Construction: Red Diesel

Treasury written question – answered on 3rd September 2020.

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Photo of Jonathan Edwards Jonathan Edwards Independent, Carmarthen East and Dinefwr

To ask the Chancellor of the Exchequer, what assessment he has made of the effect on the construction industry of prohibiting the use of red diesel.

Photo of Jonathan Edwards Jonathan Edwards Independent, Carmarthen East and Dinefwr

To ask the Chancellor of the Exchequer, what assessment he has made of the effect of prohibiting the use of diesel on construction companies with contracts running beyond April 2022.

Photo of Jonathan Edwards Jonathan Edwards Independent, Carmarthen East and Dinefwr

To ask the Chancellor of the Exchequer, what assessment he has made of the effect of prohibiting the use of red diesel on the plant machinery sector.

Photo of Jonathan Edwards Jonathan Edwards Independent, Carmarthen East and Dinefwr

To ask the Chancellor of the Exchequer, what assessment he has made of whether exempting tier 3 and 4 engines from the ban on red diesel would promote industry to upgrade their machinery to low emission engines.

Photo of Jonathan Edwards Jonathan Edwards Independent, Carmarthen East and Dinefwr

To ask the Chancellor of the Exchequer, what assessment he has made of the merits of creating a specific fund to support the construction industry in transitioning to (a) alternative cleaner machinery and (b) low carbon fuel sources.

Photo of Kemi Badenoch Kemi Badenoch The Exchequer Secretary

At Budget 2020, the Chancellor announced that the Government will remove the entitlement to use red diesel from April 2022, except in agriculture, fish farming, rail and for non-commercial heating (including domestic heating). This change will ensure that most businesses using diesel in the UK pay the standard fuel duty rate on diesel, 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 diesel to improve the energy efficiency of their vehicles and machinery, invest in cleaner alternatives or use less fuel. The Government has previously received feedback from developers of alternative fuels and technologies that they view the low cost of running a diesel engine with red diesel as a barrier to entry for greener alternatives.

The Government recognises that this will be a significant change for some businesses, including in the construction and plant machinery sector, and it is therefore taking steps to help manage the impact on those affected. Firstly, businesses will have until April 2022 to prepare before any changes take effect.

To support the development of alternative energy sources that businesses can switch to, the Government committed at Budget 2020 to at least doubling the size of the £500 million Energy Innovation Programme, accelerating the design and production of innovative clean energy technologies.

Finally, the Government launched a consultation in July to make sure it has not overlooked any exceptional reasons why other sectors should be allowed to continue to use red diesel beyond April 2022. As part of this, the Government is seeking information from affected users, including the construction and plant machinery sector, on the expected impact of these tax changes.

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