry, made in the final months of 2023, for changes to the way the Cycle to Work scheme works and impacts retailers.

Cyclescheme's removal of the ability for retailers to charge additional fees was much-criticised and branded "incredibly short-sighted" and "infuriating".

The Cycle to Work provider defended the move and said it would be implemented in order to "ensure fairer pricing for Cyclescheme customers" and guarantee that "participant experience is in line with their expectations".

The changes, which came into effect on 22 December, will see Cyclescheme ask its retailer partners to "commit to a policy of no additional fees and full availability as advertised when a customer redeems a Cyclescheme certificate". The updates, Cyclescheme says, also reflect the most recent FCA regulatory requirements and compliance policies.

"We are committed to getting more UK employees cycling to work, by removing the financial and accessibility barriers associated with getting a new bike," Adrian Warren, senior product director at BHN Extras, Cyclescheme's parent company, said in a statement.

"This update to our retailer agreement ensures that Cyclescheme customers are being met with consistent and transparent pricing, reducing confusion for retailers and participants, and aligning with regulatory guidance.

"With a shared goal between retailers and Cyclescheme to get more people cycling, these changes will create a more positive and fair experience for all participants."

Dan joined road.cc in 2020, and spent most of his first year (hopefully) keeping you entertained on the live blog. At the start of 2022 he took on the role of news editor. Before joining road.cc, Dan wrote about various sports, including football and boxing for the Daily Express, and covered the weird and wonderful world of non-league football for The Non-League Paper. Part of the generation inspired by the 2012 Olympics, Dan has been 'enjoying' life on two wheels ever since and spends his weekends making bonk-induced trips to the petrol stations of the south of England.

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17 comments

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griggers | 2 months ago
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The ACT sanctioned a 10% commission when they were an active part of the ACT/Halfords/BOOOST/DfT group that established the scheme in 2004 based on guidance from the HMRC.

 

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Abdoujaparov replied to griggers | 2 months ago
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That was 20 years ago, things have changed and a lot has been learnt.

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Colin Peyresourde | 2 months ago
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There seem to be a few different things going on here.

The scheme is a little confusing to the uninitiated and has morphed over time. Essentially employees can get a bike for much less than had they paid from their take home pay. That's a benefit to employees however you slice it.

It can have the benefit of reducing your taxable income below a threshold too. Savings are great the more tax you pay.

At the end of the scheme (whatever the agreed period is, but usually 12 months) no employer actually wants the used bike/equipment. So it usually stays with the employee. There are rules about the actual transfer of the asset to the employee. But if they've had it for three years or so the transfer value is roughly nil . So no cost if you hold onto the bike/equipment long enough

employers do not normally request the equipment back at any time  so unless you leave employment the bike/equipment is yours  

now the flip side is the retailer. It seems they think they are being stiffed. I presume this is because 'providers' of the scheme take a 'cut' on the voucher. So the retailer loses 15% or whatever. I think this is a red herring though. I wonder if the issue relates to situations where the bikes are discounted already and consequently this chops into margins which have already been paired. There's no judgement there - but it would seem to me that retailers need to be pragmatic in there approach - no sales discounts on cycle to work scheme bikes.

 

 

 

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Abdoujaparov replied to Colin Peyresourde | 2 months ago
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No sale or discounts on cycle to work bikes is a key part of this issue, because the biggest provider Cyclescheme has just issued new terms to bike shops saying they must offer the same price to a scheme user as to any other customer. 

So in that scenario allowing a sale bike to a Cyclescheme customer would mean the shop makes little or no profit. 

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IRISHGENIUS | 2 months ago
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I think although the scheme is flawed overall it has enabled a lot of people to get into cycling who would not otherwise, not all will use to cycle to work, I do but not now as much becuase of working from home but it was my gateway into the sport almost 15 years ago and I am much more fitter than I was before, as well as the positive mental health benefits. For me the bad guys here are Cyclecheme, they were the first and probably biggest provider. They were bought by a private equity group a few years ago and this is purly about making as much money as possible out of the scheme, their fees to shops and users at the end of the scheme are the highest, also they have locked out other providers from companies like Canyon as well, another PE backed company. I think it is them who are causing the biggest issue, the Green Communte Iniative is the best alternative with lower rates for shops and no end of contract fees, even Evan's scheme doesn't have an end of contract scheme. The solution is to freeze them out of the process and force them to lower prices but because of their size unengaged employers use them rather than looking for the best scheme.

 

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boxrick | 2 months ago
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The big issue with cyclescheme is that it is confusing and benefits highest earners. Whilst it is great if you are in the position to benefit from it and can navigate the pains. It doesn't make much sense from a fairness point of view.

The "payment" at the end of the scheme are usually bypassed by the schemes anyway so is mostly superfluous. 

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stonojnr replied to boxrick | 2 months ago
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in what way is the scheme confusing ?

the "payment" at the end of the scheme isnt superfluous, even if it feels like it, because its specifically to ensure the scheme remains within the current taxation rules.

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Tom_77 replied to stonojnr | 2 months ago
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stonojnr wrote:

in what way is the scheme confusing ?

Any chance you could explain the VAT situation as it relates to the Cycle To Work scheme? I'm certainly confused by that aspect of it.

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zweiblumen | 2 months ago
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The Cycle to Work scheme is not now and never has been fit for purpose. I've bought probably half a dozen bikes while working for employers that operate the scheme and never once considered using it. So I pay for a bike out of my pretax salary and at the end of the contract I don't own the bike, and if I want to keep it I must pay the "market rate" for the used bike that I've ridden from new? Erm, no thanks!

The fact that the retailers are also suffering under the schemes is no surprise at all.

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super_davo replied to zweiblumen | 2 months ago
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zweiblumen wrote:

The Cycle to Work scheme is not now and never has been fit for purpose. I've bought probably half a dozen bikes while working for employers that operate the scheme and never once considered using it. So I pay for a bike out of my pretax salary and at the end of the contract I don't own the bike, and if I want to keep it I must pay the "market rate" for the used bike that I've ridden from new? Erm, no thanks!

The fact that the retailers are also suffering under the schemes is no surprise at all.

I've used the scheme loads of times and helped lots of others use the scheme and you're painting a horror story that doesn't exist in practice.

You apply for a voucher and you get deductions from your gross salary over a year to pay for that voucher. This can be a very useful way to lower your salary if you're in one of the very high marginal rates (e.g I've used it to dip under high income child benefit charge).

At the end of the period you either have to pay "a fair market value" charge to your employer which is c25% of the price (i.e. less than the tax+NI in the first place) or you tick a box "to extend hire" for 4 years and pay nothing.

Whilst technically you do not own the bike either during the initial hire or extended period, I have never heard of any company ever asking for the bike back. If you don't trust your employer and think they might you probably should be looking for an new one.

If you leave during the initial hire period then you have to pay the amount net out of your severance. If you leave during the extended period you don't pay anything.

The scheme is far from perfect though. It clearly royally screws the retailers. It benefits high earners the most, whilst locking out the poorest that could benefit from it the most due to minimum wage boundaries. It hasn't been updated in 15+ years so it's now a mess of fudge over fudge like "extended hire periods" and use of consumer credit licenses to keep pace with the price of bikes.

The very fact that so many companies have sprung up to run the admin is proof in itself of that.

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bikeman01 replied to super_davo | 2 months ago
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Fair market value c25% ? Where did you got that from?

My local authority employer charged me £10.

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mark1a replied to bikeman01 | 2 months ago
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bikeman01 wrote:

Fair market value c25% ? Where did you got that from?

My local authority employer charged me £10.

That's the figure that HMRC value a 12 month old bike that cost over £500 at, so if you take ownership of the bike at the end of a 1 year hire period, technically that's what you owe to take ownership. However, the way schemes get round this is extend the hire to you for another 5 years, as HMRC deem it to have negligible value at 6 years old. If they just handed you ownership of the bike, you'd have to pay tax on a benefit in kind. For this extended hire a notional value is charged, £10. The tax rules do not permit automatic transfer of ownership, so the scheme also appoints you as their disposal agent for the bike. 

 

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Andréwalt | 2 months ago
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So many schemes have disgracefully high commission. Why would employers use them, and many times use them exclusively? I believe many big employers get a kickback from the schemes - I'm preparing a FoI request in this regard to a university at the moment. Moreover, this causes many other disadvantages: for example, small shops selling disability bikes can't afford to join the high commission schemes, thus people who need disability bikes are excluded from cycle to work. In effect, employers are getting paid to discriminate against employees with disabilities.

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Matthew Acton-Varian replied to Andréwalt | 2 months ago
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Employers get benefit, the bike shops who sell the bikes don't. The commission Cyclescheme are charging the bike shops are greater than the profit margin for the sale of the bike, forcing them to sell at a loss. And by the time the customer brings the bike back for service, the bike shop might not be around to do it. Even if they are, the profit made from servicing the bike won't cover the losses from selling it.

A tax break scheme should not be run by private for-profit entities.

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stonojnr replied to Matthew Acton-Varian | 2 months ago
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the bike shops ultimately benefit by gaining a long term repeat customer for parts, maintenance, kit, n+1, if they were smart about it that is.

unlike one example I heard about where the LBS refused to do any work with one employer, just because their C2W scheme was Halfords only.

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Wingguy replied to stonojnr | 2 months ago
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Halford's C2W scheme charges 15% up front to bike shops (so significantly more than any other major player in the market), and they add an extra hurdle in that each voucher is by default enabled for Halfords/Tredz shops only and the employee has to contact them to change it to an independent shop voucher (so guess who gets it in the neck when the customer ignores that step despite having been reminded, then turns up to collect a bike from the LBS on Saturday or Sunday when the Halfords C2W phone line isn't open).

It's no surprise that non-Halfords shops don't want to accept Halfords vouchers. The question you should be asking is why this is even an issue when any HR department could immediately with minimal effort open an account with another, cheaper Ride to Work voucher provider as well - if they cared about their employees.

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Morgoth985 replied to Wingguy | 2 months ago
1 like

This is the problem.  In theory it's a good idea. In practice it falls victim to excessive red tape and commercial greed

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