UK petrol and diesel prices: Government urged to act as prices rise further

UK petrol and diesel prices: Government urged to act as prices rise further

06/10/2022

Records broken yet again as petrol hits 183.16p per litre and diesel reaches 188.82p per litre


Mike Rutherford

Average petrol and diesel pump prices in the UK have hit new record highs yet again, with the Government still being urged to help ease the burden on drivers.

Petrol now costs an average of 183.16p per litre, while diesel is 188.82p per litre. Many fuel stations, particularly those on motorways, are charging more than £2 per litre for the fuels.

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The news comes just a day after the average cost of filling the 55-litre fuel tank of a typical family car with unleaded has exceeded £100 for the first time.

The Government cut fuel duty by 5p per litre back in March, but retailers pocketed 4p of this saving on average. Despite this, and the fact prices have risen much further since then, the Treasury has so far refused to help drivers further, despite calls for fuel duty to be cut further and for VAT on fuel to be reduced.

Speaking to Auto Express, a Treasury spokesman denied there was a VAT windfall at all, because while VAT receipts from fuel are up, the overall VAT take is down due to reduced consumer spending on other goods and services.

RAC fuel spokesman Simon Williams said: “It’s becoming clearer by the day that the Government must take further action to reduce the enormous financial burden on drivers. But based on statements given yesterday it seems fixated on ensuring retailers are passing on March’s 5p duty cut fully.

“In doing so, the Government is ignoring the fact that wholesale costs of fuel have absolutely rocketed since then with petrol having gone up 24 per cent, or around 30p per litre, and it’s these higher costs that are driving the current increases at the pumps. The Government needs to recognise that the 5p duty cut is therefore a drop in the ocean and more needs to be done now to support drivers who are feeling the pain every time they go to fill up their cars.

“It should also not be forgotten that as fuel prices continue to rise, so does the amount the Government makes in VAT. The 5p the chancellor gave away in his duty cut in March has already been replaced by the 5p extra he is now making in extra VAT following the invasion of Ukraine just a month earlier. A temporary cut in VAT on fuel, or a deeper duty cut, are surely what is needed now.”

Analysis by the AA indicates that the high price of fuel is siphoning £23 million per day from other consumer spending. The organisation’s president, Edmund King, said: “High streets are already reeling from families cutting back in this cost of living crisis. With soaring petrol costs, shop tills are haemorrhaging £23 million a day to fuel.

“Worse still, as the holiday season approaches, UK tourism will see millions of pounds of potential spending by visitors lost to higher petrol costs at forecourts along the way.”

Why are diesel and petrol so expensive?

Russia is one of the world’s largest producers of oil and gas, so any disruptions to its production processes has a global impact.

With Russia having launched a full-scale invasion of Ukraine and facing international sanctions, there’s potential for significant disruption to supplies. Russia produces 4.5 million barrels of oil each day, and only Saudi Arabia produces more.

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The sanctions levied against Russia so far have targeted banks and oligarchs rather than the country’s energy sector, but factors such as Germany’s postponement of the Nord Stream 2 gas pipeline will have an effect on the energy market overall. Russia also has the ability to reduce oil exports to Europe in a tit-for-tat response to economic sanctions, and experts suggest Saudi Arabian oil fields could struggle to increase production sufficiently to counter such measures.

“Opec, the oil producers’ cartel, is already struggling to meet its output targets as demand for crude rebounds following the easing of lockdown restrictions. This has pushed up prices, with analysts warning there is limited capacity to increase supplies if flows from Russia are affected by sanctions,” the Financial Times newspaper has reported.

What makes up the price of UK fuel?

The price of fuel can be divided into three sections; the taxes imposed by the Government, the costs of drilling, refining and transporting, and the profit margins for the fuel companies.

For petrol, diesel and bioethanols, the Government gets around 65 per cent of the overall cost through fuel duty and value added tax (VAT). The fuel duty represents the fixed price of fuel – it stays the same regardless how much overall oil prices fluctuate. Currently, the Treasury adds 57.95 pence to each litre of fuel through fuel duty, and another 20 per cent through VAT. How much you pay in VAT depends on how much fuel you purchase.

The second biggest chunk comes from the wholesale costs of the fuel itself. The wholesale cost is a combination of currency exchange rates, global oil prices, and even domestic supply and demand.

When will fuel prices go down?

Experts predict high fuel costs will be with us for the foreseeable future, and it’s not just down to the crisis in Ukraine – energy costs have been high for the best part of a year already as demand surged as the world emerged from lockdown.

Part of the problem is down to the fact that relatively low barrel prices in recent years have put plans to drill for new reserves on hold. That’s true in Africa, the US and South America, and while the current high prices may increase interest in exploring new reserves, it can take years for new wells to come on stream in volumes required to affect the market.

Why is supermarket fuel cheaper than an independent forecourt?

Supermarket forecourts usually offer the cheapest fuel prices and this is because of the market power supermarkets hold. Companies like Asda, Tesco, Sainsbury’s and Morrisons are all in competition with one another, so they keep fuel prices as low as possible hoping that when motorists come to fill their tank, they might do their weekly grocery shopping, too. 

There are persistent rumours that supermarket fuel contains fewer additives and is of lesser quality than fuel from traditional forecourts, but there’s little hard evidence of this. All fuel sold in the UK has to abide by the standards set in the Motor Fuel Regulation. 

Why is fuel so expensive on motorways?

Motorway fuel stations argue the reason their prices are higher is that many of them are open 24 hours a day and offer more services than a regular forecourt. Motorway fuel stations also pay high rent prices for the buildings they operate.

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In more remote areas, fuel is often more expensive because of the higher transport and supply costs, but according to RAC fuel spokesman Simon Williams, this doesn’t apply to motorway stations: “We can see no reason why motorway fuel should be so much more expensive. In fact, arguably it is much easier from a delivery point of view than it is getting fuel to urban filling stations.”

Why is diesel more expensive than petrol?

Although diesel and petrol are taxed the same by the Treasury, historically diesel has been more expensive than petrol, as domestic refineries have struggled to meet demand. This has forced the UK to import diesel from other countries at a greater rate than petrol. In addition, diesel prices are pushed up by the cost of the additives that go into the fuel.

Furthermore, the gap between UK petrol and diesel prices widens during the winter. The end of the US “driving season” means retailers have a surplus of petrol they can’t export, so they sell it here at a lower price. Diesel demand, meanwhile, increases across continental Europe, where the fuel is commonly used in heating oil.

Recently, the influx of cheap diesel from countries like Saudi Arabia has turned the tide, swinging diesel wholesale prices closer to that of petrol, and bringing the pump price down with it. However the fact that we get a higher percentage of diesel from Russia than petrol means the advantage has swung the other way again.

What’s your view on fuel prices in the UK? Do we pay too much for our petrol and diesel? What would you do about it? Join the debate in our comments section below…

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