Business

Removal of red diesel rebate set to heap more costs on under pressure firms

New laws to restrict the use of red diesel are due to come into force in April.

PLANS to remove the rebate on red diesel this April will cost the north’s construction, manufacturing and minerals sectors up to £25 million a year, four leading industry bodies have warned.

The move, which will stop firms using red diesel to run plant machinery and industrial equipment, was conceived prior to the Covid-19 pandemic as part of the UK Government’s efforts to cut emissions.

But trade bodies including the Construction Employers Federation (CEF), Federation of Master Builders (FMB), Mineral Products Association NI (MPANI) and Manufacturing NI, have warned it will heap huge additional costs on businesses at time of severe cost inflation and material shortages.

A new survey from the CEF this week revealed one-in-four building firms have been critically impacted by rising costs and shortages in the second half of 2021, resulting in projects being delayed.

Ulster Bank’s monthly purchasing managers index (PMI) has also recorded a significant acceleration of cost inflation for the private sector since the summer, with costs increasingly passed onto customers.

Red diesel, which is essentially white road diesel with a dye marker, is taxed at a significantly reduced rate than standard DERV.

Construction and minerals firms have said the loss of the rebate will prevent them using the lower cost fuel in all non-road mobile machinery, including excavators, dumpers, shovels and cranes.

Firms will also lose permission to use red diesel in mobile generators on construction sites.

Stephen Kelly of Manufacturing NI said it will have significant financial implications for most manufacturers.

“As a sector we estimate that it will add tens of millions of pounds of new cost to firm who are already struggling to cope with huge inflation in energy, supply chain and employment costs.

“Whilst the Chancellor may welcome a big new pot of money, firms will need to find efficiencies which may include reducing how many they employ and or pass the costs on to the end consumer.”

Shane Maguire of Co Tyrone building contractor Alskea, said the firm estimates the switch to ‘clear’ diesel for machinery will see its fuel costs rise by around 70 per cent.

While he agrees with the introduction of measures to tackle climate change, he said the timing isn’t right for many businesses.

“We and many of our peers within the construction industry have concerns over the consequences of the ongoing increases in construction costs which are beginning to have a negative impact on construction activity, slowdown in the commencement of new projects nationwide, and now coupled with the removal of the red diesel rebate, the increases in fuel costs have the potential for job losses within the short to medium term,” he said.

“Steps need to be taken to provide for a greener environment within the construction industry but there are no readily available low-carbon fuels or construction plant that can be used as alternatives – therefore no option but for the increased diesel costs to be passed onto the end user.”

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