Civils contractors have warned that cutting the rebate on red diesel in this week's budget will cost the UK’s construction industry between £280m to £490m a year.

Red diesel is used by contractors for off-road plant including excavators and generators. As this plant does use the road network the diesel currently has a 47p reduction in cost per litre.

The Civil Engineering Contractors Association (CECA) has written to the chancellor of the exchequer ahead of the budget to outline how proposed plans to remove 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.

Marie-Claude Hemming, CECA director of external affairs, 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.”