The Chancellor is now widely rumoured to be planning to scrap the lower rate of fuel duty on red diesel as a revenue raising measure in his Budget next week.

Contractors and plant hirers are up in arms about the plan, which is being billed as a move to encourage a switch to greener alternative fuel vehicles and help the UK meet its climate change targets.

Firms warn it could push them to the brink and even ultimately cost the Government money on HS2 and major highways projects.

Tax exempt red diesel, which is used by contractors for off-road plant, is presently 47p cheaper than regular diesel per litre.

Red diesel sales account for about 15% of total diesel sales and costs the Treasury £2.4bn/year in revenue.

Rumours suggest the changes will be targeted at construction with farmers escaping the reform.

The Civil Engineering Contractors Association has written to Chancellor Rishi Sunak warning removing the rebate will negatively impact the construction supply chain, risking placing further pressures on a sector that has seen a spate of companies go out of business recently.

The Construction Plant-hire Association is also lobbying against the move warning it would have a profound impact on construction, raising costs and squeezing already tight profit margins.

It said that this in turn would limit scope for investment in new skills and new cleaner, greener technology.

“Such proposals will only undermine this progress, adding greater uncertainty at a time when construction remains fragile, despite government plans to increase spending on infrastructure,” warned the CPA.

CECA Director of External Affairs Marie-Claude Hemming said: “The construction sector accounts for more than half the companies that use red diesel.

“Removing the red diesel rebate could cost our industry between £280m to £490m a year.

“As the construction sector’s largest customer, the Government will end up paying much of this cost, as well as inflicting additional pressure on the industry’s supply chain, at a time when we need the sector to perform well and boost economic growth.

“We would welcome the opportunity to work with Government and others across the industry to undertake a phased approach to the development and roll-out of lower-carbon plant across construction sites.

“As more efficient machinery becomes available, we advocate a reasonable lead-in time to give our sector – especially our SMEs – the chance to manage the increased costs and work towards cleaner air for all.

“If the Government decides to proceed with the removal of the red diesel rebate, CECA will set up an emergency helpline for members to help tackle immediate difficulties.

“But we also call on the Government to maintain this exemption in the shorter term, to prevent construction businesses from going to the wall, and allowing industry to engage in a sustainable transition to greener fuels in the coming years.”