The Price of Fuel

What causes the price of petrol to change over time? Where does the money you pay for a litre of petrol really go and do you know what you are actually paying for? All your fuel related questions should be answered here.

Price of Petrol in the UK

Trends and Fluctuations

Fluctuations in fuel prices are a common occurrence. For the most part an upward change in the price of petrol, diesel and other fuels is caused by a variety of factors, such as:

  • Market forces (inflation, seasonal demands, taxes, cost of crude oil and refined fuel)
  • Global events (wars, gas shortages, security threats to oil supplies), and
  • New technology (alternative fuel sources, new types of vehicles)

Historical Fuel Price figures

Here is a snap shot of average prices for a litre of unleaded petrol in the United Kingdom from January 2007 to date, which will give you an idea of how quickly and dramatically fuel prices can change:

Month2007200820092010201120122013201420152016
January87.4104.087.2111.4127.8133.4132.9130.1108.2102.3
February86.9104.490.4112.2128.9135.5137.5129.6108.0102.0
March89.7106.591.0116.0132.4139.2138.9129.6111.7103.0
April92.8108.395.1120.6135.1142.0136.7129.7113.8107.2
May95.9112.898.0120.8136.7137.6133.8130.0116.2109.3
June97.0117.7102.5118.1135.7133.0134.4130.6116.9111.6
July96.7118.7103.0117.2135.1132.3135.8131.3116.9111.9
August96.1113.4104.1116.1135.5136.1137.4129.5114.7
September95.4111.9106.3115.4135.5139.6137.3129.0110.7
October97.8104.5105.9117.5134.7138.5132.1126.4108.9
November101.394.6108.5119.0133.7135.2130.4123.0107.7
December102.889.2108.4122.3132.5132.6130.8117.1104.6

Here is a snap shot of average prices for a litre of diesel petrol in the United Kingdom from January 2007 to date, which will give you an idea of how quickly and dramatically fuel prices can change:

Month2007200820092010201120122013201420152016
January92.3109.099.2113.4132.4141.7140.5137.7115.4102.8
February91.1109.8100.6113.8134.2143.1144.3137.0114.8101.1
March93.0113.8100.0116.9138.8146.0145.5136.7117.9103.2
April95.2117.8102.6121.7141.3147.6141.6136.2119.0106.8
May96.8124.7103.4122.6141.5143.4138.5136.2120.5109.3
June97.4131.1104.8120.7139.4138.4139.1136.0120.8111.8
July97.2132.3104.1119.9139.2137.4140.2135.8118.5112.4
August97.0125.7104.7118.9139.6140.9141.7133.8112.5
September97.6123.5107.0118.3139.6144.1142.1133.2110.1
October100.1116.5107.2121.1139.9143.5139.0130.6110.4
November105.3108.7109.8123.0140.9142.0137.8127.5110.0
December108.0102.4110.0126.6141.0140.6138.3122.7107.7

Costs for a Litre of Fuel

The animation video below explain the costs that make up an example prices of a litre of fuel at One Pound, so you can see who gets the biggest slice of the petrol pie:

If you always thought the high prices you pay at the pumps were down to the high markup added on by the greedy petrol stations you might be surprised to learn that in fact the retailers’ slice of the price of petrol is the smallest of all.

The reason for their low percentage because there is little room for margins as the price of fuel is already so expensive before it reaches the retailer. The competitive nature of the petrol stations to have the lowest price is also an important factor in the money they make from the price of a litre.

Oil Prices

Changes in the oil industry have significant effects all around the world. Crude oil (which is refined to form petrol) is the world’s most
actively traded commodity and in 2005 the price of crude oil rose to prices which hadn’t been seen since the 1970’s oil crisis. In more recent years, an oversupply of oil has led to falling prices.

Fuel Tax

Fuel tax is an imposed sales tax put on the sale of fuel. Frequently, fuel tax is looked upon as a source of general revenue, with some being put towards the maintenance of roads and highways.

Fuel Tax in the UK

Fuel tax in the UK is constantly changing and has risen steadily over the last 15 years. Between 1993 and 1999 there was a rapid increase with duties on fuel increasing by 3% above inflation. This was due to a major change in petrol taxation in 1993 when the Conservatives introduced the Fuel Price ‘escalator’. This was a way of the government making money and also to help protect the environment by discouraging people from using their cars.

UL Petrol and Petrol Tax Increase 1995-2007

Fuel Escalator Forces Prices Up

This fuel escalator forced prices up from one of the lowest in Europe to now one of the most expensive. When it was first added, fuel prices rose by 3 pence a litre and tax contributed to 72.8% of the total cost. By 1997 the escalator had added 11.1p to the cost of unleaded petrol and was at 75%. It didn’t get any better when the conservatives left office and Gordon Brown took over, as the escalator increased and 3 pence was added per litre. This took tax up to an incredible 81.5% of the total price of fuel.

Fuel Tax and the 2000 Fuel Protests

Despite the fuel escalator being abandoned in 1999, fuel prices did continue to rise rapidly, with a 2 pence a litre rise after the 2000 budget, contributing to the fuel protest. These rises were however argued by the government to be as a result of increasing oil costs rather than tax increases. This argument does hold some truth when we look at the graph above, showing that although the overall price of fuel has risen, the percentage of tax has stayed relatively constant and even dropped slightly this year.

In April 2005, tax on petrol and diesel were charged at 47.1 pence a litre which with VAT added also, the total taxation makes up a huge 69.9% of the price we paid for unleaded and 67.3% for diesel.

British drivers pay two taxes on petrol they buy at the pump and fuel campaigners complain about the fact that VAT is charged on the cost of fuel and the duty and feel it should only be calculated on the cost of the fuel for a fairer petrol price.

Duty on fuel in the UK increased again on 1 October 2007, with an increase of 2.00 pence a litre on unleaded and diesel and an even greater increase on LPG and natural gas. See the fuel duty for all fuels below:

Fuel Tax Figures

Here you can find the fuel tax figures and, or budgets from 2007 up until this year.

 

2007 Fuel Tax Figures

2007 fuel duty (as of 1 October 2007) in the United Kingdom was:

  • 50.35 pence per litre for ultra-low sulphur unleaded petrol/diesel
  • 53.65 pence per litre for conventional unleaded petrol
  • 56.94 pence per litre for conventional diesel
  • 30.35 pence per litre for bio-diesel and bio ethanol – low tax to encourage consumer conversion
  • 16.49 pence per kg for gas other than natural gas (LPG)
  • 13.70 pence per kg for natural gas used as road fuel.
  • 9.69 pence per litre for rebated gas oil (red diesel)
  • 9.29 pence per litre for rebated fuel oil

As of 1 October 2007 effective rates of duty for non-road fuels increased by 2 ppl. These rates are set to be increased by the same percentage as the main road fuels on 1 April 2008 and again on 1 April 2009.

From 1 October 2007 duty rates for unleaded petrol, leaded petrol, aviation gasoline and other heavy oil used as road fuel were increased by the same percentage as the main road fuels.

2008 Fuel Tax Figures

On 1 December 2008 a permanent 2p increase in fuel tax was introduced to offset the rate cut in VAT from 17.5% to 15% bringing the duty rate for the main road fuels up to 52.35p per litre.

2009 Fuel Tax Figures

2009 fuel duty (as of 1 September 2009) in the United Kingdom is:

  • 56.19 pence per litre for main road fuels, unleaded petrol and diesel
  • 65.91 pence per litre for leaded petrol
  • 36.19 pence per litre for biodiesel and bioethanol
  • 22.16 pence per kg for road fuel natural gas
  • 27.67 pence per kg for road fuel liquefied petroleum gas (‘LPG’)

On 1 April 2009 the duty rate for unleaded petrol and diesel was icreased by 1.84 ppl to 54.19p per litre and again on 1 September 2009 by 2 ppl to reach the level of 56.19 per litre. These rates were planned to be increased further on 1 April 2010 to 2013 by 1ppl above indexation each year.

2010 Fuel Tax Figures

On the 1st January 2010 the VAT rate reverted to 17.5%. The 3p fuel duty rise scheduled for early 2010 was delayed in 2010 Budget with the duty going up by only 1p a litre on the 1st of April. This went up by another 1p a litre on the 1st October 2010 and is scheduled to go up by 0.76p on the 1st January 2011.

2011 Fuel Tax Figures

A 0.76p increase on the 1st January 2011 brought the duty rate for the main road fuels up to 58.95p per litre. This coincided with the 2.5% increase in VAT rate, which is now at record high of 20%.

2012 Fuel Tax Figures

No change to existing plans on fuel duty – a 3.02p per litre increase will go ahead on 1 Sept. Vehicle excise duty to rise by inflation, but frozen for road hauliers. Existing fair fuel stabiliser means above-inflation rises in fuel duty will return only if price of oil falls below £45 ($70) a barrel.

2013 Fuel Tax Figures

September’s 3p fuel duty rise scrapped, no change

2014 Fuel Tax Figures

No change on fuel duty, will remain frozen for the year

2015 Fuel Tax Figures

No change on fuel duty, will remain frozen for the year

2016 Fuel Tax Figures

No change on fuel duty, will remain frozen for the year

Conclusion

The price of fuel is one of the most emotive subjects in British society and almost ranks alongside the weather as one of the most talked about issues. The single greatest cause of the UK having the 7th highest fuel price globally is because of taxation, both in terms of specific duties originally imposed on fuel to discourage driving and reduce pollution, as well as Value Added Tax. Fuel duty has become a significant source of income for the UK government and this is no going to change any time soon while the economy is still undergoing a period of austerity.

What is perhaps revealing is that the fuel retailers themselves make very little profit selling fuel, this would explain why they have not been able to pass on savings from the cost of the crude oil directly onto consumers at the pumps as easily as people expect them to.