To ask the Chancellor of the Exchequer, what assessment he has made of the potential merits of (a) a phased withdrawal of the red diesel subsidy over a longer time period and (b) Governmental financial support to facilitate the transition away from diesel for companies.
The Chancellor confirmed at Spring Budget 2021 that the Government will remove the entitlement to use red diesel from most sectors from April 2022. This will more fairly reflect the negative environmental impact of the emissions they produce, and help to ensure that the tax system incentivises the development and adoption of greener alternatives.
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 to make sure it had not overlooked any exceptional reasons why affected sectors should be allowed to continue to use red diesel beyond April 2022.
The Government continues to take its world-leading environmental commitments seriously and remains dedicated to meeting its climate change and wider environmental targets, including improving the UK’s air quality. This is why the Government decided that April 2022 is the right time to implement these reforms, as it also gave affected businesses a year to prepare for the changes since they were confirmed at Spring Budget 2021.
To support the development of alternatives that affected businesses can switch to, the Government is at least doubling the funding provided for energy innovation through the new £1 billion 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.