Red Diesel a Fair or Flawed System?
For years, red diesel has been used by farmers and constructions workers to power heavy duty machinery used for off-road purposes. At around half the wholesale price of conventional “white” diesel used by motorists, off-road use is not subject to the taxes and duties applicable to road users.
In theory this is a fair policy as non-road users should not have to pay duties to cover wear and tear to the highway system. However, recent reports in the media have questioned the policy’s robustness and some clarification might be needed to restore confidence in the diesel price system. At present, the difference in the wholesale price of white and red diesel is 111-112 pence per liter and 65-66 p.p.l. (both excluding VAT) respectively. At almost half the price of white diesel, farmers are able to minimize fuel costs and avoid paying duty for road investment they are not liable for.
Her Majesty’s Revenue and Customs (HMRC) currently makes a huge effort to detect and prevent the illegal use of red diesel on the highway with regular and unplanned road side checks for diesel vehicles. Red dye used in red diesel can be detected to just a few parts per billion, so even if a diesel vehicle has run red diesel in the past but is currently using white, the red can still be detected.
However, there are inevitably red diesel users who are required to take their off road vehicles on to the highway, for example when moving farm or construction machinery from site to site. HMRC has subsequently made the process of policing fuel use easier by charging farmers and construction companies full duty on a certain, predetermined percentage of the total red diesel used, which makes it a lot easier for both parties to manage:
“Farmers do also suffer from the higher duty for road fuel; both on their haulage costs as they are located remotely, and due to the price of road fuel tending to be higher for rural locations,” said the National Farmers’ Union (NFU).
However, HMRC has been told to clarify its policy on the industrial use of red diesel recently after losing a court battle. Last year, a tractor driver in Cumbria was stopped by HMRC when he transported land drainage pipes from a builder’s merchant back to his farm. Officials advised the driver that he was not allowed to operate an agricultural tractor on red diesel on the public highway for this purpose and duly fined him £250.
HMRC argued that the penalty was justified because the law states that tractors using red diesel on roads need be traveling between two pieces of land under the same ownership as the vehicle. The farmer contested that HMRC’s website stated that tractors running on red diesel could use public roads for collection of “agricultural inputs.” The farmer was cleared by the judge who stated that HMRC should make it clear to farmers exactly when agricultural vehicles are allowed to use red diesel when transporting goods used for agricultural purposes.
HMRC has recently lifted restrictions on red diesel use to aid implementation of public policy. Farmers were recently allowed to use red diesel when gritting and clearing snow from roads during the Christmas and New Year cold snap. Last year the Government was even considering making red diesel available to road users following a proposed strike from petrol tanker drivers. Such relaxation of policy could undermine a segregated system which ensures that illegal use does not proliferate among consumers.
The government has begun to add duty to red diesel in recent years, with the rate increasing nearly fourfold in the first decade of this century. Although the duty could reflect the percentage paid by farmers for their overall fuel requirements, both on and off-road, UK fuel duty on red diesel is currently one of the highest in the EU:
“The UK is far from unique in offering rebated fuel for agriculture, as almost all countries have a lower rate of fuel duty for agriculture and a higher rate of fuel duty for road use. In fact our rate of red diesel duty is higher than many other countries in the EU. The price for red diesel has risen 38 per cent over the past three years leading to increased pressure on already stretched budgets for farming inputs,” adds the NFU.
The Government could argue that red diesel does causes additional environmental pollution, via air pollution or from accidental spillages, so fuel duty is therefore necessary to offset the state’s costs in these areas. However, when compared with other EU countries, it does seem slightly unfair.
Overall, fuel duty is higher in the UK than in any other major economy, currently around 42 per cent of the overall pump price, rising to 60 per cent including VAT. Taxes on diesel for commercial use are over 50 per cent higher than in France and Germany and five times higher than in North America. Revenues from fuel duty and road tax currently exceed spending on roads by £30 billion per year; meanwhile, investment in road improvements has also fallen dramatically over the last 20 years.
If road duty is used by the Government merely as another means of generating revenue, it could undermine the justification for charging widely differing prices for red and white diesel; after all, if the duty is not being spent on road improvements, why should consumers then pay the higher amount of tax?
HMRC must ensure that clear guidelines are provided for the use of red diesel and that road duty is apportioned to fairly reflect associated road and environmental costs; road users need continued assurance that the system is fair and robust.
Robert Potts is owner of RPM Fuels and Tanks.
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