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The Chancellor should axe the tax on renewable liquid fuels in the Budget

OFTEC | OFTEC

3 min read Partner content

Conservative backbenchers are not the only ones holding out for a lifeline in today's Budget, rural voters are too.

Our members deliver vital heating services to the four million people living off the gas grid in the UK who rely on oil heating. They hear from our customers on a daily basis of the challenges they face in decarbonising. Net Zero will only be achievable for them if it is easy, affordable and non-disruptive. This is why we’re calling on the Chancellor to axe the tax on renewable liquid fuels in his Budget.

The situation faced by rural constituents who are off the gas grid is a tough one. They want to do their bit for the environment but have been faced with expensive, disruptive options such as installing a heat pump. Multiple government studies have proven that these homes are not readily suited to heat pumps and these households must be provided with realistic alternatives.

What is needed now is further action from the Government to demonstrate its commitment to supporting a variety of heating technologies and to giving households options to reduce their emissions in an affordable way. There are two clear ways to do this. The Chancellor should use the Budget today to address the unfair tax treatment of renewable liquid fuels for home heating.

The excise duty for transport fuels such as petrol and diesel is the same, regardless whether a fossil fuel such as kerosene, or a green alternative such as Hydrotreated Vegetable Oil (HVO) is used. However, if a renewable liquid fuel such as HVO were to be used in replacement for kerosene used in heating, it would be charged a duty of 10.18 pence per litre. We understand that if the same fuel was used for aviation (as sustainable aviation fuel), the duty would still be zero. Therefore, there is an inequity in treatment, unfairly penalising those who wish to swap to a cleaner fuel (whereas the fuels in transport and aviation receive the same treatment).

Importantly, this change will have no impact on Treasury revenues, as these fuels are currently not used for home heating are therefore no revenue is collected. Changing the tax treatment will reduce the cost of renewable fuels to consumers, increase their uptake and help the UK to meet Carbon Budgets 4 and 5 set for off grid homes. This is a win-win for consumers and the climate.

The Department for Energy Security and Net Zero should also bring forward at pace the Renewable Liquid Heating Fuel Obligation (RLHFO) consultation as set out in Section 159 of the Energy Act 2023.  This was a welcome measure, but the Government now needs to finish the job by actually implementing Section 159 rapidly. Delivering this RLHFO would unlock the use of these fuels for rural communities and help them to reduce their heating emissions in an affordable way.

Rural households would see the benefits straightaway. The RLFHO is based on existing measures used in the transport sector (RTFO), a mechanism which industry is already using successfully. We believe that if the Government acts quickly, households could start receiving renewable liquid fuels as early as April next year.

Rural customers across the country need to see definitive action not just words, to help them decarbonise in a timely, affordable and least disruptive way possible. We hope the Government is listening. The Chancellor can make a real difference to rural communities today, but he needs to act now.

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