Cyclists' hopes were raised by the election of Britain's first cycling Prime Minister — even if Witney MP David Cameron did tarnish his green image when we discovered that his car followed close behind with his briefcase.

His fellow Oxfordshire MP Boris Johnson has kept the momentum going with London's Barclay hire bikes, but now one of the most popular ideas to encourage commuters on to two wheels — the Cycle to Work scheme — has hit a problem.

Oxford University has suspended its scheme following new guidance from HM Revenue & Customs, while other employers have had to amend their rules.

The scheme allows cycle commuters to buy a new bike, paying through pre-tax deductions from their salary. After a set period — usually a year — the employee then buys the bike at a reduced rate, the 'fair value'.

During the past five years, hundreds of Oxfordshire cyclists have taken advantage of the scheme, offered by about 25,000 employers nationwide.

Until this summer, the ‘fair value' was estimated at five per cent. However, in August, HMRC produced a new table of values. After one year, bikes up to £500 are valued at 18 per cent, for example, while those over £500 are valued at 25 per cent.

University spokesman Ruth Collier said: “The university has temporarily suspended our scheme following the new HMRC guidance.

“We’re aiming to have a new scheme available for staff soon – but there are meetings going on to discuss this.”

Oxford Brookes University, meanwhile, has kept its scheme going by accepting a new system set up by commercial provider Cyclescheme, which administers the scheme. Spokesman Kay Tillyer said: “We didn't suspend our scheme. We are allowing Cyclescheme to deal with the new rules. It's really complicated, but it's not going to affect the user very much.”

She said Brookes’s HR director, Bob Price, who is the Leader of Oxford City Council, was keen to support the scheme.

Bike shops in Oxford are still waiting to see whether sales will be affected by the hiccup.

Luis Tulip, of Beeline Bicycles in Cowley Road, said: “We haven't been hugely affected yet. It all depends on what employers decide to do. It's still a tax saving for customers who want to buy a bike and it still encourages people who want to ride to work.”

Andy Holmes, of Warlands cycle shop in Botley Road, said the new tax ruling and complex paperwork meant the scheme was now less attractive, but said sales would not be badly hit.

“We might have a quiet six months, but then people will get their heads around it. I think it will carry on for a while but will gently fizzle out.”

He added: “We survived perfectly well without it before 2005 and the paper work involved is mind-boggling.”

A spokesman for HM Revenue & Customs said: “There has been no change to the rules – if an employer passes a bike to an employee after its use under the Cycle to Work scheme at its full market value there is no tax charge.”

James Styring, of Oxford pressure group Cyclox, says the scheme is still worthwhile. “The scheme provided exactly the right incentive to get car-bound commuters on to bikes.

“Most people have a jalopy of some sort lying around in their shed, but it’s no fun commuting any distance on a bike that’s not up to the job. The Cycle to Work scheme deal meant you could afford a £500 bike because you’d pay less than £350 for it under the scheme.”

He dismissed the idea that it was an unfair perk for cyclists. “Commuting by car causes pollution, congestion, and even traffic injuries. Cycling causes none of these.

“Cyclists are fitter and healthier employees. A commute to work by bike clears the head and gives cyclists measurably better productivity compared with driving colleagues.

“Cyclists take fewer days off sick and they live longer – with an ever-increasing pensionable age, this is something employers may find handy.”

Roger Geffen, of the Cycling Tourists' Club, said: “The Cycle to Work scheme has played a major role in boosting both cycle sales and cycle use in the last few years, so it is a shame to see these benefits eroded. However at least we now know where we stand – the lack of clarity about how to calculate the saleable value of a bike at the end of its hire term was always a bit of a loophole and it was bound to be closed eventually.

“Moreover, we know that it was putting some employers off implementing the scheme. Yet it has doubtless done far more good for the nation’s economy, health and the environment than the car-scrappage scheme – that was nothing more than a huge subsidy for motor manufacturers.”

“Even now CTC believes the cycle to work scheme represents pretty good value and we hope it will continue to support the boom in cycling.

“We estimate that an employee who buys a sub-£500 bike from their employer under this scheme after a 12-month hire contract will gain a 29 per cent benefit if they are basic-rate taxpayers, or 42 per cent if they pay at the higher rate.”

Mr Styring agreed. He said: “The economic payback of tax breaks that help people cycle to work are obvious.

“It’s a pity that a PM who cycles has seen fit to claw back on this no-brainer.”