Business Secretary Kwasi Kwarteng has announced the UK will phase out imports of Russian oil by the end of the year to give enough time for supply chain adjustments.
The UK sources 18% of its diesel and 8% of its oil from Russia. SME builders are lobbying the government to delay scrapping the tax rebate on red diesel. A lack of electrically powered machinery, biofuel and a shift in prices resulting from sanctions against Russia will mean huge cost increases when the rebate is removed on 1 April. Contractors have said they may have to increase their hourly rates for activities such as excavation by up to £5 per hour. The National Federation of Builders said this adds weight to its campaign to extend the tax break on red diesel to 1 April 2023.
The government has set up an oil task force to work with companies to find alternative supplies and is working with the US and European countries to reduce dependence on Russian hydrocarbons.
The UK imports only 4% of its gas from Russia, but the Construction Leadership Council (CLC) said this is enough to cause sharp price rises in energy-intensive products. Although Russia, Ukraine and Belarus account for just 1.25% of the UK’s building imports, knock-on effects on the output of aluminium, copper and iron are expected, as are price rises in more exposed markets reliant on these commodities.
The CLC said price inflation caused by a shortage of raw materials and rising energy, freight and labour costs was a greater concern than product availability. In a joint statement, John Newcomb, Chief Executive of the Builders Merchants Federation, and Peter Caplethorn, Chief Executive of the Construction Products Association, said: “Price increases of 5-10% have been announced by many manufacturers so far this year, and the cost of energy-intensive products have increased by as much as 20%. Such inflation is proving a root cause of serious difficulties for contractors.”
Meanwhile Mike Foster, Chief Executive of the trade body Energy and Utilities Alliance, has called upon Prime Minister Boris Johnson to bring forward the announcement to convert the UK’s gas networks from natural gas to hydrogen.
Given the Ukraine crisis, Foster believes this would send a clear signal that the UK is moving away from natural gas. “Green hydrogen is the long-term future the world is banking on,” Foster said.
“British manufacturers are ready to respond, the UK’s world-leading gas networks are ready too. The Prime Minister just needs to get on with it,” he added.