UK fined €32m by European Court of Justice over red diesel

The UK has been fined €32m (£28m) by the European Court of Justice (ECJ), for allowing pleasure boats to use lower-tax ‘red diesel‘ in the final days of its EU membership.

EU law stipulates that only commercial boats can use the lower-tax fuel, but — by dyeing all marine fuel red — it was impossible to determine if pleasure boats in Northern Ireland were paying the full tax rate. However, the UK did not update the law governing marine fuel in Northern Ireland to comply with the EU rules until October 2021.

Infringement proceedings were first brought in 2020 against the UK, with a deadline to comply, but the UK argued the proceedings had been brought ‘prematurely’.

The ECJ said the rule had applied to the whole of the UK for almost three years since the original ruling, and it was therefore not relevant that it only applied in Northern Ireland since Brexit came into force in January 2021.

The penalty was higher than predicted, with the EU issuing a warning that, even though the UK has left the EU, it is still bound by some of its rules because Northern Ireland remains a member of the bloc’s single market. As a consequence, the fine was based on the size of the UK’s economy, rather than Northern Ireland’s.

Europe’s top court rejected the UK’s argument that it needed time to implement new rules during the challenging period of the covid pandemic and the 2019 general elections. Lawyers say the case sets a precedent for future disputes that may arise.

“This is an important case because it sets a precedent for how the ECJ will approach other infractions,” Alexander Rose, a subsidy and competition law specialist at law firm DWF, tells the Financial Times.

“The ECJ had discretion as to the amount of the fine, but chose a higher figure of €32m in order to prevent ‘the repetition of similar infringements of EU law in the future’, a direct reference to the commitments in the withdrawal agreement and the Northern Ireland protocol.”

In a statement, the UK government said: “This is ultimately a historic case which began at a time when the UK was a member of the EU. We have now left. Since then, we have negotiated the world’s largest zero tariffs and zero quotas deal with the EU, and are now focused on using our Brexit freedoms to the benefit of the British public.”