Chancellor Rachel Reeves is preparing to significantly scale back the tax advantages available to employees purchasing expensive bicycles through the government's Cycle to Work scheme, according to a new report.
Budget Plans Target High-Cost Bikes
The Financial Times, citing sources familiar with the budget preparations, states that the Chancellor is expected to announce a new spending limit for bicycles bought through the salary sacrifice initiative. This move is reportedly driven by concerns within the Treasury that the current system is an inefficient use of taxpayer funds, disproportionately benefiting higher earners buying premium bikes for leisure rather than essential commuting.
The cost of the scheme to the Treasury has more than doubled, rising from £55 million in the 2019-20 financial year to £130 million in 2024-25. A government figure directly criticised the current application of the scheme, telling the FT: "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 the Cycle to Work Scheme Operates
Established in 1999 under Tony Blair's Labour government, the Cycle to Work scheme allows employees to acquire a bicycle and necessary accessories through an interest-free loan provided by their employer. The total cost is then deducted from the employee's gross salary each month, before income tax and National Insurance contributions are calculated.
This mechanism provides a substantial saving: higher rate taxpayers can save up to 42% of the bike's cost, while basic rate taxpayers can save around 30%. The original £1,000 cap on spending was removed six years ago after complaints it prevented people from buying popular models, including e-bikes and cargo bikes capable of carrying children.
However, the absence of a cap has led to some high earners exploiting the perk. With high-quality standard bikes often costing at least £2,000 and specialised models reaching £5,000, retailers have noted purchases exceeding £10,000 through the scheme.
Industry Reaction and Environmental Concerns
The proposed changes have been met with concern from within the cycling industry. Will Pearson, co-owner of the London-based high-end bike designer and retailer Pearson Cycles, warned that any new limit must be set at a "sensible level." He expressed worry that overly restrictive measures could hinder the progress 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, which is expected later this month. This potential reform signals a shift in policy focus, aiming to reframe the Cycle to Work scheme squarely as a tool for daily commuting rather than a general subsidy for luxury bicycle ownership.
