Question to the HM Treasury:
To ask the Chancellor of the Exchequer, if the Government will make an assessment of the potential merits of bringing forward the planned reforms to red diesel taxation in the event that data shows that those reforms will accelerate the development of clean technology to tackle air pollution.
The Chancellor announced at Budget 2020 that the Government will remove the entitlement to use red diesel from April 2022, except in agriculture, fish farming, rail and for non-commercial heating (including domestic heating). This change will ensure that most businesses using diesel in the UK pay the standard fuel duty rate on diesel, which more fairly reflects the harmful impact of the emissions they produce.
These reforms are also designed to ensure that the tax system incentivises users of diesel to improve the energy efficiency of their vehicles and machinery, invest in cleaner alternatives or use less fuel. The Government has previously received feedback from developers of alternative fuels and technologies that they view the low cost of running a diesel engine with red diesel as a barrier to entry for greener alternatives.
To support the development of alternative energy sources that businesses can switch to, the Chancellor committed at Budget 2020 to at least doubling the size of the Department for Business, Energy and Industrial Strategy’s £500 million Energy Innovation Programme.
Recognising that this will be a significant change for some businesses, the Chancellor set out at Budget that businesses will have until April 2022 to prepare before any changes take effect. The Government launched a consultation in July on these tax changes and this has now closed. The Government will announce next steps in due course.