Rebated Fuel Rules: Construction Industry

Dave Doogan Excerpts

Wednesday 19th January 2022 Westminster Hall

[Dave Doogan (Angus) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Bone. I give many thanks to the hon. Member for Upper Bann (Carla Lockhart) not only for securing the debate but for articulating so clearly the important details now manifest by this deeply unfair removal of the rebate. In April, the 46.8p raise cost £1.5 billion across the construction sector. It is incumbent on the Government, having introduced such a fiscal measure, to have an idea—a passing regard, at least—of how it will affect the industry. In the event that the Minister and her Department do not have that, I can set out a couple of those effects.

However, at the heart of the concern is fairness. As other hon. Members have set out, the notion that operators of this type of vehicle will somehow go out within the next two to three months to purchase alternatives that will not be subject to this tax increase is for the birds. The alternatives are not there—the manufacturers do not have the technology beyond the prototype stage. This is therefore a tax grab, essentially. We need to call it what it is. What the Government should have done, and may have got a bit of respect for, was implement a well-advertised, well-indicated, well-consulted-upon, graduated reduction of the rebate on red diesel, to allow industry and manufacturers to appropriately and realistically adapt their fleets and their products to meet the climate change targets that we all agree on. There is no dispute about those; it is how we get there that, in this instance, is deeply unfair.

I do not hear anybody making political points in this debate. There is no political capital at stake. In that spirit, I offer the Minister an out to this situation. If she wishes, she can put it down to what has happened to the cost of living, with inflation at a 30-year high, as the right hon. Member for Orkney and Shetland (Mr Carmichael) discussed. The principal casualty of this measure is the construction industry, which also faces a chronic labour shortage, and a chronic shortage and rising prices of materials. These things have also changed relatively recently, which gives the Government that out. Eleven companies in my constituency in the mineral products sector are affected by that.

However, this affects not only quarrying but construction and material handling. It is not only Geddes quarries in Angus or Laird’s concrete products in Forfar. I had a meeting with John Lawrie Metals in Montrose, which does a tremendous service to the environment by repurposing equipment from the offshore oil and gas sector for the construction sector. It has met Liebherr in Germany to discuss the timeline for the availability of its hydrogen-powered heavy shovels, but that is a long way away—way beyond the horizon of this change.

I implore the Minister to seriously consider a reversal of this change, because it is perverse on two levels. First, it will not make an iota of difference to pollution levels, because there is no alternative; it will be diesel that does the work, whether or not the Government maintain this change to the rebate. Secondly, as the hon. Member for Upper Bann indicated, it will also displace biodiesel, so there will be a negative consequence to the environment. There is nothing to recommend this. It will harm business and public sector capital investment.

It is okay for the UK Government—they will receive the tax from the change, so that will offset the increase in their capital expenditure to some extent—but what about the Governments of the devolved nations? Who is going to offset their increased costs for building new schools and hospitals? The construction sector will pass this on. It is bad for the environment and for the covid recovery, so I urge the Minister and the Department to think again.

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[Peter Grant]

I am not familiar with the details of the example that the right hon. Gentleman gives, but I have no reason to doubt that he has researched it as thoroughly as he researches everything else he says, either here or in the Chamber. There will be unintended consequences that the Government have not identified yet.

I have the privilege to serve on the Public Accounts Committee. One of our reports, a year or two ago, looked at what are termed environmental taxes. We raised concerns about how it is often difficult to see where the environmental impact of environmental taxes is being measured or monitored, or whether there is even any target impact when they are introduced. A lot of environmental taxes might be well intentioned to begin with, but they quickly become just another money-making scheme for the Treasury.

It appears quite clear to me that that is what this proposal is set out to be from the beginning. If it is not about making money, but about reducing fuel use and pollution from fuel, why does the policy paper tell us how much more money the Treasury will get out of it, but not the expected reduction over the next four years as a result of the tax? In answering, can the Minister tell us by how much the Government expect the use of diesel fuel to be reduced as a result of this measure? If he cannot give that answer, he should ditch this plan and bring it back for parliamentary approval when he can tell us what the environmental impacts are likely to be. The right hon. Member for Orkney and Shetland (Mr Carmichael) referred to a case where the proposal could actually increase fossil fuel use.

The hon. Member for Upper Bann pointed out that some of the Government’s own guidance tells us that, as a consequence of a fuel reduction scheme, people are supposed to flush more fuel down the drain than they were before. Every time they change from one use to another, they are supposed to flush out the fuel from the tank. A supplier who wants to switch from using white diesel to using red diesel instead is told to flush every trace of white diesel out of the tanks. What a waste of fuel from a system that is supposed to be about reducing fuel usage.

[Dave Doogan]

Does my hon. Friend agree that, because of the traces of red diesel that will still be intact, the construction sector should be genuinely concerned about the pragmatic approach of Her Majesty’s Revenue and Customs in enforcing the excise situation? Should we not have something that is much less opaque and more defined?

[Peter Grant]

My hon. Friend makes a valid point. We have seen other examples of proportionate, pragmatic and reasonable enforcement from HMRC. Certainly, the experience of my constituents in a lot of tax enforcement is that those terms tend not to come up in conversations very often.

We should be clear that this is not an example of the Government closing a tax loophole that is being exploited at our expense by rogues, villains and scallywags. Those companies have done everything legally, and quite often put themselves at significant difficulty to separate the red and white diesel that they use for different purposes.

We are talking about criminalising on 1 April something that was perfectly legal on 31 March. If the Government suddenly decide to criminalise what those companies are doing, surely it is reasonable to use some of the £5.5 billion that the Government will make over four years from the changes to support businesses that will need it to comply with the new regulations.

The Government have said that the measure will have no macroeconomic impact. I do not know how macro something has to be to be considered macro, but I suggest that taking £5.5 billion out of the economy over the space of four years will have a macroeconomic impact on a lot of businesses. If someone’s business closes, that has a macroeconomic impact on their family’s finances. It is not even as if we are adding this tax to a low tax burden for businesses and individuals. The UK tax burden is already close to the highest it has been since my mammy was at school—I have a free bus pass, so Members can do the arithmetic for themselves.

Some of the indirect impacts of the measure have already been mentioned, including on the cost of construction. It will no longer be viable for self-employed people in the construction businesses to continue trading. Construction businesses will close down, and construction projects will stop mid-stream—or might never be completed—when the main contractor goes bust without warning. That kind of thing already happens all too often.

Affordable house building will become less affordable because the builders will not be able to continue to build at the prices they had given previously. There is only one place those additional costs will go: to the people buying the houses at the end of the construction. If that purchaser is a council, a housing association or another social landlord, the additional costs will go to tenants or will lead to the cancellation of the project because it is no longer affordable.

As has been mentioned, there is extreme volatility in the prices of raw materials that construction firms rely on. I have spoken to construction supply firms that find that the price of raw materials can increase by 100% and then drop back down again in a matter of weeks, making it difficult for them to price jobs and to rely on affordable pricing from which they can make a profit without pricing themselves out of the market.

If there were clearly demonstrated environmental and pollution-reduction benefits to the tax, there might be a price worth paying by us all, but there are none whatsoever. The impact is targeted at far too small a portion of the economy, and in a part of the economy that was already on its knees because of the combined impact of Brexit and the coronavirus pandemic.

The construction sector and the construction materials sector should be getting Government support; they should not be getting kicked while they are down. If the Government are not prepared to give up on this plan entirely, I ask them to delay it or, at least, to phase it in over a longer time, to give our hard-pressed industries a chance to survive.

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[Helen Whately]

As we have heard from those who are trying to develop alternatives, one of the barriers to developing those alternatives—one of the things that reduces the incentives to do so—is the relatively low cost of red diesel. It is only by addressing the fact that there is such a low tax rate on red diesel that we incentivise the development of alternatives—and we are seeing the development of alternatives.

[Dave Doogan]

Will the Minister give way?

[Helen Whately]

I will make some more progress. JCB developing its hydrogen-fuelled digger is one example, and Volvo is another example. So we are seeing the development of alternatives. This proposal is a really important part of ensuring that the incentives are there for these things to happen.

I will pick up on a few other points that hon. Members have made. The hon. Member for Upper Bann talked about the impact of covid on the construction sector. I heard the phrase “a perfect storm” from the right hon. Member for Orkney and Shetland (Mr Carmichael). I will say a couple of things. First, we looked at the cost implications, and that is why there have been some exemptions in very specific areas where we thought the taxation change might have a material impact on household costs. However, for the areas where the change is being introduced, the Government do not believe there is a material change in the ultimate prices to households. The cost of fuel is relatively small for most businesses—I recognise that that is not the case for all businesses.

The other issue, in the context of covid, and taking a step back, is that we have put in a £400 billion package of support for the economy throughout this pandemic. We have already provided £250 million to local authorities in England and recently provided an extra £100 million that local authorities will distribute to businesses affected by covid to support them through the difficult times that we recognise they are going through. The Barnett equivalents of those amounts will go to the devolved nations. So we are giving a huge amount of support to businesses throughout this pandemic—we are absolutely mindful of that. Given that that support is in place, that particular issue is not a reason not to continue with the very important commitments that we have made—and that other parties have supported—to transition to a greener economy.

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[Helen Whately]

That is not a figure that I have seen, but I can double-check that. I was asked specifically whether there has been an economic impact assessment. We consulted on the proposal and assessed the expected impact. As usual, a tax information and impact note was produced and published, as hon. Members would expect.

For those who said that the change will not make a difference to the environment, or will backfire, as I mentioned it is about incentivising the development of alternatives. Alternatives are already being developed. Specifically to support that, the Government have doubled the funding for energy innovation through the £1 billion net zero innovation portfolio. The Department for Business, Energy and Industrial Strategy recently announced £40 million of funding for the red diesel replacement competition, which is part of that portfolio, to specifically grant funding to projects that will develop and demonstrate lower-carbon, lower-cost alternatives to red diesel for the construction and mining and quarrying sectors.

[Dave Doogan]

Will the Minister give way?

[Mr Peter Bone (in the Chair)]

Order. Before the Minister decides whether to take that intervention, she should know that she is well over her allocated time. We have to allow two minutes for the proposer to wind up. The Minister has 20 seconds.