OPINION: Will new UK red diesel laws spark next crisis?

By SunSkips managing director Mat Stewart

With everything that’s going on in the UK (and the world at large), it feels like the word “crisis” is starting to lose its clout somewhat.

Putting the pandemic aside, the waste management and construction industries have already been rocked in 2021 with spiralling fuel prices and lorry driver shortages, so the idea that another comet might be hurtling towards us is almost too much to stomach.

But while I don’t want to sound like another gloomy doom-monger (because God knows we’ve got enough of those to go round these days), I do feel compelled to draw attention to a big change in fuel legislation coming in 2022 that’s going to seriously impact companies that have already been brought to their knees.

I’m talking about the new red diesel and biofuel duty changes that will remove the entitlement to tax relief for industrial use, due to take effect from April 1, 2022.

On top of the huge cost implications for a lot of UK businesses (which will inevitably need to be passed on to the consumer), my biggest worry is that a lot of people simply aren’t aware that this is coming and aren’t properly preparing for it…

What changes are coming for rebated fuel?

To give you a quick overview, red diesel is actually no different from white diesel, it just has a colour additive to distinguish it from what’s used in road vehicles.

Red diesel was introduced so industries that use diesel in onsite machinery aren’t taxed at the same rate as road users, because they weren’t considered to be as damaging for the environment. About 15% of all diesel used in the UK is red diesel.

But despite calls to go easy on businesses that are already struggling after a turbulent year, the UK government confirmed the end of rebated fuels and recommended phasing it out before the April deadline.

This will impact all but a few industries, namely forestry, rail, agriculture, horticulture, fish farming, commercial fishing and non-commercial heating and power.

The rest of us are going to need to make the change to white diesel (or alternative fuels if you have the resources), which is going to be very expensive whichever way you look at it.

White diesel is taxed at 57.95p per litre, while red diesel users are currently entitled to a rebate of 46.81p per litre, resulting in a duty of 11.14p per litre. Essentially, businesses that previously enjoyed the tax break will be paying five times as much tax on their fuel from April 2022.

And if 2021 is anything to go by, it’s not like we can expect to see any reduction at the pumps…

Other than the financial implications, what effect will this have?

Red diesel currently generates 14 million tonnes of CO2 a year, so if the end result is a reduction in fossil fuel use and more investment in cleaner alternatives, that would be very good news indeed. But while SunSkips is a staunch advocate for the environment, I would be very surprised if withdrawing the entitlement to this subsidy will make much of a positive impact on carbon emissions because most businesses will simply switch to white diesel and focus on mitigating the costs.

Some managers might end up aggressively penny-pinching and leaving as many machines sitting idle as they can get away with, but constantly checking on engines isn’t going to make much of a dent in their fuel bills.

As I mentioned, red diesel is simply diesel with red dye added, which makes it easier for authorities to discover if unscrupulous types have been using it in road vehicles. But now stores of white diesel will be left on sites instead, thieves are far more likely to up their game because there’s less chance of them being caught red-handed (so to speak…)

Some industries will really struggle. For example, plant hire companies that rent equipment out to both farms (which are still entitled to the rebate) and waste management sites will need to clear out any leftover red diesel from the deposit before they can loan the same machine to a construction firm.

That’s going to cause a lot of grief in terms of efficiency because they won’t be able to directly transport machines from one type of business to another – not to mention the inevitable spillages from syphoning out the subsidised fuel.

And that’s just one unnecessary headache off the top of my head. I’m sure there will be a whole host of other implications that will emerge after April…

What can businesses do to mitigate the impact of losing red diesel entitlements?

It seems businesses will just be left to work out how they’re going to solve the problem on their own with little help from the Government.

SunSkips simply won’t be able to absorb the additional costs this will add to our operations, so we’ll have no choice but to pass it onto our customers with small increases in skip hire rates of somewhere between £1 and £2.

Across the huge number of skips served to the Suffolk and Cambridgeshire area, this isn’t going to make anyone’s eyes water, but it is important to make customers aware of impending increases in good time so they can make their own budgeting and pricing plans for the year.

Of course, it’s still too early to say what costs our own suppliers are going to pass onto us, so it’s very hard to announce 2022 rates until everyone has worked out their strategy for dealing with this.

My impression is that the waste management and construction industries are just starting to wake up to the reality of the situation, and the sooner everyone realises we’re all in the same boat the better it’ll be for everyone.

This will have a knock-on effect for everyone right down to the self-employed builder (although I spoke to a tree surgeon the other day who is exempt and can continue using red diesel. Good for him!)

My advice for everyone working in the waste management and construction industry is to start drawing up a strategy now so it doesn’t come as a shock when your bottom line is impacted.

And get ready for a lot of messages about rate hikes throughout 2022.

What about alternative fuels?

Most businesses are going to go down the most obvious path of switching to full-duty fuels and finding ways to manage the extra expense.

However, some might want to take this opportunity to look into alternative fuels. It goes without saying that this is going to involve a lot of upfront costs as the technology to run the kind of heavy machinery used in waste management and construction isn’t really there yet.

At SunSkips, there’s no alternative for us than switching to white diesel. Completely revolutionising our operations would come with the even bigger cost of swapping out all of our machinery (which we didn’t buy that long ago; SunSkips launched in May 2020).

Battery power simply isn’t going to cut it for a company that manages 3,000 tonnes of Suffolk and Cambridgeshire waste every month. But we will keep looking into hydrogen electricity, as it seems to be the most valid option.

JCB has made some interesting developments in hydrogen motors, which they claim are capable of doing everything a diesel-powered engine can.

But the infrastructure for it isn’t yet available in the UK, so for now we’ll have to weather the storm until hydrogen becomes a normalised fuel.

Will the loss of red diesel really lead to another crisis?

Time will tell, but our friends at Skip Hire Magazine paint an even bleaker picture of what this means for the waste management industry.

The trade publication pointed out that many of the 420 businesses and associations consulted on the legislation – including the British Metals Recycling Association, Environmental Services Association and several leading waste management providers – voiced concerns over how little time has been given to make plans.

Some fear another surge in fly-tipping – which already saw a spike in 2021 due to the pandemic – as businesses attempt to avoid price increases by turning to cheaper “man in a van” services that simply dump waste on the side of the road.

Bottom line: businesses not taking the time to prepare themselves are in for a rough ride from the second quarter of the year.

So if you’re not sure if your business will be affected, check the official Government sources, which are updated on a regular basis.

SunSkips is always transparent about pricing and we’re proud of our booking system that clearly shows customers what they’re going to pay. If you’re concerned that the 2022 changes to rebated fuel are going to affect how you work with us, let’s talk and work out a solution together.