Rachel Reeves to cut tax benefits for workers using salary sacrifice schemes to buy bikes

Rachel Reeves has drawn up a plan to cut tax benefits for workers using salary sacrifice schemes to buy expensive manual and electric bicycles, according to a report. The chancellor is expected to introduce a new limit on how much people can spend on a bicycle through the cycle to work scheme in this month’s budget, the Financial Times said, citing people familiar with budget preparations, amid concerns that subsidising cycle purchases is not the best use of taxpayers’ money. One government figure told the newspaper: “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 cycle to work scheme launched by Tony Blair’s Labour government in 1999, allows employees to buy a bike and accessories with an interest-free loan from their employer. The cost will be deducted from the employee’s gross salary monthly, before income tax and national insurance are applied. The cost of the scheme rose from £55m in 2019-20 to £130m in 2024-25. The original £1,000 cap was axed six years ago after complaints that it excluded large numbers of the bikes that customers wanted to buy, including e-bikes and cargo bikes capable of carrying children. The scheme can help save 42% of the cost of a bike for those considered higher rate taxpayers, and 30% for basic rate taxpayers. High quality bikes can cost at least £2,000 and those with seating £5,000. But many retailers have realised that some higher earners were taking advantage of the perk and bought bikes costing more than £10,000. Will Pearson, co-owner of London-based Pearson Cycles, designer and retailer of high-end bikes, told the Financial Times the new limit on the scheme would have to be at a “sensible level” but could also risk the progress of environmentally friendly travel. “The government should leave the scheme alone or, ideally, improve the incentives rather than restrict them,” he 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 Guardian has asked the Treasury for comment.