Budget: Red diesel relief stays for farming as Chancellor recognises industry fears

UK farmers will be relieved to hear agricultural tax rebate on red diesel is set to stay as the Chancellor Rishi Sunak announces his new budget plans.

The National Farmers’ Union warned scrapping the relief would cost farmers as much as 50p/L. Tax on red diesel amounts to 11.1p/L compared with 57.7p/L on white diesel.

The Chancellor announced that the tax relief will end in two years’ time for construction. However, businesses working in agriculture, fishing, rail and heating industries will continue to be exempt.

NFU president Minette Batters said the relief was “absolutely crucial” to farmers.

“We are pleased to see the Chancellor has acknowledged our concerns. Red diesel is the primary fuel to run the majority of agricultural machinery and it is incredibly important for the farm businesses that produce the nation’s high quality and affordable food.

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.

“This lower fuel duty on red diesel recognises its importance to farm businesses, their ability to produce food for the nation and the fact this machinery is mainly used off-road on farms.

“Many of these farm businesses have experienced the wettest winter in recent memory and thousands still find themselves underwater.

“We are really pleased to see the increase of £5.2 billion into flood defences, particularly the £120 million for the repair of damage caused by this winter’s storms. It’s crucial a significant chunk of this is spent on helping repair defences in rural areas.

I would urge the government to recognise and reward farmland that is used to store floodwater. Any flood management policy needs to reward farmers for this vital public service.

“The weather this winter is yet another example of how farmers are on the forefront of climate change and the NFU has an ambitious goal for agriculture to reach net-zero by 2040.

“The NFU called for an increase to the structure and buildings allowance in its budget submission and this increase will deliver more effective tax relief for farm buildings. It will go some way to supporting farms investing in modern, efficient infrastructure which could help to improve productivity and deliver our net-zero ambition.”

NFU Mutual’s rural affairs specialist Rebecca Davidson said: “Relief is being felt across the farming sector that the Chancellor did not remove the Red Diesel concession for agriculture as such a move would have been a major threat to our farmers.

“They are already facing a series of complicated and costly challenges to increase food production post-Brexit while at the same time changing the way they farm and become carbon-neutral by 2040.

“Tractors being produced today have sophisticated engines which produce much lower emissions than older models; however, they cost a lot of money.

Increasing farmers’ costs by reducing the red diesel rebate on duty at the same time as the Basic Payment Scheme being cut would have limited farmers’ ability to invest in new, safer, and more environmentally-friendly equipment.

“We welcome the investment in alternative fuels and hope that funding for innovation will be directed toward agri-tech to help agriculture achieve environmental goals.”

CLA president Mark Bridgeman added: “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.

“Yet the 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 £22 billion 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 brake on the development of the rural economy. This needs to change if the Chancellor is serious about levelling up every region and nation of the country.”

Self-employed and coronavirus

A number of measures were also implemented to help the self-employed cope with disruption during the novel coronavirus pandemic.

NFU Mutual welcomed emergency measures in the budget to help self-employed people and small businesses cope with the financial impact of coronavirus.

Ms. Davidson said: “The majority of the UK’s farmers – and many in associated businesses – are self-employed so the announcement that benefits can be claimed from the first day of illness rather than the eighth will be welcome news.

“Equally, for farms and other small businesses employing staff, the Government is footing the sick pay bill for all small and medium-sized businesses employees, up to the first 14 days of a quarantine period. This will be a relief at a time of great worry.”

CLA president Mark Bridgeman said the budget was designed to back small businesses through difficult times.

“We welcome the measures set out by the Chancellor to extend the retail discount to the hospitality and leisure sector, as well abolishing business rates altogether for one year for firms with a rateable value below £51,000,” he said.

“This provides businesses not just with the opportunity to survive the Coronavirus scare, but to properly plan for the future and grow their enterprises.”

Money for fly-tipping, potholes and nature

Other highlights included the announcement of £2.5 billion to fix potholes and resurface roads over five years and a £2 million fund to tackle fly-tipping.

Ms. Davidson said: “We welcome the Chancellor’s £2m fund to fight fly-tipping, which is a serious threat to the countryside, with farmers too often left to deal with the aftermath of illegal dumping themselves.

Fly-tipping, like other forms of rural crime, is increasingly being carried out by organised criminal gangs and funding for a digital waste tracking system will help to investigate the increasing problem of waste crime.

The confirmed allocation of £640 million for a ‘Nature for Climate Fund’ for peatland restoration and tree planting was also welcomed by the CLA.

“Landowners want to support the Government’s efforts, but Ministers must work with them to ensure they are fairly compensated,” Bridgeman added.

“The system needs to take into account 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.”

NFU president Minette Batters added that she looked forward to seeing what role farming and food production would have within this.