UK petrol and diesel prices: fuel duty frozen for ninth consecutive year

Prime Minister to confirm no increase in fuel duty, stating Government is on the side of "hard working families"

The amount of tax levied on petrol and diesel is to be frozen for the ninth year in a row.

The news comes from the Conservative party conference, where Theresa May will say the Government is on the side of “hard working families”, and that a car is a necessity, “not a luxury” for millions of people. The freeze means duty on petrol and diesel will remain at 57.95 pence-per-litre.

Rumours recently suggested the Chancellor of the Exchequer, Philip Hammond, was considering upping fuel duty to fund improvements to the NHS, after he said the freeze on duty was costing the Government £38 billion each year.

But the Prime Minister is to quash the idea of increased taxes on fuel, saying the savings frozen duty will bring should lead to families having “little bit of money left to put away at the end of the month”. 

Commenting on the freeze, RAC fuel spokesperson Simon Williams said drivers can “breathe a sigh of relief”, though he added that “drivers are currently paying the highest prices at the pumps for four years.” Williams also cautioned “higher wholesale costs may well be passed on to drivers at the pumps imminently”.

Tank of petrol goes up £7 in a year

The cost of filling up an average car with petrol has risen by £7 over the last year. And with petrol and diesel costing 13 pence-per-litre more than they did 12 months ago, experts are warning “there is currently no end in sight to the rising cost of fuel”.

With the cost of petrol now standing at a four-year high, rising fuel prices are being blamed on a combination of factors, chief among which are the pound’s relatively weak standing against the dollar – the currency in which oil is traded.

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The average price of a litre of unleaded currently stands at 130.59p, up 1.65p from last month month, and the highest price since July 2014. Diesel currently costs 132.19p per litre, having gone up by 1.32 pence-per-litre over the same period, and is at its highest price since October 2014.

And while the cost of a barrel of oil has fallen from $106 in October 2014 to $77.54 in August 2018, the pound has tumbled in value against the dollar: £1 translated to $1.70 in 2014, but only equated to $1.29 in August 2018. So despite oil’s drop in value, the pound’s weakening status means fuel is more expensive for wholesalers to buy.

The RAC, which compiled the figures, says the cost of filling up an average family car with unleaded now stands at £71.82 – a 91p increase since July, and a £7.32 rise since August 2017. A tank of diesel now costs an average of £73.29, having shot up by 73p in month, and £8.19 since August 2017.

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The RAC’s fuel spokesman, Simon Williams, says 2018 is turning into a “horrible year” for fuel prices, adding: “It looks like further increases are inevitable. Having benefited from some very low prices two and a half years ago drivers get a nasty shock every time they go to fill up their cars”.

Williams warns there is “no end in sight” to rising prices, adding: “It will only take a moderate rise in the price of oil for some eye-wateringly high prices to be seen at the pumps.” He predicts as oil reaches $80 a barrel, as happened in April 2012, UK drivers could face paying 142 pence-per-litre for unleaded, and 148p for diesel.

UK’s cheapest fuel stations: postcode lottery can add £500 a year to petrol and diesel bills

A postcode lottery of petrol prices mean motorists can spend up to £500 extra on fuel every year, simply due to price fluctuations between filling stations.

While many of the UK’s most expensive petrol stations are in remote areas such as the Scottish Highlands, those using Holland Road station in Kensington, west London shelled out a whopping £1.74 on average for a litre of unleaded in 2017.

Contrast that with Asda’s forecourt in Tamworth, Staffordshire, where a litre of unleaded cost an average of £1.098 in 2017, and it’s clear there are significant savings to be had by shopping around for cheaper petrol or diesel.

The figures, compiled for comparison website petrolprices.com by Experian Catalyst, show three of the cheapest stations for unleaded are supermarket stations in Tamworth, while four of the cheapest for diesel are in the same Staffordshire town. 

An average motorist – who would cover 9,436 miles a year and whose 2016 petrol car would officially return 52.2mpg – according to RAC and Government figures respectively – would spend £892.60 on petrol in a year if they filled up at the Asda station, compared to £1,414.60 if they used the Holland Park garage.

Jason Lloyd, managing director of PetrolPrices.com, said: “Finding the cheapest fuel can be a postcode lottery, as motorists on average can spend over £200 a year more simply because of where they live.” Lloyd advises drivers so set up email alerts to stay on top of local prices, and fill up in towns and cities with clusters of supermarket petrol stations if at all possible.

Cheapest UK fuel stations for unleaded petrol

Average prices for 2017

RANKAVERAGE (£)NAMETOWNPOSTCODE11.098Asda TamworthTamworthB78 3HB21.098Asda Newport Isle Of WightNewportPO30 2QH31.106Sainsbury’s TamworthTamworthB78 3HD41.109Morrisons TamworthTamworthB77 2NY51.11Asda Harwich AutomatHarwichCO12 3HJ61.112Asda LeighLeighWN7 4JZ71.116Avondale Service StationCwmbranNP44 1TT81.116Sainsbury’s LeighLeighWN7 4JZ91.117Morrisons LeighLeighWN7 4JY101.117Asda YorkYorkYO32 9LF

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Cheapest UK fuel stations for diesel

Average prices for 2017

RankAverage (£)NameTownPostcode11.094Asda Newport Isle Of WightNewportPO30 2QH21.107Asda Tamworth AutomatTamworthB78 3HB31.112Sainsbury’s TamworthTamworthB78 3HD41.115Morrisons TamworthTamworthB77 2NY51.129Asda YorkYorkYO32 9LF61.129Asda LeighLeighWN7 4JZ71.131Mccolls TamworthTamworthB77 2AF81.132Sainsbury’s LeighLeighWN7 4JZ91.132Morrisons LeighLeighWN7 4JY101.133Sainsbury’s Monks CrossYorkYO32 9LBWhat makes up the price of 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.

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Finally, the smallest share of what motorists have to pay for fuel comes from the filling stations themselves. A typical fuel station profits around 2p-5p per litre, but tough competition can drive this down further. Supermarkets increasingly use fuel prices as a loss leader to tempt customers in.

Why are petrol and diesel so expensive?

It seems bizarre that the digits on forecourt price boards have barely changed when global oil indexes have plummeted from $100 per barrel of oil in 2014 to below $40 in 2016.

Although many motorists think petrol stations are patting themselves on the backs and reaping in massive profits, the reality is that despite global oil prices tumbling, an average forecourt only makes two to five pence of profit per litre of fuel sold. The real reason why prices remain frozen is because of the costs the Government has attached to the price of fuel.

The Government’s share of taxes represents around two-thirds of the entire cost of fuel – and because the fuel duty is a fixed cost, it remains unchanged by global oil prices.

The drop in oil prices thus affects only around a third of the overall price of petrol and diesel, which explains why huge slumps in global oil indexes translate to only small savings at the pumps.

Why are global oil prices falling?

Global oil indexes are the current seismometers of a power struggle between the cartel-like Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC countries that have increased their own domestic production through alternative means of drilling for oil. 

Hydraulic fracturing or ‘fracking’ – the process of pumping water and chemicals underground to break apart the rock and release available oil and gas – has proven hugely successful in the North America. States like North Dakota have filled up with oil companies looking to cash in, causing a headache for the likes of Saudi Arabia and the other Middle Eastern countries in OPEC. Add in more oil coming from countries like Russia, Nigeria, and Venezuela, and it’s easy see how the increasingly crowded market could force prices down.

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Keen not to lose top dog status in the global oil supply chain, OPEC  responded by maintaining its production levels, thus supplying the market with more oil than is demanded. This is what is partially driving down the price of oil – and it is being done to make the means of oil extraction prohibitively expensive and to push smaller oil producers out of the market.

However, recently OPEC announced it would cut back production – suggesting the falling oil prices will come to an end. Oil prices rising by 11.75 per cent from between November and December 2016.  

Why does my local supermarket offer cheaper fuel 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.

However, the AA’s Fuel Price Report found that supermarket prices are getting closer and closer to prices on independent forecourts. The price gap between the Big-Four (Tesco, Asda, Sainsbury’s and Morrisons) and non-supermarket rivals has fallen below 3ppl for the first time in 12 months. 

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 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.

However, 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. 

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Why is fuel so expensive on motorways?

Recent figures from the RAC suggest motorists topping up at a motorway fuel station pay up to 15 pence per litre more than elsewhere. 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.

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.”

A new pilot scheme by the UK Government is installing electronic boards on the M5 between Bristol and Exeter that display motorway fuel prices. Similar systems can be found in countries like France, and if the trial is deemed successful, more motorways across the UK will see electronic signs posting fuel prices. This would provide some much needed price transparency for motorway drivers.

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What is the rural fuel rebate?

The rural fuel rebate is a scheme operated by the UK Government that cuts 5 pence per litre from fuel prices in 17 of the country’s most rural areas. It was approved by the European Union and now benefits over 125,000 people living in areas like the Scottish Highlands and the Lake District.

These areas are often harder to reach, forcing forecourt to charge higher prices to account for the higher cost of supply. The rural fuel rebate aims to let residents and those travelling in these areas to benefit from cheaper fuel.

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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