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Axing red diesel subsidy would deepen farmers’ financial woes, says union

PUBLISHED: 08:39 05 March 2020 | UPDATED: 08:39 05 March 2020

Farmers have urged chancellor Rishi Sunak not to cut the fuel tax subsidy for red diesel in next week's budget speech. Picture: Ian Burt

Farmers have urged chancellor Rishi Sunak not to cut the fuel tax subsidy for red diesel in next week's budget speech. Picture: Ian Burt

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Farmers are pleading with the chancellor not to axe the subsidy for red diesel in next week’s budget – a move which they fear could heap further financial pressure on their industry.

NFU East Anglia regional director Rachel Carrington. Picture: Warren Page/Pagepix Ltd.NFU East Anglia regional director Rachel Carrington. Picture: Warren Page/Pagepix Ltd.

Chancellor Rishi Sunak is reportedly planning to end the 11.1p/litre duty rate for red diesel, which is a low-tax fuel widely used to operate registered off-road vehicles and agricultural machinery.

If implemented, it would mean users would be charged the full fuel tax of 57.7p/litre - forcing up average farm fuel costs by almost 50pc.

According to reports in the Financial Times, the removal of the subsidy stands to raise an additional £2.4bn for the government as well as helping it reach its net-zero emissions goal by 2050.

But farming leaders in East Anglia warned of severe financial implications for agriculture, particularly at a time when the EU's subsidy payments are due to be phased out after Brexit.

Rachel Carrington, East Anglia regional director for the National Farmers' Union (NFU), said: "It's vital that the red diesel exemption is maintained.

"Red diesel is the main fuel used to run most agricultural vehicles and is essential for farm businesses and food production. Changes to this duty could see farmers face increases of almost 50p per litre, adding substantial costs to businesses and putting them at an immediate competitive disadvantage."

The chancellor has also been urged to take steps to improve farm productivity and business resilience when he delivers his first budget on Wednesday.

Mrs Carrington said: "This budget will be important, not just for any changes that are introduced but also for the message that it sends.

"We want to see a clear signal from government that it will back British farming and help overcome key barriers to the industry achieving its ambitions for growth."

Alongside continued investment in research, development and innovation, the NFU is calling for access to on-farm productivity grant funding and agri-tech funding to help farm businesses develop innovative solutions to the challenges they face.

In its budget submission, it also calls for ring-fenced funding to replace EU structural funds, previously delivered through the Rural Development Programme for England, and for funding to be at least equal to previous levels of investment.

READ MORE: Under-pressure farming industry has never had 'more on its plate', says leading farmer

The current National Productivity Investment Fund, if continued, could also help drive productivity increases and infrastructure improvements, said the union.

Under the capital allowances system, the NFU would like to see further support for those businesses seeking to enhance their productivity and reduce emissions. This would include accelerating relief on buildings and making permanent the current temporary Annual Investment Allowance limit of £1m.

Another issue addressed in the NFU's budget submission to the Treasury is reforms to the planning system to allow farmers to invest and adapt their businesses.

Mrs Carrington said: "We believe there are significant barriers that hold back farming businesses, and these must be addressed.

"We are also calling on the government to ensure the rollout of superfast broadband, alongside delivering complete mobile phone coverage at a reasonable cost.

"It is essential to lay the foundations for 5G coverage in rural areas now. The full delivery of the government's agri-tech and industrial strategies depends on it."

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