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Sunak must defer the removal of the red diesel rebate

On April 1 2022, the Government will remove the red diesel rebate that several industries, including construction, currently benefit from. Although industry supports decarbonisation, three unprecedented events in Covid-19, the energy crisis and a war in Ukraine have made all energy increasingly unaffordable and even the tiniest shifts in prices can put businesses in jeopardy.

In diesel, the price shift will be considerable and all impacted sectors, including road haulage, cold storage supply chains and civil engineers, have warned of business collapse if the Government sticks to its plan.

Richard Beresford, chief executive of the National Federation of Builder (NFB), said: “The Government has limited control over the annual price increases of gas and electricity, which in the last year have gone up by twenty nine percent and nineteen percent respectively but in the red diesel rebate, it has the power of deferral, so that industry pays a 47% increase on pre-pandemic fuel costs, rather than 191%.”

These are unprecedented times and after rejecting industry pleas on minimal exemptions for plant vehicles that could not be electrified, such as mobile cranes, this policy change arrives in the middle of a perfect storm on British energy costs and so a twelve-month deferral on removing the red diesel rebate is pragmatic.”

UK construction has seen five climate related regulatory changes in the last twelve months, all coming with specific tax increases. However, due to being driven by global markets, fuel and vehicle decarbonisation is a complex challenge, currently at the mercy of computer chip shortages, stifled production of biodiesel, and international competition for fuel.

Beresford continued: “The perfect storm isn’t just the price of UK energy. Due to Covid-19, the worldwide shortage of semi-conductors that electrified plant machinery requires won’t start improving until 2023 and biodiesel production is still below pre-pandemic levels, which with a 16.5% lower wholesale price than at the pump diesel was expected to help absorb price rises.

The Russian invasion of Ukraine has changed the landscape again, as countries who import from Russia, such as the US who pre-war doubled their Russian oil imports, are purchasing elsewhere, along with all other nations. This competition for fuel will also hit the already fluctuating biodiesel market, which at one point saw biodiesel cost 11% more than pumped diesel, with export and import levels jumping wildly every month.

Given the huge uncertainties, the Government could still make progress on its intention to remove the rebate by doing so gradually over a period of five years and allowing companies to adjust, plan and adapt over the medium term, rather than forcing this drastic cliff-edge they currently face.”

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