Treasury consults on red diesel and clean van tax reform

The Treasury has today (15 May) begun consultation on potential changes to the tax system aimed at driving improvements in air quality.

Initially promised in the Chancellor’s Spring Statement, Ministers are asking for evidence on the potential to increase the taxation rate for red diesel in non-road mobile machinery (NRMM), and reforming Vehicle Excise Duty to incentivise the purchase of low emission vans (see airqualitynews.com story).

Red diesel is used in a variety of applications, including non road mobile machinery

‘Red diesel’ is the term used for gas oil that is intended for use other than as fuel in road vehicles – largely in agricultural machinery, but also in appliances such as secondary engines for refrigeration lorries, off-grid heating and construction equipment. It is coloured with a red dye to ensure it is not illegally used in road vehicles.

Red diesel currently benefits from a tax rebate of 46.81ppl giving an effective rate of 11.14ppl – costing around £2.4 billion per year in revenue, compared to diesel charged at the main rate, according to the government.

Today’s consultation is seeking evidence on whether offering this reduced rate for red diesel for machinery such as cranes or generators on construction sites discourages the purchase of cleaner alternatives.

Red diesel for agricultural use, as will fishing vessels, home heating and other static uses will be out of scope of the consultation, the Treasury has said.

Vehicle Excise Duty

In its consultation on clean vans, the Treasury is seeking to explore whether creating a graduated first year rate for vans, as is already in place for cars, would incentivise a switch to cleaner models. Most van purchases would pay less tax in the first year as a result of the change.

Currently vehicle excise duty for vans remains at a flat rate of £250 no matter what type of vehicle.

Environment Secretary Michael Gove has urged businesses to take part in the consultations

Exchequer Secretary to the Treasury, Robert Jenrick, said: “We want to be the first government to leave the environment in a better state that we found it. One of the ways we can do this is by using the tax system to help drivers afford greener choices.

“We want to help ‘white van man’ go green. We appreciate that buying a new van is a major investment for small businessmen and women and want to help make environmentally friendly choices more affordable.

“Public health is at risk due to the use of red diesel in towns and cities. So we are looking at how we can level the playing field on red diesel and exploring how we can encourage users to ditch it.”

‘Threat’

Environment Secretary Michael Gove, added: “Air pollution remains a significant threat to public health and everyone must play their part tackling its causes.

“We will shortly build on our £3.5 billion plan to tackle roadside emissions, publishing a comprehensive Clean Air Strategy setting out a wide range of actions to reduce pollution from all sources.

“Businesses have a crucial role in this. That’s why today we are setting out plans to make low emission vans more affordable and asking businesses how we can help them break down the barriers to the use of lower emission machinery.”

Both consultations will run until Friday 20 July.

Related Links
Consultation: Vehicle Excise Duty for Vans
Call for Evidence: Non-road mobile machinery and red diesel excluding use for agriculture, fishing vessels, home heating and other static uses