The Government suggested that the new rules will help to ensure fairness between the different users of diesel fuels, as well as encouraging the development and adoption of greener alternative technologies and a reduction in fuel use.
The owner of a recycling business has pointed out the inherent contradictions in the intended environmental impacts of the changes.
“It’s a two-pronged impact,” he says. “We’ve had the cost of diesel going up by nearly 100% in a year and now another 50% with the duty change so it’s having a massive impact on us and our customers as we’re having to charge more money.
“We can only cope by putting our prices up which is making recycling less cost effective than it was before. It’s almost getting to the point where it might well be more viable for my customers to send their products to landfill rather than have them recycled.
“I think recycling should be exempt because we’re producing renewable energy. Surely that should be supported, not penalised?”
Eligible to use red. Cheaper to use white
It’s not just in environmental impacts that contradictions are being highlighted.
Despite being one of the sectors still eligible for red diesel use, a Kent fisherman recently took his boat to his local BP garage to fill up with white diesel after his red diesel bill nearly doubled – from £80 a day to £170 a day.
Realising that the white diesel works out 70p per litre cheaper by the time he reclaims road duty and VAT, Chris Attenborough, of Herne Bay, Kent hauled his boat out of the water, cut the mast down and transported it to the forecourt on a lorry to fill it with white diesel straight from the pump!
The current unpredictability of deliveries to the harbourside in Whitstable where his boat is usually moored, meant that supply concerns also contributed to his bizarre trip.
“How can you run a business not knowing when your fuel is going to turn up? Chris commented. “They won’t give you an actual price until the day before delivery.”
The price of diesel at the Dargate BP petrol station when Chris took his boat to ‘fillet’ was 185.9p per litre. After removing fuel duty (57.95p per litre) and VAT at the standard rate of 20 per cent this worked out at 90.7p per litre for the fisherman.
Filling his boat up uses 2,500 litres of diesel, which would be – following tax deductions – £2,250 for white diesel at 90p per litre, compared with £3,500 for red diesel valued at 140p.
Staggering cost increases
For those unable to choose, the financial impact of the move from red to white diesel has sparked significant concern, with reports suggesting that around half of affected firms in industries like construction could go out of business as they face cost increases of around 55%.
A spokesperson from the construction sector highlighted the financial impacts: “From 1st April, red diesel becomes illegal in construction. An A25 ADT will now burn through £33.45 per hour in fuel. A 20t excavator will burn through £26.50ph. Both figures probably double what the majority of operators driving them will be earning.
“In July, red diesel was £0.73/l including VAT, come next week the construction industry will be paying £1.78/l. That’s for everything, mixers, welfare units, lighting towers, generators, forklifts, rollers, excavators etc.
One affected business owner described the rebate changes as ‘crippling’ and a ‘direct tax’ on the businesses that are no longer entitles to use rebated red diesel.
“We accept the way that fuel has gone up and that’s not controllable by the government,” he commented, “but this is controllable by the government and is a direct tax on us to make us less economical than we already are.
“We can’t replace any new machinery or anything like that, not the way things are going, because it’s taking all the profit out of our business.”
Further squeeze on supplies
Another unforeseen impact of the rebate change was highlighted by a fuel distributor who was commenting on the recently announced cut in fuel duty: “A duty cut is great and I’m sure massively appreciated by many struggling businesses, further pressured by the rising costs of fuel – however – there is a wider, national, issue in the diesel supply chain that needs to be addressed and quickly.
“The HMRC Rebate changes on 1st of April will further squeeze already restricted supplies. Something has got to give.”
Even before Russia invaded Ukraine, diesel fuel was in short supply due to a drop in global refining capacity. Now, with sanctions imposed, Russia’s fuel exports to Europe are down and the global scramble for supply that has sent prices to record levels.
“When you’re seeing crude rallying, you’ve seen diesel outpacing it just because of supply concerns,” one analyst said.
The diesel market is extremely tight and will get tighter which is another reason the need to shift from red to white has come at a particularly challenging time.
Diesel was described, recently, as ‘tempting liquid gold’ and, as a result of today’s change, theft and security will be at the top of the agenda for many. Recent weeks have seen an increase in reports of theft relating to both domestic heating oil and diesel fuel. Historically, fuel thefts always rise over the winter months, but the recent unprecedented increases in fuel prices may well be contributing to this trend and, if this is the case, it may also be an indication of a potential increase in offences over the next few weeks.
The price of red diesel has already doubled in the last six weeks with the impacts of the Ukraine crisis added to a number of pre-existing factors. The change implemented today means that those required to switch to white diesel will see another huge increase in costs with businesses reporting that they have no choice but to pass it on down the line to their customers.