EC leaves door open for UK to mitigate effects of red diesel's loss

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The European Commission (EC) has rejected the UK’s application for a renewal to the red diesel derogation.

John Healey, financial secretary to the Treasury, announced today in Parliament that the fight had been lost: “Late yesterday afternoon, it was confirmed to me that the Commission had decided not to renew the UK’s application for a fresh derogation for private boats.

“I know that this will be unwelcome news. As we have argued to the Commission, it could be highly complex and costly to implement the measure, so today I have asked officials to meet concerned and affected organisations soon to discuss the implications of the Commission’s decision.”

The non-renewal of the derogation means that from 1 January 2007, diesel for private boating use is likely to be taxed at the same rate as road diesel.

The EC only specifies a minimum rate of tax, which is considerably lower than the rate charged on petrol and diesel in the UK. However, it is very unlikely that a new band will be created specifically for marine users, so the duty will almost certainly rise from the current 7.69p per litre to 48.35p per litre.

But the chances of red diesel being unavailable from the start of next year are slim. In its communication, the EC said: “The applicant Member States may adopt measures aimed at alleviating or mitigating problems of transition to the regime of standard taxation.”

In the House of Commons, Healey expanded on this saying a consultation would be forthcoming as well as a transitional period, although little more is known about this at present.

To read the EC’s full communication, download this file.