Red diesel rate hike a bad decision for economy, says FTA

Thursday 27 February 2020

In response to speculation that the government will increase the tax rate on rebated (‘red’) diesel in its Budget on 11 March 2020, FTA has written to the Chancellor of the Exchequer, Rishi Sunak, urging him to reconsider implementing such a damaging policy decision. 

Mr Snelling comments: “As the business group representing the logistics sector, FTA is urging government to refrain from increasing red diesel rates in its March Budget. This move would be an additional tax on hard-working businesses without incentivising the transition to cleaner diesel units. 

“FTA believes the worst-case scenario would be an increase on rail fuel duty. The use of rail for freight transport – where the diesel is commonly used – brings many environmental benefits and its use should be incentivised, not discouraged by punitive taxation. The services most used for rail – for example, containerised traffic – are price sensitive; businesses will switch to road transport if costs are too high, which of course leads to a significant reduction in the use of rail for freight transport. And this, in the view of FTA, would have negative consequences for carbon emissions, road congestion, overall safety and economic efficiency.”

Red diesel rate increases for equipment used across logistics would be costly and pointless environmentally.  Mr Snelling continues: “Taxation as a tool to reduce the use of red diesel in ancillary equipment will also not yield significant environmental benefit. It is a common misconception that newer, cleaner equipment must use less fuel, so increasing taxation would encourage people to switch to these technologies more quickly.  But in fact, cleaner equipment is overall not more fuel efficient; often it can be less so. For example, some models of Euro VI engine are in fact 9% less fuel efficient than their predecessors. As such, increasing taxes would only discourage businesses from switching to more environmentally friendly equipment.

“An increase in red diesel rates would also come at the very worst time for utility service companies; with the recent wave of storms and floods, many of these companies are already investing huge amounts of resources to repair and rebuild for the future. And remember, the equipment used to pump water away from flooded areas is run on red diesel. As such, a rate increase would be a kick in the teeth to these businesses.”

Efficient logistics is vital to keep the UK trading, directly having an impact on more than seven million people employed in the making, selling and moving of goods. With Brexit, new technology and other disruptive forces driving change in the way goods move across borders and through the supply chain, logistics has never been more important to UK plc. FTA is one of the biggest business groups in the UK, supporting, shaping and standing up for safe and efficient logistics. We are the only business group in the UK that represents all of logistics, with members from the road, rail, sea and air industries, as well as the buyers of freight services such as retailers and manufacturers whose businesses depend on the efficient movement of goods.