In recent years, there has been an increasing focus on reducing carbon emissions and addressing climate change, especially with the implementation of the UN Paris agreement in 2015, whereby all parties should achieve net zero carbon emissions by 2050. As a result, the UK government has created various policies and initiatives to achieve these goals, including the recent ban on red diesel, which came into effect in April 2021.

What is Red Diesel?

Red diesel is used in non-road vehicles and machinery, such as tractors and construction equipment. Named for its distinctive red colour, which comes from a red dye added to regular white diesel to differentiate it, the use of red diesel has traditionally been allowed due to a lower tax rate.

The red diesel ban means businesses using non-road vehicles and machinery must now switch to using white diesel, which is taxed far more. This change will significantly impact contractors and construction companies, as they rely heavily on non-road vehicles and machinery to carry out their work.

What is being done to help?

To help businesses adjust to the red diesel ban, the UK government has announced various schemes to provide financial support and assistance. These schemes are designed to help companies to transition to white diesel and invest in more environmentally friendly equipment and machinery. Some examples include:

Red Diesel Replacement Competition

One of the primary schemes is the Red Diesel Replacement Competition. It is a government led competition rewarding the applicants with the best red diesel replacement projects. There have been two phases of this, with the first phase providing £6.7 million of funding for 17 different projects, most of which are based on sourcing hydrogen-based fuel alternatives.

The second phase began at the start of 2023, with a larger funding pot of £32.5 million. Funding applications are now open, so if you have any off-road green alternative projects underway, follow the application process here.

Green Recovery Challenge Fund

The Green Recovery Challenge Fund will provide £40 million in grants to support projects that create jobs and promote environmentally friendly practices in the construction sector. This fund is part of the government’s wider plan to make a green economic recovery from the COVID-19 pandemic.

In addition to these schemes, the government has also introduced tax breaks and incentives to encourage businesses to invest in cleaner, more efficient equipment and machinery. For example, companies can claim a 130% tax relief on qualifying investments in new plants and machinery under the Super Deduction scheme. However, this scheme ends on 31 March 2023, so get your purchases in quickly!

How has this been received by the industry?

These schemes and initiatives have been welcomed by contractors and construction companies, who have expressed concerns about the impact of the red diesel ban on their businesses. Many businesses have already started to take steps to adapt to the new regulations, such as investing in more efficient machinery and exploring alternative fuels. Still, the financial support provided by these schemes will undoubtedly make the transition easier.

However, some have argued that the government could do more to support businesses affected by the red diesel ban. For example, many have called for the government to provide further funding for research into alternative fuels and to offer more generous tax incentives for businesses that invest in cleaner, more efficient equipment.

What does this mean for you?

The push towards a greener construction industry is well underway, with more funding expected. So, now is the time to prepare for the future by looking into greener solutions. Although it may seem like a significant initial investment, the savings from fuel usage will be huge, and that initial investment can be made far less intimidating with our support.

At Full Metal Finance, we strive to provide as much value as possible. As a team with a wealth of experience in construction asset finance, we understand the struggles of buying new kits, especially with the current state of inflation.

Our Account Directors can talk you through your options from hire purchase and finance lease to refinancing old kit or releasing capital with cashflow finance. We’ll work to find a solution with terms that work for you and your business.

If you’re on board with a greener future for construction and want to invest in it, get in touch with us today to see how we can help.

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