Chancellor promises further consultation on red diesel

Chancellor Philip Hammond has today (13 March) announced that the government will be carrying out a further consultation on the use of red diesel in towns and cities, as well as potential tax cuts for low emission vans.

The announcements came as part of the government’s Spring Budget Statement in the House of Commons today, at which the Chancellor said that the government would “seek evidence on whether tax relief for red diesel contributes to air pollution in urban areas”.

Red diesel is used in a variety of applications, including non road mobile machinery

The Chancellor also hinted that he would look at how changes to Vehicle Excise Duty could support van drivers to switch to low emission models.

Addressing MPs today, he said: “This government is determined that our generation should leave the natural environment in a better state than we found it.

“And improve the quality of the air we breathe.

“So we will publish a call for evidence on whether the use of non-agricultural red diesel tax relief contributes to poor air quality in urban areas.

“And following our successful intervention to incentivise green taxis, we’ll help the Great British White Van driver go green with a consultation on reduced VED rates for the cleanest vans.”

Red diesel

‘Red diesel’ is the term used for gas oil that is intended for use other than as fuel in road vehicles — largely in agricultural machinery, but also in appliances such as secondary engines for refrigeration lorries, off-grid heating and construction equipment. It is coloured with a red dye to ensure it is not illegally used in road vehicles.

Red diesel currently benefits from a tax rebate of 46.81ppl giving an effective rate of 11.14ppl — costing around £2.4 billion per year in revenue, compared to diesel charged at the main rate, according to the government.

Last March, the Treasury launched a call for evidence into the use of red diesel in urban areas, with a view to understanding how its use has changed.

Consultation

Government said that the consultation would help it to “improve the data sources available to government about red diesel use and to contribute to a better evidence base for future policies.”

Now, a further call for evidence is to be launched to assess the impact this has on air pollution in urban areas, with an expected focus on its use in the construction industry and in other non-road mobile machinery.

In a written statement to Parliament, the Treasury revealed that the call for evidence would explore whether the use of red diesel tax relief discourages the purchase of cleaner engines. Red diesel for agricultural use will be outside the scope of the call for evidence, as will home heating use and other static generators, the Department confirmed.

According to the government red diesel use makes up over 15% of total diesel use, ‘a significant proportion’ of which is used in urban areas. The Treasury forecasts that the consumption of red diesel in the agricultural sector has decreased.

More details of the consultation are expected to be released in the coming weeks.