NFU Scotland has questioned the Chancellor's rationale for increasing the duty on red diesel. Despite freezing the duty on main road fuels due to the volatile oil market, in his pre-budget report, the Chancellor announced a 1.22 pence per litre increase in the duty on red diesel, which is a rise of over 20% in the current duty rate.

Agricultural vehicles are currently exempt from normal road fuel duties because they are primarily off-road vehicles, therefore they are insignificant contributors to road damage and are infrequent users of road-related public services. As a result, red diesel duty was 5.22 pence per litre before today's rise.

NFUS President John Kinnaird said:

"When I last wrote to the Chancellor urging him to delay any red diesel rise, he agreed because of the volatility in the oil market. That problem is still very much to the fore and is the reasoning behind his announcement today to freeze normal road fuel duties. I am therefore intrigued to learn why his policy has changed over the course of a few months and why one sector will get hit with a fuel tax hike.

"I simply do not buy the argument that a 1.22 pence per litre rise will help tackle oil fraud. If the Chancellor is genuinely committed to that, he needs to ensure there is tighter policing of the existing law, which we would fully support. Most farmers will see this as revenue-raising move which will penalise legitimate users and let the fraudsters carry on as they were.

"Farmers have faced a 50 per cent rise in their on-farm fuel bills over the last 12 months. We are operating in a market which not only expects us absorb that, but where our end prices get hammered because of the fuel costs facing our customers. All in all, it makes this tax hike a real blow."

The Inland Revenue has also today announced a consultation on changes to the list of vehicles entitled to use red diesel. NFUS will be studying the detail.

BIOFUELS SUPPORT

There was some good news on the fuel front with NFUS welcoming further government support for green fuel alternatives, which the Union has pressed the Treasury for. NFUS believes that rising oil prices, which has driven up the cost of food production and haulage and squeezed farmgate returns, make the development of environmentally-friendly road fuels crucial. John Kinnaird said:

"As an industry and country, we must put our full weight behind biofuel development. I welcome the measures announced today to support the development of processing facilities. Likewise, there is a strong hint that the biofuel duty cut will extend beyond 2007, which we have called for.

"The fuel price burden is crippling on rural areas, and is only likely to get worse given the increasing global demand for oil. We are going to have to help ourselves out of the oil price problem by developing renewable alternatives and the government has an environmental responsibility to assist."

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