Chancellor of the exchequer Rishi Sunak has announced the end of the tax rebate for the construction industry’s use of diesel. The chancellor said: “The Red Diesel scheme allows selected users to pay a duty of just over 11p per litre for diesel, compared to almost 58p per litre for everyone else.
“But the sectors using red diesel are some of the biggest contributors to our air quality problem – emitting nearly 10% of the most noxious gases polluting the air of cities like London.
“This is a tax relief on nearly 14 million tonnes of carbon dioxide every year, the same as the entire population of London and Greater Manchester taking a return flight to New York.”
Red diesel was first introduced back in 1961, with the purpose to provide tax-relief to off-road diesel engine users including the agricultural and construction markets, as well as off-grid heating and generators.
Whilst not tax-exempt, red diesel is heavily rebated with tax at just 11 pence per litre versus the 58 pence per litre for standard road diesel. Its red marker dye is added to help HMRC and other law enforcement bodies to recognise the illegal use of red diesel if found in a public road using vehicle.
The construction industry is going to suffer the worst but will not need to pay the full 57.7p/litre rate for two years in order to give the industry time to prepare.
The reason for this loss is a bid to encourage a switch to greener alternative fuel vehicles and help the UK meet its climate change targets. Scrapping the red diesel rebate will have significant financial implications for the construction sector meaning that ers of diesel-powered construction plant machinery will pay an extra 47 pence on every litre of diesel used.
From April 2022, Users of off-highway construction machinery will have to pay an extra 46.81 pence per litre for their diesel, paying the standard tax rate of 57.95 pence per litre rather than the subsidised red diesel rate of 11.14 pence per litre.
The chancellor made the announcement in his 2020 budget statement in the House of Commons and described red diesel as “a £2.4bn tax break for pollution that's also hindered the development of cleaner alternatives”. However, he said that he recognised the difficulties it would case, hence the two-year delay to give industry time to adjust.
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