'We are paying commission to a company which is actively trying to harm our business': Retailers rally against 'outrageous' Cycle to Work fees

Cycle to Work schemes - which allow people to save tax on bikes via 'loaning' them from their employers - should be more "transparent" about the "outrageous" fees they charge bike shops, one independent retailer has told Cycling Weekly.

The comments follow a war of words between the Association of Cycle Traders (ACT) and one of the UK's biggest Cycle to Work organisations, Cyclescheme, over new rules being introduced by the latter.

Speaking last week, Gavin Hudson of Butternut Bikes, in London's Crouch End, told Cycling Weekly that Cycle to Work organisations not only charged commission fees of up to 10%, but in some cases, had called customers and tried to sell them bikes cheaper, cutting his business out of the picture. 

"You've got a middle man, who charges a lot of the money, essentially. It's painful, we don't want to turn down business, it does drive a lot of business for us," Hudson said. 

"The Cycle to Work scheme is a fantastic saving, and we like that people have access to bikes they wouldn't otherwise afford. The real issue is the people choosing the scheme are different from the people paying [for] it."

Hudson is not alone in wanting a change to the system. A fortnight ago, ACT issued a statement calling for immediate change to Cyclescheme's new rules, which say retailers can apply no additional charges. ACT said that it has been approached by "a large volume" of retailers, most of which are "unwilling to speak publicly for fear of being excluded from business opportunities by established Cycle to Work providers".

ACT, which called the changes "arbitrary",  questioned Cyclescheme’s intentions, saying that it was as "an entity within a large US corporate business" in reference to its status as a subsidiary of Blackhawk Network. The latest rule update was described as "the straw that broke the camel’s back".

The Cycle to Work program gives employees of enrolled companies tax deductions on bikes and equipment, which are paid through salaries, in a bid to get more people commuting by bike. Customers buy vouchers from Cycle to Work scheme providers, before redeeming them at retailers that sign up to the scheme.

The cost of commission 

Hudson explained that Cyclescheme, among other Cycle to Work organisations, charges 10% commission on every bike sale, something which shops have been adding onto the price of bikes sold on the program, a practice which Cyclescheme is seeking to stop.

"The margin tends to be about 30% for a retailer from a bike, out of which there are quite a lot of costs, like warranty work," he said. "Most of the cycle to work providers charge 10%, which comes out of our margin. On a £1,000 bike, we don't walk away with £300, but the 10% is a huge part of that. 

"When I look at my accounts, the net profit we make on bikes is a lot less than the amount we've paid to the scheme provider. They charge 10%, which seems reasonable when it's a £400 bike, but when people are buying family cargo bikes, [they might be spending] £6,000. Then the commission is high. For essentially forwarding a payment. They don't do anything necessary. 

"The main issue that we have is that employers pick which cycle to work scheme to use, but they don't pay for it. The people that pay for it are the customer and the bike shop. The employer picks something, they don't care what the charge is, and the bike shop and to some extent the employee ends up paying for it down the line."

Other Cycle to Work schemes, like Gogeta or the Green Commute Initiative, charge lower commissions for their handling of the system, 3% and 5/6% respectively.

Adrian Warren, senior product director at Blackhawk Network, which owns Cyclescheme, said: "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. "

Rather than solving any issues between retailers and Cyclescheme, Hudson argued that the news has raised awareness of the imbalance between the two.

"Cyclescheme's new email, saying that we can't charge a surcharge, has created an awareness that these organisations charge an outrageous amount of money, and has led to customers actually being happy to pay a surcharge," he said. 

"There's also increased awareness that they can lobby their employer to move to a better provider, that charges less of a commission. Employers need an incentive to switch away, though, which just isn't there at the moment.

"There is no reason that an employer couldn't be signed up to all the schemes. If the fees were more transparent as well, that would help everyone."

Poaching customers 

It is not just Cyclescheme which has tested Hudson's patience.

"We had a cracking example from this morning," he told Cycling Weekly. "I had a customer who works in the Civil Service. We had the customer in our shop, we tested a bike, she picked a bike, but then [her Cycle to Work provider] phoned her up and asked to sell the bike to her directly. They said 'don't go to the shop, we will sell it to you slightly cheaper.' 

"One of the reasons they run the scheme is so they can sell bikes to customers themselves. We ended up selling the bike to her, and they will take the commission. What they were trying to do, I think, was poach that customer off us. And we are paying commission to a company which is actively trying to harm my business."

It does not appear this row is close to ending, with ACT saying in their statement that the Cycle to Work scheme needs to be reformed. 

"The time has come for the industry to take steps to reform the Cycle to Work employee benefit," it said. "So that it engages all parties in the supply chain, helps realise the full potential of Cycle to Work and most critically, by working together, to get many, many more employees cycling to work."