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Chancellor urged to ‘axe the tax’ on renewable liquid heating fuels

The chancellor could achieve a quick win amongst rural voters by scrapping the tax on renewable liquid heating fuels in his upcoming budget according to two trade bodies.

OFTEC chief executive Paul Rose and UKIFDA chief executive Ken Cronin

OFTEC and UKIFDA who have written to Jeremy Hunt to ask him to maximise the impact of current government plans to introduce a renewable liquid heating fuel obligation by correcting the disparity on duty between renewable liquid fuels and fossil fuels when used for home heating.

Currently, no duty is applied to kerosene for heating use but renewable liquid fuels for heating use are subject to an additional c10p per litre. In comparison, renewable liquid fuels and fossil fuels attract the same duty when used in transportation.

OFTEC and UKIFDA argue this disparity is counterintuitive and a significant barrier to wider take up and have outlined a proposal to equalise the duty as in the transport sector where all fuels are treated the same. A move they argue would be cost neutral for the government.

OFTEC chief executive Paul Rose and UKIFDA chief executive Ken Cronin said: “It’s increasingly clear the only solution to achieving the UK’s Net Zero ambitions is a pragmatic one. The diversity of off-grid housing stock lends itself to a multi technology solution. It’s not a case of one size fits all.

“Renewable liquid fuels offer an affordable and practical solution for the UK’s 1.7 million oil heated homes to drastically cut their emissions. The Chancellor missed the chance to correct the duty disparity when these fuels are used in home heating in his Autumn Statement, and the Budget is the last opportunity for the current Government to axe this unfair rural tax. It doesn’t make sense for the tax system to penalise the use of low carbon fuel for home heating when kerosene attracts a zero rate.”

The Government’s amendment to the Energy Bill committed to a consultation on a Renewable Liquid Heating Fuel Obligation (RLHFO) within one year from the Bill receiving royal ascent. OFTEC and UKIFDA have submitted proposals to the Treasury to demonstrate how equalising the duties would be a cost neutral measure and require no subsidy.

Around 150 properties have switched to the renewable liquid fuel Hydrotreated Vegetable Oil (HVO) as part of an industry demonstration. The conversion to the boiler can be completed for less than £500 and deliver an 88% drop in emissions. In comparison, according to the government’s data, the typical cost for off-gird homes to install a heat pump is £10,000 to £30,000. This is due to the additional changes needed for the technology to work effectively.

Mr Rose and Mr Cronin added: “Our field trials have proved the versatility of HVO in decarbonising both domestic and non-domestic premises. Instead of remaining on kerosene, why not switch them to a renewable liquid fuel and start making carbon savings straight away?

“The mood music from the government has been positive but they must now follow through with their commitment to publish a consultation on a Renewable Liquid Heating Fuel Obligation. Equalising the duty is cost neutral to the government and the industry is ready and waiting to play its part in delivering net zero off the gas grid.”

15 February 2024

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