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Sun November 29 2020

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Industry mounts pressure on chancellor over red diesel

9 Mar A third construction organisation has written to the chancellor of the exchequer asking for him not to scrap the red diesel tax rebate.

Press reports that the special arrangement for red diesel, under which construction machinery, tractors and other off-road vehicle users pay 46.81 pence per litre less than motorists, is about to come to an end.

It has been reported that red diesel will be scrapped in Rishi Sunak’s first budget statement this week.

Last week the Construction Plant-hire Association and the Civil Engineering Contractors Association wrote to the chancellor, separately, setting out the difficulties this move would cause its members.

See our previous reports here and here.

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By the end of the week, Build UK had also added its voice to those seeking to maintain the status quo

In a letter to the chancellor, Build UK chief executive Suzannah Nichol wrote: “Changes to the rates of tax on diesel fuel would have a significant impact on the construction sector and, whilst  we  have  not  had  the  chance  to fully  evaluate  the  additional  cost, we understand that the average construction firm spends around £15,000 a year on red diesel. Given red diesel and standard diesel currently have a tax rate differential of 420% per litre, this will lead to a considerable increase in costs. Alongside the impact of IR35 & Reverse VAT, this sudden cost  increase could significantly slow  down  construction  just  as  the government is  looking  to  kickstart  the Infrastructure Revolution. At the very least, if the tax on red diesel is to change, industry should be properly consulted and an appropriate transition period introduced. I would hope you could consider the impact and implications of a change in the rate of tax on red diesel in relation to its use by the construction sector.”

The Civil Engineering Contractors Association (CECA) says that scrapping access to cheap fuel would cost the UK’s construction industry somewhere between £280m to £490m a year. The argument for ending the rebate is that subsidising diesel reduces the incentive for the construction industry and farmers to shift to cleaner fuels.

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