Budget 2020: Farmers will be exempt from red diesel ‘pollution tax’

Farmers have been made exempt from the abolishment of the fuel tax subsidy for red diesel in chancel

Farmers have been made exempt from the abolishment of the fuel tax subsidy for red diesel in chancellor Rishi Sunak's 2020 Budget. Picture: Ian Burt - Credit: Archant

Farmers are celebrating a major Budget boost after the chancellor spared their industry from the scrapping of tax relief on red diesel.

Nick Deane of Bure Farm Services is the Norfolk branch chairman of the National Farmers' Union (NFU)

Nick Deane of Bure Farm Services is the Norfolk branch chairman of the National Farmers' Union (NFU). Picture: Chris Hill. - Credit: Chris Hill

Before Rishi Sunak's debut speech, fears had been raised that his expected cut to the fuel subsidy for registered off-road vehicles and agricultural machinery could drive up farm fuel costs by almost 50pc.

The National Farmers' Union (NFU) said the move could add to agriculture's financial pressures at a time when the industry is also preparing to lose its EU subsidy payments, which are due to be phased out after Brexit.

The subsidy, described by Mr Sunak as a '£2.4bn tax break for pollution' will be abolished for most sectors in two years.

But, having heard industry representations, the chancellor said farmers and fishermen will retain the 11.1p/litre duty rate for red diesel, while industries including construction will be charged the full fuel tax of 57.7p/litre.

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Farming leaders in East Anglia welcomed the concession from the government's over-arching green policy drive to enforce 'taxes on pollution'.

Nick Deane, who farms at Hoveton, and is the chairman of the Norfolk branch of the NFU said: 'The red diesel concession makes complete sense and we welcome the fact that the chancellor recognises the unique significance of agriculture and food production.'

READ MORE: Budget 2020: Chancellor sets out coronavirus measures but what does it mean for Norfolk?Rachel Carrington, East Anglia regional director for the NFU said: 'It is welcome news. There are no viable green alternatives [to red diesel], and unlike other industries we cannot just pass the extra costs on, as the food chain is a more complicated structure. We cannot just make food more expensive because fuel is more expensive.'

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NFU president Minette Batters said: 'The most significant decision today for British farmers is the announcement to retain the relief on red diesel. Changes to this duty could have virtually doubled fuel costs for farmers and, with no current alternative fuel for agricultural vehicles, this would have left farms immediately uncompetitive with many other countries who continue to provide lower fuel duty for their agricultural industries.'

The Budget also announced new measures to support carbon capture in the countryside, including a £640m new 'Nature for Climate Fund' aiming to plant 30,000ha of woodlands and restore 35,000 hectares of peatland in the next five years.

There was also investment for rural infrastructure, including £510m in the shared rural mobile phone network so 4G coverage will reach 95pc of the country in the next five years, and £5bn to get gigabit-capable broadband into the hardest-to-reach places.

Mr Deane added: 'It is also good to hear the recognition for 4G and rural broadband networks. We have to say that we hope it delivers better than the previous attempts to do that.

'It is all very well reaching 95pc, but the 5pc will be the rural community and farmers who desperately need it. We need to get broadband to everybody, not just the 95pc.'

The NFU also welcomed other Budget pledges including £5.2bn for flood defences, extra funding to tackle fly-tipping, and measures to help small businesses deal with the impacts of coronavirus.

'The commitment to cover statutory sick pay costs, providing business rates relief for many small businesses and mobilising banks lending for SMEs will help to provide resilience and support cash flow in these difficult circumstances,' said Ms Batters.

Cath Crowther, East regional director for the Country Land and Business Association, echoed those sentiments and also drew attention to the chancellor's announcement on research and development (R&D) funding.

'Technology can help ease some of the biggest challenges we face, not least in feeding the world, mitigating climate change and the loss of biodiversity,' she said. 'Yet government currently spends far too little on research and development in the agri-tech sector. This needs to change. The chancellor's announcement that R&D spend will increase to £22bn is welcome - so long as an appropriate share of it is used to ensure the rural economy reaches its economic and environmental potential.

'At present, unincorporated rural businesses do not qualify for R&D tax relief, which puts a break on the development of the rural economy. This needs to change if the chancellor is serious about ensuring R&D funding can best be distributed across the country to help level up every region and nation of the country.'

On the environmental announcements, she added: 'The confirmed allocation of £640m for a Nature for Climate Fund for peatland restoration and tree planting is warmly welcomed. Landowners want to support the government's efforts, but ministers must work with them to ensure they are fairly compensated. The system needs to take account of the loss of agricultural land, the cost associated with the planting and management of trees and to ensure the tax system doesn't act as a barrier.'

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