§ Lord Donoughueasked Her Majesty's Government:
What is the percentage reduction of tax levied on the category of diesel fuel known as red diesel; when this privilege was introduced; which classes of users benefit from this reduction; how much was the cost to the taxpayer of this concession in the last full tax year; and how much was the financial benefit of the concession to the farming industry in (a) the last tax year and (b) the total benefit over the last ten tax years. [HL919]
§ Lord McIntosh of HaringeyRed diesel is gas oil which has been marked with a red dye and a tracer chemical making it eligible for a rebated rate of excise duty. The effective duty rate is currently 3.13p per litre. This is around 93 per cent lower than the ultra-low sulphur diesel rate of 45.82p per litre.
The concept of rebated duty on heavy oil was first introduced in 1928. The system of marking gas oil that was eligible for a rebate was introduced in 1961.
Red diesel may be used as fuel not only for certain agricultural vehicles but also for other off-road vehicles and in some commercial central heating systems. Under the Hydrocarbon Oil Duties Act 1979 it must not be used as fuel for road vehicles. Schedule 1 to that Act (excepted vehicles) categorises the types of vehicles which are not considered to be road vehicles and which can, therefore, use red diesel as a fuel when travelling on the public road in the circumstances set out in the schedule. The intention of Schedule 1 is to limit the use of red diesel to vehicles that only use the public road on very limited occasions.
Quantities of red diesel released for consumption in 2000–01 are provisionally estimated at 6,879 million litres. Assuming this level of consumption, application of the ultra-low sulphur diesel rate would have raised additional revenue of around £3 billion. In practice, the cost would be considerably less than this because an increase in the duty rate would reduce the demand for red diesel.
Customs data on payments of duty on red diesel do not indicate the end-use. Therefore no estimate has been made of the financial benefit to the farming industry.