At the budget in March this year, the Chancellor confirmed the government’s plans to abolish the tax relief on red diesel for the construction sector in two years’ time.

However, this was met with widespread disappointment from the construction industry and Hire Association Europe (HAE), International Powered Access Federation (IPAF), Scottish Plant Owners Association (SPOA), National Federation of Demolition Contractors (NFDC) and the Scottish Building Federation have backed the CPA’s calls to review the impact of the move on the already fragile finances many construction companies are now experiencing. 

The construction trade associations involved have urged Mr Sunak to consult further with industry and extend the deadline by at least a further year to allow for a sustained economic recovery to take hold.

The letter to Mr Sunak states: “Since the March Budget, the ongoing impact of COVID-19 on our members has caused a sudden and continuous decline in their business outlook and future investment plans. For many businesses, cash flow remains critical and capital expenditure has been frozen or cancelled.

“As the latest ONS figures show, in the three months to May, construction output fell by 40%. The Office of Budget Responsibility has estimated that construction output will fall by 70% in Qtr. 2 of 2020 relative to a decline of 35% in the whole economy because of COVID-19.

“Although our members have actively taken steps to adapt to remain in business, their future and investment intentions are being put on hold. The outlook is highly uncertain and will remain so for some time ahead.” 

Industry analysts have estimated scrapping the red diesel rebate will cost construction up to £490 million. Concerns have also been raised about the wider effects of cutting the rebate - such as limiting investment in greener technology, stifling innovation and the implications of passing increasing costs on to clients and users.

The letter states that the construction trade associations recognise and welcome the support measures the government has set up since the crisis started, but warns that the Treasury’s plans will hamper the development of cleaner, more energy efficient technology in the sector, by adding another burden so soon after recovery from the global pandemic. 

It goes on to say that companies in the construction sector have no choice but to use diesel engines, as electric vehicles over the certain weight are currently not a realistic option. Mr Sunak is urged to extend the rebate deadline by at least a further year and to consult with industry to allow the sector to properly prepare for the change and to give manufacturers the time to introduce cleaner, greener technologies to the marketplace.