RED DIESEL may be in the sights of the new Chancellor of the Exchequer Rishi Sunak, as he scrambles to pull together the first Budget since the Conservatives' resounding General Election win – and the shock resignation of his predecessor Sajid Javid.

In a series of policy leaks ahead of the Budget, which is scheduled for March 11, it has been suggested that Mr Sunak, faced with both the need to raise revenue to pay for Boris Johnson's investment promises, and pressure to reduce fossil fuel use, may finally ditch the Tories' decade-long freeze on domestic fuel duty, and at the same time entirely scrap the two-tier system that gives the agriculture and construction industries access to diesel at a lower rate of duty.

While it is by no means confirmed that Mr Sunak will go through with this threat, the tactical leaking of the possibility at this point signals that the Johnson government's 'disruptive' agenda holds nothing sacred, and certainly not any of the special fiscal measures that have traditionally applied to farming. Alongside red diesel, it is no secret that the Treasury's wishlist also includes a radical revamp of the exceptions currently applied to Inheritance tax.

The current tax on red diesel amounts to 11.1pence per litre, compared with 57.7ppl on the 'white' diesel that goes into road vehicles. If that disparity was removed, it would add around £2.4bn to the government's revenue for fuel duty, and sit neatly with its pledge to achieve net zero carbon emissions by 2050.

Explaining the proposed changes, a government official said: “We are talking not only about a significant contribution to climate change but also to the quality of our air. At the moment people aren’t incentivised to make the change to lower consumption or alternative fuels. We need to fix that.”

Responding to what she described as 'unsubstantiated speculation' about the furture or red diesel, NFU Scotland's head of policy team, Gemma Cooper said: “The use of red diesel on farms and crofts, powering all forms of agricultural machinery and equipment, is an important cog in the wheel for producing all the raw materials that are the backbone of our successful food and drink sector.

“The ability to use red diesel represents a significant cost saving for the agricultural industry and this must be retained. There is no formal indication that changes to the duty on red diesel will come forward in this Wednesday’s budget, but given the ongoing speculation, we are urging members to write to their MPs to illustrate how valuable red diesel is in controlling the costs in their business.

“With some exceptions, it is important to remind politicians that red diesel is for off road use; is already subject to low duty (not no duty) as well as VAT. Low duty red diesel available to the agricultural industry is common throughout Europe and the rest of the world, and the UK should be no exception.

“The UK Government consulted in both 2018 and 2019 on red diesel in order to obtain an up-to-date picture of its use by various industries. NFUS is aware that UK Government intends to consult further on the use of red diesel and particularly in relation to haulage and construction," said Ms Cooper.

“While there is no suggestion currently that any changes to red diesel duty will affect genuine agricultural use, given the importance of red diesel to the agricultural industry, we will continue to monitor the situation and make immediate representation should that change.” 

English NFU president Minette Batters added: "Changes to this duty could see farmers face increases of nearly 50p/L, making us immediately uncompetitive with many countries, including EU member states, the US and Canada, which all provide their agricultural sectors with a lower fuel duty on red diesel."

The National Association of Agricultural Contractors stressed that its members relied heavily on red diesel to supply essential farming operations to land managers and said it was 'vital' that this exemption be retained to maintain food production.

"In times of huge uncertainty, alongside a wet autumn, the industry is already struggling with financial reserves and the removal of the lower fuel duty would be a devastating blow that could push many contracting businesses to fail," said NAAC. "By almost doubling fuels costs this would potentially add hundreds of thousands of pounds of input costs each year which is currently unsustainable.

"There is no commercial, alternative ‘green’ fuel to replace diesel in agricultural machinery, removing any choice for the industry to switch fuels," it added.