The March 2020 budget statement included the abolition of tax relief on red diesel for construction plant machinery in 2022. But construction organisations say that industry finances are now so fragile that they need more time.
The Construction Plant-hire Association (CPA), along with Hire Association Europe (HAE), International Powered Access Federation (IPAF), Scottish Plant Owners Association (SPOA), National Federation of Demolition Contractors (NFDC) and the Scottish Building Federation (SBF) have asked chancellor Rishi Sunak to extend the deadline to at least 2023 to allow more time for economic recovery.
In a letter to the chancellor, they say: “Since the March Budget, the ongoing impact of Covid-19 on our members has caused a sudden and continuous decline in their business outlook and future investment plans. For many businesses, cash flow remains critical and capital expenditure has been frozen or cancelled.
“As the latest ONS figures show, in the three months to May, construction output fell by 40%. The Office of Budget Responsibility has estimated that construction output will fall by 70% in quarter two of 2020 relative to a decline of 35% in the whole economy because of Covid-19.
“Although our members have actively taken steps to adapt to remain in business, their future and investment intentions are being put on hold. The outlook is highly uncertain and will remain so for some time ahead.”
They say that adding to the financial burden on plant owners would reduce their ability to invest in new, less polluting machinery. They also point out that alternatives to diesel power for most types of heavy machinery are not yet viable.
According to the Civil Engineering Contractors Association, scrapping the red diesel rebate could cost construction as much as £490m.
Users of off-highway construction machinery currently pay tax of just 11.14 pence per litre on diesel instead of the standard tax rate of 57.95 pence per litre. The subsidised diesel is dyed red purely to distinguish it from the standard rate fuel.
Chancellor Rishi Sunak described the rebate in March as “a £2.4bn tax break for pollution that's also hindered the development of cleaner alternatives”.