Question to the HM Treasury:

To ask the Chancellor of the Exchequer, if he will postpone restrictions on the use of red diesel from April 2022 in the context of recent and forthcoming increases in the cost of living.

At Budget 2020 the Chancellor announced that the Government will remove the entitlement to use red diesel from most sectors from April 2022. This will more fairly reflect the negative environmental impact of the emissions they produce and help to ensure that the tax system incentivises the development and adoption of greener alternatives.

The Government recognised that this would be a significant change for some businesses and ran a consultation to gather information from affected users on the expected impact of these tax changes and make sure it had not overlooked any exceptional reasons why affected sectors should be allowed to continue to use red diesel beyond April 2022.

Following the consultation, the Chancellor announced at Spring Budget 2021 that the Government will grant further entitlements to use red diesel after April 2022 for a limited number of users. However, having assessed the cases made by other sectors to retain their red diesel entitlement, the Government did not believe that they were compelling enough to outweigh the need to ensure fairness between the different users of diesel fuels, the Government’s long-term environmental objectives and the need for the tax system to incentivise the development of greener alternatives to polluting fuels.

To support the development of alternatives that affected businesses can switch to, the Government is at least doubling the funding provided for energy innovation through the new £1 billion Net Zero Innovation Portfolio. From that portfolio, the Government announced the £40 million Red Diesel Replacement Competition, which will provide grant funding for projects that develop and demonstrate lower carbon, lower cost alternatives to red diesel for the construction, and mining and quarrying sectors.

As announced at Spring Budget 2021, from 1 April 2021 until 31 March 2023, companies can also claim 130% first-year capital allowances on qualifying plant and machinery investments.