Rebated Fuel Rules: Construction Industry

Debate between Dave Doogan and Peter Grant

Wednesday 19th January 2022 Westminster Hall

[Peter Grant]

I am not familiar with the details of the example that the right hon. Gentleman gives, but I have no reason to doubt that he has researched it as thoroughly as he researches everything else he says, either here or in the Chamber. There will be unintended consequences that the Government have not identified yet.

I have the privilege to serve on the Public Accounts Committee. One of our reports, a year or two ago, looked at what are termed environmental taxes. We raised concerns about how it is often difficult to see where the environmental impact of environmental taxes is being measured or monitored, or whether there is even any target impact when they are introduced. A lot of environmental taxes might be well intentioned to begin with, but they quickly become just another money-making scheme for the Treasury.

It appears quite clear to me that that is what this proposal is set out to be from the beginning. If it is not about making money, but about reducing fuel use and pollution from fuel, why does the policy paper tell us how much more money the Treasury will get out of it, but not the expected reduction over the next four years as a result of the tax? In answering, can the Minister tell us by how much the Government expect the use of diesel fuel to be reduced as a result of this measure? If he cannot give that answer, he should ditch this plan and bring it back for parliamentary approval when he can tell us what the environmental impacts are likely to be. The right hon. Member for Orkney and Shetland (Mr Carmichael) referred to a case where the proposal could actually increase fossil fuel use.

The hon. Member for Upper Bann pointed out that some of the Government’s own guidance tells us that, as a consequence of a fuel reduction scheme, people are supposed to flush more fuel down the drain than they were before. Every time they change from one use to another, they are supposed to flush out the fuel from the tank. A supplier who wants to switch from using white diesel to using red diesel instead is told to flush every trace of white diesel out of the tanks. What a waste of fuel from a system that is supposed to be about reducing fuel usage.

[Dave Doogan]

Does my hon. Friend agree that, because of the traces of red diesel that will still be intact, the construction sector should be genuinely concerned about the pragmatic approach of Her Majesty’s Revenue and Customs in enforcing the excise situation? Should we not have something that is much less opaque and more defined?

[Peter Grant]

My hon. Friend makes a valid point. We have seen other examples of proportionate, pragmatic and reasonable enforcement from HMRC. Certainly, the experience of my constituents in a lot of tax enforcement is that those terms tend not to come up in conversations very often.

We should be clear that this is not an example of the Government closing a tax loophole that is being exploited at our expense by rogues, villains and scallywags. Those companies have done everything legally, and quite often put themselves at significant difficulty to separate the red and white diesel that they use for different purposes.

We are talking about criminalising on 1 April something that was perfectly legal on 31 March. If the Government suddenly decide to criminalise what those companies are doing, surely it is reasonable to use some of the £5.5 billion that the Government will make over four years from the changes to support businesses that will need it to comply with the new regulations.

The Government have said that the measure will have no macroeconomic impact. I do not know how macro something has to be to be considered macro, but I suggest that taking £5.5 billion out of the economy over the space of four years will have a macroeconomic impact on a lot of businesses. If someone’s business closes, that has a macroeconomic impact on their family’s finances. It is not even as if we are adding this tax to a low tax burden for businesses and individuals. The UK tax burden is already close to the highest it has been since my mammy was at school—I have a free bus pass, so Members can do the arithmetic for themselves.

Some of the indirect impacts of the measure have already been mentioned, including on the cost of construction. It will no longer be viable for self-employed people in the construction businesses to continue trading. Construction businesses will close down, and construction projects will stop mid-stream—or might never be completed—when the main contractor goes bust without warning. That kind of thing already happens all too often.

Affordable house building will become less affordable because the builders will not be able to continue to build at the prices they had given previously. There is only one place those additional costs will go: to the people buying the houses at the end of the construction. If that purchaser is a council, a housing association or another social landlord, the additional costs will go to tenants or will lead to the cancellation of the project because it is no longer affordable.

As has been mentioned, there is extreme volatility in the prices of raw materials that construction firms rely on. I have spoken to construction supply firms that find that the price of raw materials can increase by 100% and then drop back down again in a matter of weeks, making it difficult for them to price jobs and to rely on affordable pricing from which they can make a profit without pricing themselves out of the market.

If there were clearly demonstrated environmental and pollution-reduction benefits to the tax, there might be a price worth paying by us all, but there are none whatsoever. The impact is targeted at far too small a portion of the economy, and in a part of the economy that was already on its knees because of the combined impact of Brexit and the coronavirus pandemic.

The construction sector and the construction materials sector should be getting Government support; they should not be getting kicked while they are down. If the Government are not prepared to give up on this plan entirely, I ask them to delay it or, at least, to phase it in over a longer time, to give our hard-pressed industries a chance to survive.