Budget reaction: Relief over red diesel

Relief was the main emotion among the farming community in the initial response to the Budget, after Rishi Sunak announced he would not be scrapping the red diesel duty relief for agriculture.

While the red diesel exemption will be scrapped for some sectors in two year’s time, it will remain for agriculture, Mr Sunak announced, citing lobbying from the NFU as key to his decision.

The budget saw a big increase in Government spending for infrastructure, including for flood defences and rural roads, plus a £30 million package to help businesses survive the economic effects of the coronavirus outbreak, including:

  • Statutory sick pay for ‘all those who are advised to self-isolate’ even if they have not displayed symptoms
  • The government to meet costs for businesses with fewer than 250 employees of providing statutory sick pay to those off work due to coronavirus
  • A temporary coronavirus business interruption loan scheme for banks to offer loans of up to £1.2m to support small and medium-sized businesses

INDUSTRY REACTION 

Red diesel

NFU President Minette Batters said: “The most significant decision today for British farmers is the announcement to retain the relief on red diesel.

“This is absolutely crucial and 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.”

Jill Hewitt, chief executive of the National Association of Agricultural Contractors (NAAC), said: “The industry breathed a collective sigh of relief as it was announced that the government will not remove the entitlement to use red diesel for agriculture.

“Whether a one-man business or a multi-million pound agricultural contracting business it was very clear that a change in the red diesel use would have been devastating for the sector.

‘At a time of massive uncertainty, following a grim, saturated autumn and winter, contractors will be relieved that they can continue business as usual.”

Rebecca Davidson, rural affairs specialist at NFU Mutual 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 – and 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 said: “Rumours that Agricultural Property Relief, Business Property Relief and the Red Diesel Rebate might be scrapped caused significant concern among farmers, and the CLA lobbied the Treasury, DEFRA, MPs and officials intensively as a result.”

Coronavirus response

Mr Bridgeman added: “This was a budget that backed 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.”

Mrs Batters said: “We recognise the government’s commitments to helping small businesses with the impacts of the coronavirus. The commitment to cover statutory sick pay costs, providing business rates relief for many small businesses and mobilising banks lending for SMEs will help to provide resilience and support cash flow in these difficult circumstances.”

R&D funding

Mr Bridgeman said: “The Chancellor’s announcement that R&D spend will increase to £22bn 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 break on the development of the rural economy. This needs to change if the Chancellor is serious about ensuring R&D funding can best be distributed across the country to help level up every region and nation of the country.”

Structures and Buildings Allowance

The Structures and Buildings Allowance (SBA) allows the cost of qualifying expenditure, which includes new and renovated non-residential structures and buildings, and infrastructure such as fencing, bridges and tunnels, to be written off against tax.

The Allowance, which was introduced in 2018, has been increased to 3%, so allowing investment to be written off over 33 years rather than the previous 50 years.  “This is a small but welcome change and may encourage more rural businesses to invest in buildings and infrastructure,” Strutt and Parker said.

The Annual Investment Allowance (AIA) does not appear to have been extended.  The temporary 100% tax relief on purchases of qualifying plant and machinery up to £1m per year is due to end on December 31 2020 and revert to the former level of £200,000 per year.  Extending it would have had a greater impact than the change to SBA, Strutt and Parker added.

Mrs Batters said: “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.”

Flooding

Mr Sunak confirmed that £5.2 billion would be made available for flood defences from April 2021 until 2026 – up from £2.6bn in the five-year period from 2015.

Mrs Batters said: “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.”

Chair of the EFRA Select Committee, Neil Parish warned that the Government would need to carefully consider its strategy before the spending is implemented.

He said: “I’m glad more money has been invested in flooding. It’s only right that spending increases in line with more frequent and severe weather. But this is just the first step. Vital questions remain about how funds will be allocated.

“Through our inquiry, the EFRA Committee will be leaving no stone unturned in assessing whether current arrangements for flood management are fit for purpose. We must learn lessons from this winter’s terrible storms, and shape future policies to ensure homes and businesses are protected from flood damage.”

The environment

The CLA’s Mark Bridgeman welcomed the allocation of £640m for a ‘Nature for Climate Fund’ for peatland restoration and tree planting.

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

Rural roads

On the investment in rural roads, NFU Mutual’s Ruth Davidson added: “For too long there has been a disparity between funding for national and local roads. While we welcome the investment of £2.5bn to fix potholes and resurface roads over five years, we will be looking very carefully at the detail to ensure funding is directed across the rural road network which is essential for rural businesses and gives people in the countryside vital access to schools, healthcare and other services.

“In short, rural roads are the arteries of the countryside and if they are unusable it will have serious implications for country people.”

Fly tipping

Ms Davidson also welcomed the Chancellor’s £2m fund to fight fly-tipping. “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,” she said.

Mrs Batters added: “We have seen in recent times a significant increase in fly-tipping on farms. The NFU has been calling for the government to invest in new approaches to tackling this crime and the extra funding to tackle this blight on our countryside is welcome.

Superfast broadband

The budget included investment for rolling out superfast broadband. Yiannis Faf, co-founder of WhatWeWant said “Increasing investment is one thing, but we now need a clear plan and schedule for the roll out of gigabit-cable broadband.

This is a long-term project, and only by offering a clear implementation strategy will tech businesses and entrepreneurs have the confidence to plan for the future.

“Given the plethora of economic benefits such an initiative will provide to the wider economy, the Government can’t afford to keep putting digital infrastructure on the back-burner.”

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