What is the UK leasing fleet size currently?

The UK leasing fleet, as monitored by the BVRLA, reached 1.98 million vehicles by the end of 2023. This represents an 8 percent increase year-on-year, despite broader economic challenges in the automotive sector.

How does salary sacrifice affect a person's take-home pay?

Salary sacrifice reduces a person's take-home pay by the amount agreed for the car lease, but because this amount is taken before tax, the actual reduction in net pay is lower than the retail cost of the lease. For example, a person may sacrifice £500 of gross pay, but their take-home pay might only decrease by approximately £300, depending on their tax bracket.

Why is business car leasing growing faster than personal leasing?

Business car leasing is growing faster because it offers superior tax advantages, particularly for electric vehicles, and allows companies to manage their cash flow more effectively. Personal leasing has been more susceptible to the rise in interest rates and the cost-of-living crisis, leading more individuals to explore business-backed options like salary sacrifice.

What are residual values and why do they matter for leasing?

Residual values are the estimated worth of a vehicle at the end of a lease agreement. They are critical because the monthly lease cost is calculated based on the difference between the car's initial price and its residual value. If residual values fall, monthly lease payments typically rise to cover the increased depreciation.

Is car leasing still a good idea in 2024?

Car leasing remains a viable option for many because it provides fixed-cost motoring and protection against unexpected depreciation. In a volatile used car market, leasing shifts the risk of the car's future value from the driver to the leasing company, which is particularly beneficial for those transitioning to new electric vehicle technologies.

Why is UK Car Leasing Growing and What are the Current Market Trends?

What is the current state of the UK car leasing market?

The UK car leasing market is growing rapidly, with the total fleet size approaching 2 million vehicles. Business contract hire and a surge in salary sacrifice schemes are driving this expansion, even as economic pressures squeeze profit margins.

Fleet size reaching nearly 2 million vehicles

BVRLA data shows the total leasing fleet grew 8% in 2023 to 1.98 million vehicles. Within this, the car fleet rose by 12.5%, highlighting a clear shift in demand from traditional ownership to flexible vehicle access.

123%

Year-on-year growth in Salary Sacrifice

1.98m

Total vehicles in BVRLA leasing fleet

12.5%

What is Salary Sacrifice and why is it growing?

Salary sacrifice allows employees to exchange part of their gross salary for a non-cash benefit, typically a new car. This setup is particularly efficient for electric vehicles, as Benefit-in-Kind (BiK) tax rates remain much lower than those for petrol or diesel models.

BVRLA figures reveal that salary sacrifice grew by 123% year-on-year, becoming the fastest-growing sector in the leasing industry. Employees drive this trend to lower motoring costs while benefiting from significant tax and National Insurance savings provided by employers.

Tax Efficiency
Employees pay for the car from gross salary before income tax and National Insurance are deducted.
Inclusive Maintenance
Most salary sacrifice schemes include servicing, insurance, and breakdown cover in one monthly price.
Zero Emission Incentive
Low Benefit-in-Kind rates for EVs make them significantly cheaper through salary sacrifice than private finance.

How is the UK leasing fleet performing across different sectors?

Leasing performance varies by sector; business contract hire and salary sacrifice are thriving, while personal contract hire faces more challenges. Currently, business-led leasing serves as the primary growth engine for the UK automotive industry.

Growth rates across key UK leasing sectors according to BVRLA data.
Leasing Sector	Growth Rate (YoY)	Primary Driver
Total BVRLA Fleet	8%	Business demand
Car Fleet	12.5%	Fleet electrification
Salary Sacrifice	123%	Tax incentives for EVs
Business Contract Hire	3.5%	Corporate fleet renewal

Why are leasing margins currently under pressure?

High interest rates and volatile used car prices are currently pressuring leasing margins. When vehicle values drop faster than predicted at the end of a lease, providers face financial strain on their existing portfolios.

The BVRLA report highlights an unstable used car market, making it harder to set accurate residual values for new contracts. Additionally, high borrowing costs increase the capital needed for new fleets, forcing providers to balance competitive pricing with profitability.

Our Take

At Egon Car Leasing, we observe that the squeeze on margins is driving a greater focus on operational efficiency. For customers, this means that while headline prices are influenced by market volatility, the value is increasingly found in the 'total cost of ownership' and the service levels provided by the lessor.

What role do Electric Vehicles play in leasing growth?

Electric vehicles are now the central pillar of the UK leasing market, driven by tax incentives and corporate ESG targets. Over 50% of new cars registered by BVRLA members are plug-in models, a figure that significantly outpaces the general retail market.

2 million vehicle milestone to be surpassed shortly

UK Vehicle Market Trends: Leasing vs Total Market

Frequently Asked Questions

Future Outlook for the UK Leasing Industry

The UK leasing industry's future is tied to the ZEV (Zero Emission Vehicle) mandate, requiring manufacturers to sell more electric cars annually. This regulation should maintain a high supply of vehicles, potentially stabilising lease prices for customers over the long term.

Analysts expect the leasing fleet to surpass 2 million vehicles soon as salary sacrifice democratises access to electric cars for more employees. For providers like Egon Car Leasing, the focus remains on delivering a seamless digital experience and transparent pricing to meet this demand.

The leasing sector is proving remarkably resilient. While margins are being squeezed by used car price volatility and interest rates, the sheer volume of growth in salary sacrifice shows that the appetite for managed, tax-efficient motoring has never been higher.
BVRLA Industry Report