THE BLOG

Fuel Subsidy: Roadblock on the Way to Innovation

16/03/2016 12:29 GMT | Updated 16/03/2017 09:12 GMT

Everybody knows the enormous pressure facing the Chancellor as he sits down to finalise his budget. As a country, we don't have lots of spare cash. In fact, we are striving to claw back a seemingly bottomless budget deficit.

Importantly, the Government has realised that, to lift the country out of its current predicament, we need to achieve growth alongside delivering cuts. For decades we failed to invest in R&D, technology and manufacturing and the entire industrial sector is feeling the effects today.

But through organisations such as Innovate UK and the Advanced Propulsion Centre, investment is being made available for innovative technologies and exciting companies. The Government has recognised that it can stimulate sections of the economy, and in time I'm confident that this will help to create jobs at home and exports to the world.

The benefits of such investment also extend far beyond finance.

Support is predominantly given to technologies which are both economically attractive and good for the environment. There is a global demand for technologies that can help to alleviate global warming and environmental pollution, and if we wish to secure export-led jobs, we must address that demand.

The technologies of the future must be clean - any funding body that doesn't realise this risks backing technology that is as impactful and long-lasting as the Betamax video.

As the CEO of an innovative, fast-growing business, you won't be surprised that I think we should be investing even more into cutting-edge technologies. Although we might not realise it, Britain has a very strong global reputation for engineering, innovation and quality. If we continue to invest in innovation, then we can make that reputation work for us.

But as I began, I appreciate that there's limited money to go around. No company has a right to expect Government backing, and any business model based upon subsidy is ultimately doomed to fail.

However, the Chancellor could take a simple step to help low-carbon technologies take off, provide an immediate benefit to the environment and raise money for future investment.

Most people presume that low-tax red diesel is meant for farm yard vehicles. I don't think there can be many objections to supporting farmers and operating diesel vehicles in rural areas where air quality isn't a pressing issue. But actually there are thousands of diesel engines, operating on our urban roads, that also receive these fuel subsidies.

In continuing these subsidies, the Government is turning its back on tax that could be used to promote innovation, to boost productivity and to generate growth. Its own assessment suggests that £84 million of tax relief is given each year through the use of red diesel. Even if only a fraction of this could be recovered, it could significantly boost funding for R&D.

More importantly, this subsidy acts as a barrier to innovation into low-carbon, low-emission alternatives to diesel. For new clean technologies to take hold, it's not enough just to be better for the environment, they also have to be cost competitive in order to achieve mass adoption.

For the many companies striving to innovate, life would be far easier if they could compete on a level playing field, without established dirty diesel engines receiving unnecessary support in the form of subsidy.

The Government is asked to support environmentally friendly technologies every day. It's called on to invest in renewable generation and to subsidise electric vehicles. But in this case, it could actually make money while helping clean alternatives to diesel to flourish.

It seems like one of the simpler decisions that the Chancellor would have to make this week.