Rebated Fuel Rules: Construction Industry

Jim Shannon Excerpts

Wednesday 19th January 2022 Westminster Hall

[Jim Shannon (Strangford) (DUP)]

Thank you very much for calling me to speak, Mr Bone.

I thank my hon. Friend the Member for Upper Bann (Carla Lockhart) for setting the scene so well, and I thank others for their contributions. The right hon. Member for Orkney and Shetland (Mr Carmichael) also hit the nail on the head, which is that small businesses will be affected. The right hon. Member for East Yorkshire (Sir Greg Knight) intervened on the issue that I want to talk about on behalf of constituents who have contacted me, who are not involved in construction as such but are involved in that sector.

I will give two examples of that. Just after Christmas, I wrote to the Chancellor about this very matter, which is of some importance. My constituents are clearly perplexed to find themselves in a position where the cost factor may push them to the stage where they have to make a decision about the survival of their businesses. When I make these pleas to the Minister, I do so because I hope to get a consideration or concession for one of the firms, and the other has told me clearly what its problems will be.

It is great to be here to support my hon. Friend the Member for Upper Bann. This issue is imperative for Northern Ireland businesses. The new legislation coming into force from April 2022 will have a significant impact on our economy—in particular on our construction industry and, as mentioned by the right hon. Member for East Yorkshire in his intervention, those involved in clearing up afterwards. There are huge concerns about this issue throughout Northern Ireland.

It is great to speak on behalf of the businesses in my constituency. There are many contributing factors making the move to white diesel unsustainable at this time. First, the cost is a primary factor for most of my constituents affected by this issue. I have given two examples, but it will actually affect a much greater number. It is like a stone hitting the water; the ripples go out well beyond that. We will feel the impact in many sectors.

Construction businesses across Northern Ireland have stated that, unfortunately, the added cost will be passed on to the customer—in some cases, that means the UK Government, who own and operate some forms of construction work. According to the Civil Engineering Contractors Association, losing the red diesel rebate would cost the UK construction industry between £280 million and £490 million a year. As my hon. Friend the Member for Upper Bann said, in Northern Ireland alone the additional cost will be between £20 million and £25 million.

I recently visited Conexpo, a family business based in my constituency in Northern Ireland. The right hon. Member for East Yorkshire mentioned quarries in his intervention—Conexpo has three, located in Ballygowan, Carryduff and Ballynahinch, all of which are in my constituency of Strangford. Conexpo produces highly polished stone value aggregates for export markets. Every one of the roads around London is built on stone from the quarries in my constituency; the same stone from Northern Ireland is used in Hong Kong. Conexpo is a lucrative business, because people very much want to have that stone. However, at the same time, there is a cost factor.

Conexpo has raised some important points explaining why the current policy on red diesel is not sustainable. My hon. Friend the Member for Upper Bann spoke about phasing in the policy in order to give businesses time to come up with new ideas and innovation. However, for Conexpo, there is no alternative. There are no hydrogen lorries sitting by to take over because they have not been perfected yet. Conexpo has worked extremely hard to reduce its carbon footprint, and it has succeeding in doing that. It is probably doing more for its carbon footprint than most people. Unfortunately, there are currently no alternatives to diesel engines to power the machines it requires. It is a big business—stone goes from its three quarries to Belfast harbour and then across the world.

Conexpo stated that it

“would welcome some clarity to the practical issues of how the red diesel rebate removal will happen. We believe it would be vitally important to retain the utilization of red diesel and a phased increase of the duty levied by HMRC would be charged by the fuel supplier.”

Another example is Cooke Brothers, which is run and owned by Ken Cooke in Newtownards. He has also voiced concerns on the red diesel rebate. He has stated that the Government must provide more clarity in regard to red diesel for generators. His engineering business does instrumental work for shipyards and sewerage works. The lack of information around generators is causing major anxiety for construction businesses.

Can the Minister say if there could be an exemption or some help for the people who depend on generators? Red diesel is important first for lorry movements and secondly for the generators used in engineering.

The legislation will cost the average business an extra £50,000 a year. It will also potentially mean that jobs are on the line. The Government have a proud record of creating jobs—the unemployment rate is down to 4.5% today, which gives us an indication of their polices—but if they want to be progressive and reduce that more, we cannot lose the jobs we have. The Government must recognise that, at this moment in time, there is no suitable alternative for most users, and that discretion must be given to construction businesses that simply cannot afford this change.

I will conclude within the timescale you set, Mr Bone. In my humble opinion, my constituents need help. I look to the Minister for that. Northern Irish businesses have suffered all too much in recent years, from the horrific impact of the protocol to the pandemic, and now our construction employers face extortionate costs relating to the red diesel change. I encourage the Minister to step in now and answer the questions of our constituents. Give us the help needed, give us the reassurance we seek, give us the phasing in. There is undoubtedly confusion surrounding the new legislation. Assurances, as presented by my hon. Friend the Member for Upper Bann and replicated, must be given to ensure the success of our construction businesses.

--- Later in debate ---

[Helen Whately]

I will make a little more progress, and then I will be very happy to. I am keen to make sure I address hon. Members’ points, which I have listened to and noted down during the debate.

Despite diesel being one of the most polluting fuels that vehicles and machinery can use, red diesel benefits from a significant duty discount—a duty rate of around 11p compared with almost 68p per litre on standard diesel. That really is significant. As a consequence, businesses using red diesel pay far less for the harmful emissions they produce than individual car owners. The tax changes that we are introducing in April mean most current users of red diesel in the UK will instead be required to use diesel taxed at the standard fuel duty rate like motorists, which more fairly reflects the harmful impact of the emissions that are produced.

Importantly, the Government have also heard from developers of alternative technologies—cleaner alternatives to red diesel—that the low cost of running a diesel engine on red diesel currently acts as a barrier to entry for greener alternatives. This widespread use of red diesel is actually counterproductive in terms of our ambitions to tackle climate change, reduce emissions and reduce pollution overall.

[Jim Shannon]

I kindly put two issues to the Minister. First, all Members, including my hon. Friend the Member for Upper Bann, have said that there needs to be a staging of this process. Only then will the new technology come through. That is not being negative; we all wish to achieve these goals, but there is a practicality issue. The second point, which I raised in my contribution, is that if exemptions are being given to farmers—which I agree with—would it be possible to have exemptions for those who depend on the generator system? Minister, we are not agin ye—to use an Ulsterism—but we really do think that at this stage there should be some honesty and flexibility in the process.

[Helen Whately]

I heard the hon. Member’s point there. A number of colleagues, including the hon. Member for Upper Bann, talked about there being a cliff edge, and others have asked for a delay. This was first announced back in 2020 and was confirmed in the spring Budget of 2021 to be introduced this coming April, so I would say that there has been a substantial lead time into the introduction of this policy—it is simply not coming as a surprise.

There has been substantial consultation with industry and consideration of the cases that specific sectors have made about the challenges that the shift to paying tax at the same rate as standard diesel might mean for them. The Government have listened to those concerns and made specific exemptions where we can see very material impacts—for instance on the cost of goods and services to households. There is an exemption around some use of red diesel for the purposes of generating energy for those who are off-grid—there is a specific exemption relating to that.

Although the construction sector, and mining and quarrying, which my right hon. Friend the Member for East Yorkshire (Sir Greg Knight) mentioned, argued throughout the consultation process that they should be exempt, their case was simply not compelling against our overall objective to incentivise greener alternatives and greater fuel efficiency and to shift to a position, which can only make sense, where the appropriate level of tax is paid on such a polluting and harmful fuel to reflect the harm that using it causes. However, as I say, we did listen and consult substantially on this proposal; we heard among others from the construction sector and from business representatives in Northern Ireland. We did listen, but we had to make the decision that this is part of an overall direction of travel where we are committed to tackling climate change and the harmful effects of pollution.