Will Red Diesel’s Lower Fuel Duty Rate Be Scrapped?

Chancellor Rishi Sunak is apparently considering scrapping the reduced tax rate on red diesel, a fuel that’s widely used for registered off-road vehicles and machinery, a low-cost fuel that those in the construction and farming industries have come to rely on. It’s called red diesel because a red dye is added to it in order to prevent it from being used in road-going vehicles, although you may also hear it referred to as gas oil, tractor diesel, generator diesel or agricultural diesel.

According to a Financial Times report, seen by Farmers Weekly, Mr Sunak has plans in place to end the 11.1p/litre duty rate and charge the full 57.7p, expected to be announced in the forthcoming Budget.

Sales of red diesel make up around 15 per cent of all diesel sales, costing the Treasury £2.4 billion annually in revenue. Some media reports have suggested that only the construction industry would be affected by a duty rise – and it’s also being suggested that the chancellor will be ending the ten-year freeze on tax hikes for motorists.

If fuel duty is increased for red diesel, this would see average farm prices climb to over 98p/litre – a near-50 per cent hike in fuel costs.

Minette Batters, NFU president, said: “Red diesel is the primary fuel to run the majority of agricultural vehicles, and is absolutely crucial to farm businesses and to maintaining food production. The lower fuel duty on red diesel recognises this fact and, with such uncertainty and rising input costs, it is absolutely essential that the red diesel exemption is maintained.

“Changes to this duty [would] make us immediately uncompetitive with many countries, including EU member states, the US and Canada, which all provide their agricultural sectors with a lower fuel duty on red diesel.”

The next Budget will take place on March 11th, covering the nation’s finances and the government’s proposals for any changes being made to taxation. It will also include forecasts for the economy from the Office for Budget Responsibility.

Some measures, such as any changes to tax on tobacco and alcohol, come into effect on the day itself or soon after – so if red diesel duty changes are introduced, the impact could soon be felt in communities all over the UK.

Andrew Ward, an arable farmer in Lincolnshire, said that if these changes are implemented, his winter wheat and harvest fuel costs would climb from around £44/ha to £83/ha. He questioned whether the government actually wanted a UK agricultural industry, given that they’re already under pressure from climate change and subsidy cuts.

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