Petition Delay removal of red diesel entitlement from the construction industry
I want the Government to delay the reform of rebated fuels so that it gives the construction industry time to bounce back after the pandemic.
I understand the reasons and the carbon foot print is very much in the fore front of our minds. However, with the impact that this could have on the construction industry, I fear people may be put out of their jobs or even firms becoming insolvent because of the cost of the fuel. No other rebated fuel entitlements are being granted to the construction industry i in place of the red diesel. This needs to happen before entitlement to use rebated fuels are taken away from the industry.
This response was given on 30 March 2022
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.
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