31st March 2022
Federation

Dear Members,

Please see below government response to NFDC CEO plea to delay removal of red diesel entitlement from the construction industry.

Government response

Dear Howard Button,

The Government has responded to the petition you signed – “Delay removal of red diesel entitlement from the construction industry”.

Government responded:

The Government has no plans to delay the removal of the entitlement to use red diesel from the construction industry from April 2022. At Budget 2020, the Government announced that it will remove the entitlement to use red diesel from April 2022, except in agriculture (as well as forestry, horticulture and pisciculture), rail and for non-commercial heating (including domestic heating).

These tax changes mean that most businesses in the UK currently using red diesel will no longer get a significant tax break compared with ordinary motorists; they will instead need to use diesel fuel taxed at the standard rate for diesel from April 2022, which more fairly reflects the harmful impact of the emissions they produce. These reforms are also designed to ensure that the tax system incentivises users of polluting fuels like diesel to improve the energy efficiency of their vehicles and machinery, invest in cleaner alternatives or use less fuel.

The Government recognised that this would be a significant change for some businesses and ran a consultation to gather information from affected users on the expected impact of these tax changes and make sure it had not overlooked any exceptional reasons why affected sectors should be allowed to continue to use red diesel beyond April 2022. During the consultation period, the Government engaged directly with a wide variety of organisations, including representatives of the construction sector.

Following the consultation, the Government announced at Spring Budget 2021 that it will grant further entitlements to use red diesel after April 2022 for a limited number of users. However, having assessed the cases made by other sectors to retain their red diesel entitlement, including the construction sector, the Government did not believe that they were compelling enough to outweigh the objectives of these reforms.

The Government has legislated for these tax changes to be implemented from April 2022 and has given affected businesses a year to prepare for the changes since they were confirmed at Spring Budget 2021, with many fuel suppliers and businesses having already taken the steps needed to prepare. As set out above, these are important long-term reforms which will help to ensure fairness between the different users of diesel fuels and that the tax system incentivises the development and adoption of greener alternative technologies.

This is why the Government has not delayed the removal of the entitlement to use red diesel from the construction industry from April 2022.

To support the development of alternatives that affected businesses can switch to, the Government is at least doubling its investment in energy innovation by committing over £1 billion to the Net Zero Innovation Portfolio. From that portfolio, the Government announced the £40 million Red Diesel Replacement Competition, which will provide grant funding for projects that develop and demonstrate lower carbon, lower cost alternatives to red diesel for the construction, and mining and quarrying sectors.As announced at Spring Budget 2021, from 1 April 2021 until 31 March 2023, companies can also claim 130% first-year capital allowances on qualifying plant and machinery investments.

This upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.In recognition of the unique circumstances that are currently pushing up fuel prices to unprecedented levels, the Government announced at the Spring Statement that it is cutting fuel duty on petrol and diesel by 5 pence per litre for a period of 12 months.

This is a significant tax cut that will deliver considerable savings to businesses over the next year, including those that use diesel, and is the first time in over a decade that the main rates of petrol and diesel have been cut.

HM Treasury


Click this link to view the response online: https://petition.parliament.uk/petitions/607637?reveal_response=yes

The Petitions Committee will take a look at this petition and its response. They can press the government for action and gather evidence. If this petition reaches 100,000 signatures, the Committee will consider it for a debate.The Committee is made up of 11 MPs, from political parties in government and in opposition. It is entirely independent of the Government.

Find out more about the Committee: https://petition.parliament.uk/help#petitions-committee

Thanks,
The Petitions team
UK Government and Parliament

Related resources

DRG122-1 – Red Diesel and Rebated Fuels – Main Points – Guidance Notes

pdf Member exclusive
971 KB
Industry

DRG122-2 – Red Diesel and Rebated Fuels – Supplement – Guidance Notes

pdf Member exclusive
999 KB
Industry

Originally published Mar 31, 2022 1:07:11 PM, updated July 22 2022.