Rebated Fuel Rules: Construction Industry

James Murray Excerpts

Wednesday 19th January 2022 Westminster Hall

[James Murray (Ealing North) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Mr Bone. Thank you for the opportunity to speak on behalf of the Opposition. I congratulate the hon. Member for Upper Bann (Carla Lockhart) on securing the debate.

As we know, from April 2022, measures in the Finance Act 2021 will come into effect to reduce the number of businesses that can benefit from red diesel tax breaks, as well as extend fuel duty to biodiesel, bio-blend and fuel substitutes used in heating. The measures in the 2021 Act maintain a number of exceptions, however, for situations in which red diesel tax breaks will continue, including for vehicles and machinery used in agriculture, horticulture, fish farming and forestry, and for the heating of non-commercial premises, including homes and buildings such as places of worship, hospitals and town halls.

Historically, the existence of red diesel tax breaks arose from the use of that fuel in off road machinery or vehicles. Duty has historically been charged on fuel used by motor vehicles to reflect the damage caused to public roads. The rebated rate for red diesel reflected the fact that it was only used in off-road situations. The dyeing of the diesel has also allowed law enforcement agencies to identify it as rebated fuel and therefore to detect when red diesel is being used wrongly, providing a deterrent to fuel fraud.

During the Committee stage of the Finance (No.2) Act 2021, the Exchequer Secretary to the Treasury, the hon. Member for Faversham and Mid Kent (Helen Whately), set out the Government’s motivation behind restricting access to red diesel. The Minister explained that the restrictions on red diesel were designed so that taxation

“reflects the negative environmental impact of the emissions produced.”

She said:

“Reducing tax breaks on red diesel will mean that approximately 3.6 billion litres of diesel, equivalent to 9.5 million tonnes of CO2, will now be taxed at the standard diesel rate.”––[Official Report, Finance (No.2) Public Bill Committee, 27 April 2021; c. 72.]

Like many Members who have spoken in today’s debate, Labour supports the principle behind cutting the use of diesel fuel and encouraging a move towards more environmentally friendly alternatives. We know that red diesel accounts for around 15% of all diesel used in the UK and is responsible for the production of nearly 14 million tonnes of carbon dioxide a year. We also know that red diesel used in the construction and infrastructure building sectors causes PM10 emissions, a type of particulate matter, so it being used less will help to improve air quality. However, we would like to raise two specific concerns on behalf of representatives of the construction industry, and would welcome the Minister’s response.

First, during discussion of the Finance (No.2) Act 2021 in Committee, the Exchequer Secretary explained that one aim behind the measures was to make sure that the tax system incentivises users of polluting fuels such as diesel to invest in cleaner alternatives. Representatives from the construction sector have therefore questioned why the legislation increases fuel duty on lower-carbon alternatives such as hydrotreated vegetable oil, which has lower carbon emissions and emits less sulphur than standard diesel. For instance, Niki Holt of Certas Energy, writing in The Construction Index, has noted that HVO fuels offer

“an improved burn efficiency and reduced carbon emissions, which accounts for a significant decrease in GHG”—

greenhouse gas—

“emissions. Hydrogen is used as a catalyst rather than methanol, which means that HVO is cleaner-burning and has a longer shelf life than standard biodiesel.”

Although HVO is by no means a perfect solution, members of the construction sector have questioned why the Government are restricting the use of HVO fuel as well as red diesel. They argue that, as a lower-carbon alternative, HVO fuel would presumably be preferable to white diesel. I would be grateful if the Government set out why they are including HVO fuel at this stage.

Alongside those environmental concerns, the other key worry we have heard from the construction sector relates to fuel theft. Research by Crown Oil found that there were over 25,000 confirmed fuel thefts in 2018, which represented over £1.75 million lost to businesses and domestic users. It has estimated that that figure could be up to £9 million if all constabularies reported the relevant data to researchers. Construction sites are already targets for theft, as they tend to be unoccupied at night, and we know that the Civil Engineering Contractors Association and its members are deeply concerned about the heightened risk of fuel theft and subsequent fraud.

CECA has therefore proposed the use of blue dye within standard diesel solely within the construction industry, with duty paid at the full rate, to maintain a deterrent against theft and to enable detection of its illegal use. The colour itself is not important; what matters is that CECA sees this as a way to deter theft that would not be possible with undyed diesel, and it would like legal recognition of that fuel when HMRC and its associated bodies conduct inspections. I would therefore be grateful if the Minister could outline the Government’s response to CECA’s proposal and highlight what measures will be introduced to support the construction industry, both in reducing the risk of fuel theft and in their wider recovery from the pandemic.

To conclude, we support measures to encourage the use of alternatives to diesel, which help to reduce carbon emissions and improve air quality. Our questions today, however, seek to press the Minister on concerns raised about the detail of this policy and its impact on the construction sector in particular. I look forward to her response.