Salary sacrifice limits for cyclists set to be part of Autumn Budget

The Treasury has laid out plans to limit salary sacrifice schemes as part of the Autumn Budget, according to reports. Chancellor Rachel Reeves is expected to target schemes for purchasing expensive bikes, although attention may also shift to the amount workers can contribute to their pensions through salary sacrifice.

The 'Cycle to Work' scheme is a growing cost to the Treasury, with the overall bill rising from £55m for 2019/20 tax year to £130m for the 2024/25 tax year. This has been identified, along with other aspects of salary sacrifice, as a potential cost-saving measure as we approach the Autumn Budget.

What is the 'Cycle to Work' scheme?

The Cycle to Work scheme was launched all the way back in 1999 to encourage people to cycle to work rather than drive or take public transport. Eligible workers can buy a bike and accessories using an interest-free loan from their employer, then pay it back through deductions from their salary. Crucially, the deductions are taken from the gross salary, before income tax and national insurance are applied. This creates an area of lost revenue for the Treasury. The scheme cost £130m in the 2024/25 tax year through lost tax revenue.

Though increasingly expensive, it is also growing in popularity, with 209,000 people claiming for the 2023/24 tax year, up from 167,000 in 2019/20.

Overall, it saves basic rate taxpayers 30% on the cost of the bike and higher rate taxpayers 42%. However, some people have argued the scheme is too generous, allowing already well-off employees to purchase luxury bikes that they do not necessarily use to get to and from work, with some costing over £10,000. Its defenders argue that it is a way to encourage cycling, thereby reducing strain on public transport, wear on roads, and the environmental damage caused by using polluting vehicles.

How might the 'Cycle to Work' scheme change?

The proposed change will involve a new cap to limit the amount of money workers can spend on a bicycle through the Cycle to Work scheme. Currently, there is no upper limit on how much the bike can cost.

There was previously a £1,000 cap on the cost of the bike, but this was scrapped six years ago following criticism that it was too limiting, as it essentially excluded e-bikes and cargo bikes designed for carrying children. Will Pearson, co-owner of Pearson Cycles, told the FT: "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 argument against this is that the scheme does not target commuters effectively enough and allows those who don't even cycle to work to essentially get a heavily discounted luxury bike. The FT quoted an unnamed government figure as saying: "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."

How might pension salary sacrifice change?

Bikes are not the only part of salary sacrifice that the Treasury has fixed its eye on. According to reports, Reeves is exploring introducing a £2,000 cap on money added to a pension salary sacrifice scheme before national insurance is applied. Above this new cap, both employees and employers would have to pay the usual NI rates. These are 15% for employers, 8% for basic rate taxpayers and 2% for higher rate taxpayers.

The change could raise £2bn for the Treasury, but some have warned that essentially disincentivising pension contributions will have long-term negative consequences. Yvonne Braun of the Association of British Insurers said the proposals "prioritise short-term revenue raising over long-term economic resilience".

What other changes will be part of the Autumn Budget?

Until it is announced by Rachel Reeves on 26th November, everything you read about the Budget is speculative, though key information is often leaked to gauge public reaction before the big day. We have scoured the rumour mill and collected all of the major stories on our 'Latest Budget 2025 predictions & rumours' page.