A2) Figures supplied by the Department of Energy and Climate Change show that in April 2012, the average price of a litre of premium unleaded petrol was 142.17p.

The price per litre, excluding VAT, was 118.48p and the price, excluding both VAT and Fuel Duty, was 60.53p.

The average price of a litre of diesel petrol was 148.04p. The price per litre, excluding VAT, was 123.36p and the price, excluding both VAT and Fuel Duty, was 65.41p.

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A3) The current fuel duty rate is 57.95 pence per litre.

Historical rates since 2001 are shown below.

Unleaded and Diesel
Duty rate per litre from 7 March 2001              45.82p
Duty rate per litre from 1 October 2003         47.10p
Duty rate per litre from 7 December 2006     48.35p
Duty rate per litre from 1 October 2007           50.35p
Duty rate per litre from 1 December 2008      52.35p
Duty rate per litre from 1 April 2009                 54.19p
Duty rate per litre from 1 September 2009    56.19p
Duty rate per litre from 1 April 2010                 57.19p
Duty rate per litre from 1 October 2010         58.19p
Duty rate per litre from 1 January 2011         58.95p
Duty rate per litre from 23 March 2011          57.95p

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A4) There are a number of elements that make up the price of a litre of petrol or diesel. These primarily consist of:-

Government duty and tax
the cost of petrol and diesel on the open market
the costs and profit of the wholesaler and retailer. (This is often referred to as the retail/ex-refinery spread). This covers the costs of transport to a storage terminal/depot, storage and distribution to a filling station; marketing and promotion costs; and the costs of operating the filling station and staff.

In 2011, the average cost of a litre of unleaded petrol of a UK major brand was 133.66p. Of this, 80.46p (60 per cent) was Duty and VAT; 45.33p (34 per cent) was the cost of the product; and 7.87p (6 per cent) was the retail/ex-refinery spread.

The United Kingdom Petroleum Industry Association (UKPIA) has produced an information leaflet on this matter. This can be viewed here.

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A5) Demand for diesel has been growing in the UK and Europe, as well as globally. This has led to diesel supply in the UK becoming tighter in recent years and this has been reflected in wholesale prices and pump prices that are often higher than petrol prices.

There are a number of factors that influence prices. These broadly fall into the category of market or structural influences. Market factors include:-

increased crude oil prices, with particular demand for "sweeter" lower sulphur crudes like those from the North Sea
increased global demand for transport fuels, particularly diesel
seasonal winter demand for heating gas oil which is similar to diesel and made from the same basic refinery components
summer export of petrol to the USA
short-term market factors relecting fuel specification changes, extreme cold weather or temporary supply problems

Structural influences include:-

a growing imbalance in the UK and in most other EU countries between petrol and diesel production and demand
fuel specification changes

The United Kingdom Petroleum Industry Association (UKPIA) has produced an information leaflet on this matter. This can be viewed here.

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A6) Contrary to popular myth, the UK does not have the most expensive petrol prices in Europe. Currently, Denmark, Greece, Italy, Netherlands and Portugal charge more at the pumps for unleaded fuel than the UK.

However, the position is different when it comes to diesel. UK drivers do pay the highest pump prices for diesel, not only in the eurozone but across all 27 member states of the EU (European Union).

Source: www.energy.eu

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A7) In the Budget of 23 March 2011, the Chancellor George Osborne introduced a stabiliser and explained how it would work:

"The Government will abolish the fuel duty escalator and replace it with a fair fuel stabiliser. When oil prices are high, as now, fuel duty will increase by inflation only. UK oil and gas production is more profitable at such times, so it is fair that companies should contribute more. The Supplementary Charge on oil and gas production will therefore increase to 32 per cent from midnight tonight.

"In future years, if the oil price falls below a set trigger price on a sustained basis, the Government will reduce the Supplementary Charge back towards 20 per cent on a staged and affordable basis while prices remain low. Fuel duty will increase by RPI plus 1 penny per litre in each such year. The Government believes that a trigger price of $75 per barrel would be appropriate, and will set a final level and mechanism after seeking the views of oil and gas companies, and motoring groups.

"As the increased rate of Supplementary Charge will only apply when prices are high, the Government will restrict tax relief for decommissioning expenditure to the 20 per cent rate to avoid incentivising accelerated decommissioning. There will be no restrictions to decommissioning relief below this level over the course of this Parliament, and the Government will work with the industry with the aim of announcing further, longer-term certainty on decommissioning at Budget 2012. Recognising the importance of continued investment in the North Sea, including in marginal gas fields, the Government will also consider with the industry the case for introducing a new category of field that would qualify for field allowance."

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A8) In Budget 2012, the Chancellor confirmed that the 3p rise in fuel duty planned for August 2012 will be implemented. Future annual rises will be inflation only unless the price of oil falls significantly and for a sustained period, in which case rises will be inflation plus one percent.

The Chancellor also said:

“I am increasing Vehicle Excise Duty by inflation only. To encourage fuel efficient fleets, we will extend the 100 per cent first year capital allowance for low emission business cars, reduce the CO₂ threshold for the main capital allowance rates; and increase the percentage list price of company cars subject to tax. I can also announce that I am again freezing VED for road hauliers.”

Mr Osborne added that there would be a review of VED over the medium term to “ensure that all motorists continue to make a fair contribution to the sustainability of the public finances, and to reflect continuing improvements in vehicle fuel efficiency.”

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A9) This issue was explored by the Transport Select Committee in their Taxes and charges on road users report, published in July 2009.

The Committee reported that in response to the question, "What taxes and charges are currently paid to Government by road users and how much do they raise?" various bodies cited very different figures. The figures used by the Committee in their report are as follows:-

Tax or Charge Revenue raised £billion per annum (gross)1
2007-08

Taxes and charges specific to road users

Fuel duty                                                       24.9

Vehicle Excise Duty                                      5.4

Tolls (bridges, tunnels, M6 Toll, etc)         0.3

London congestion charge                         0.3

Total specific to road users                      30.9

General taxes paid by road users

VAT on fuel                                                    6.8

VAT on vehicle sales                                6.9

Insurance premium tax                              1.0

Company Car Tax and Fuel                         2.5

Benefit Charge

Total general taxes                17.2

Total paid                                                      48.1

Road users therefore contribute over £48 billion to the Exchequer each year.

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A10) The Transport Select Committee report referred to above detailed that expenditure on roads by central and local government amounts to some £9 billion per year.

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A11) Nearly £5.8 billion was raised through Vehicle Excise Duty in 2010/11 and about £27.3 billion was raised through fuel tax in 2010/11.

Source: Transport Statistics Great Britain: 2011

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A12) According to the RAC's 2011 Cost of Motoring Index, it now costs drivers £6,600 per year to keep a new car on the road. The latest annual figures mean drivers now have to pay on average £128.64 per week or 55.74 pence per mile to own and run their vehicles.

Over the past 12 months the average annual cost of owning and running a new car has soared by 14.0% (£819) to £6,689 per annum. This increase is almost 3 times the current inflation rate. It now costs an average of £1,556 per year more to own and run a car than it did in 2007, before the financial crisis and subsequent recession.

It cost £4,724 to own and run a used car in 2011. Compared to new cars, this is £1,965 or 29.4% less. This gap has widened slightly from 2010 when used cars were 28.8% cheaper to own and run.

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A13) In 2010, the average weekly household expenditure was £473.60. Spending was highest on transport at £64.90 per week (about 13.7%)

Of the £64.90 spent on transport, £19.50 was spent on the purchase of vehicles and £33.30 on the operation of personal transport. Therefore about 11% of household expenditure is spent on motoring.

Source: Office for National Statistics: Family Spending 2010

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A14) An estimated four fifths of the UK’s 26 million households are in what could be described as ‘transport poverty’. This means they spend more than ten percent of their disposable income on transport (both personal and public) with the majority of it being used to buy and run a car. (By way of comparison, the official definition of fuel poverty is where a household spends more than a tenth of its income on keeping warm).

Analysis by the RAC Foundation shows that when all households (with and without a car) are divided into five equal groups (quintiles) according to income, then on average those in the:
• lowest earning quintile spend 9% of their disposable income on transport
• second quintile spend 11.5%
• third quintile spend 13%
• fourth quintile spend 14.5%
• highest earning quintile spend 15.5%

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A15) Drivers contribute a net 4p to the Chancellor’s coffers for every mile they travel.
Passengers on local bus services cost the Treasury 6p per mile and rail passengers 16p per mile.

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