FAQs about motoring taxation and cost of running a car

A3) The increasing margins being seen by oil refiners are a big cause of the recent record pump prices, analysis by the Competition and Markets Authority (CMA) has shown.

The CMA said that “the ‘refining spread’ tripled in the last year, growing from 10p to nearly 35p per litre.” This spread is the difference between the crude oil price and the wholesale price of petrol and diesel as it leaves the refinery.

The CMA also said that the ‘retailer spread’ – the difference between the wholesale price and the price charged to motorists – “fluctuated but remained about 10p per litre on average.”

The study – ordered by government – also concluded that a rising oil price has played a part in the financial pain drivers are feeling on the forecourt.

Further details can be viewed here.

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Q4) How does the wholesale (at the refinery gate) price of petrol and diesel compare with the retail (pump) price?

A4) A chart showing both the wholesale (at the refinery gate) price of petrol and diesel and the retail (pump) price can be viewed here.

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Q5) What are the elements that make up the price of a litre of petrol or diesel?

A5) 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.

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

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Q6) What is the current price of petrol and diesel excluding VAT and Fuel Duty?

A6) Figures supplied by the Department for Energy Security & Net Zero show that in May 2023, the average price of a litre of premium unleaded petrol was 144.58p.

The price per litre, excluding VAT, was 120.48p and the price, excluding both VAT and Fuel Duty, was 67.53p.

The average price of a litre of diesel petrol was 155.29p. The price per litre, excluding VAT, was 129.41p and the price, excluding both VAT and Fuel Duty, was 76.46p.

The percentage of the pump price that is Fuel Duty and VAT can be viewed here.

For further historic prices click here (DES & NZ data).

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Q7) What is the percentage of the fuel price that has been taxation over the last 10 years?

A7) A chart that can be viewed on the data section of our website plots the percentage of the fuel price that has been taxation over a 10 year rolling period.

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Q8) What is the current and historical rate of Fuel Duty?

A8) The current Fuel Duty rate is 52.95 pence per litre.

It was announced in Spring Budget 2023 that the temporary 5p cut in Fuel Duty announced in March 2022, originally scheduled to last for a year, was being extended for a further year.

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
Duty rate per litre from 23 March 2022 52.95p

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Q9) What is the cost of filling up an average car?

A9) A chart tracking the cost back to May 2012 based on a Ford Focus with 55 litre tank can be viewed here.

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Q10) Does the UK have the most expensive petrol prices in Europe?

A10) Contrary to popular myth, the UK does not have the most expensive petrol prices in Europe. Click here to see where we rank.

However, the position is different when it comes to diesel where we are routinely one of the most expensive countries in Europe. Click here to see where we rank.

Source: www.energy.eu

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Q11) What is the proportion of the pump price that is tax in the United Kingdom and EU countries?

A11) This chart plots the pre-tax cost of unleaded petrol in the United Kingdom and each of the 27 EU member countries against the proportion of tax in the final pump price.

This chart plots the pre-tax cost of diesel against the proportion of tax in the final pump price.

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Q12) How is the price of crude oil set?

A12) The price of crude oil is driven by a number of factors. These include:-

Production capacity – Global supply of crude oil has grown more slowly than demand in the last decade. This is the result of a variety of factors including slowing production capacity of non-OPEC countries due to depleting oil fields (North Sea Continental Shelf for example) and interruptions to supply as a result of geopolitical tensions, such as the Arab Spring.

Organization of the Petroleum Exporting Countries (OPEC) – Founded in 1960, OPEC is an intergovernmental organisation that has the objective of safeguarding the interests of oil producing countries around the world. According to current estimates, 79.4 per cent of the world’s proven oil reserves are located in OPEC Member Countries and in 2018 it produced about 42 per cent of the world’s total supply of crude oil. There are currently 13 member countries and these countries meet at least twice a year to discuss oil market fundamentals and set a crude production ceiling for the following price revision period. OPEC therefore has the potential to influence on international crude oil prices by increasing or decreasing its oil production capacity.

Inventories – Inventories can influence and also reflect the market perception of short-term demand/supply and therefore can have an impact on future oil prices. Crude and petroleum product inventories serve to balance the impact of potential supply disruptions in the short term. Where inventories are low, markets can be more sensitive to actual or perceived supply disruptions or demand fluctuations.

Crude oil reserves – The extent of proven reserves relative to demand can have an impact on the market’s perception of the long-term balance of demand and supply and therefore can affect future prices.

US dollar exchange rates – All crude is traded in the US dollar and therefore the strength of the currency has an impact on oil prices. A weaker US dollar leads to lower oil prices in non-dollar denominated countries. This can increase demand, which in turn may push up oil prices.

Other factors – Oil exploration and production costs can have an impact on supply of crude oil as can investment in production capacity and weather conditions. In addition, market sentiment itself can have an impact on prices.

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Q13) What is the current price of a barrel of Brent crude oil?

A13) The very latest oil price is available in the interactive data section of our website.

Here you can also find the price of Brent crude over the past 12 months both in US dollars and pound sterling

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Q14) What is the record price of a barrel of Brent crude oil?

A14) On 11 July 2008, a barrel of Brent crude oil hit an all-time high of 148 US dollars.

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Q15) Why is diesel more expensive than petrol?

A15) Historically, 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.

The issue is also explored in the House of Commons Library Briefing Paper 4712.

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Q16) What was announced in Spring Budget 2023?

A16) In Spring Budget 2023, the Chancellor announced:-

Fuel Duty will be frozen in 2023-24 (this is the thirteenth consecutive year of the freeze) and that the temporary 5p cut in Fuel Duty announced in March 2022, originally scheduled to last for a year, was being extended for a further year.
Vehicle Excise Duty (VED) rates will be uprated for cars, vans and motorcycles in line with RPI from 1 April 2023. To support the haulage sector, VED for HGVs will remain frozen for 2023-24.
Potholes Fund: The government will allocate an additional £200 million for local road maintenance in England, including potholes, in 2023-24.

Full details of the transport related matters contained in Spring Budget 2023 can be viewed here.

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Q17) How much do motorists pay in direct motoring taxes and other taxes?

A17) The taxes that are most directly linked to motoring are Vehicle Excise Duty (VED) and Fuel Duty. Latest figures show that in 2021/22, VED generated around £7.1 billion (up from 6.9 billion in the previous financial year and the highest amount ever raised) and Fuel Duty about £25.9 billion (up from £20.9 billion in the previous financial year as a result of increased traffic levels following the coronavirus (COVID-19) pandemic).

Fuel Duty revenue more than tripled between 1987 and 2010. It had remained around the £27/28 billion level until the 2020/21 financial year so the amount raised in 2021/22 is still below the recent average.

In 2021/22, these two direct motoring taxes produced about 4.6 per cent of all taxes and duties collected in the UK.

Source: DfT Table TSGB1310

Motoring taxes apart, the public road system is generally free to use, with a few exceptions. In London and Durham, congestion charges are levied – and in 2018/19 these raised approximately £230 million, almost entirely from the London charge. In Nottingham, a Workplace Parking Levy raised £10 million in 2018/19. Tolls were payable on 19 sections of British roads in 2018/19, of which all, bar one, were river crossings. The number of toll roads has reduced significantly in recent years, so that there are now no longer any in Scotland, Wales or Northern Ireland. The annual receipts from these tolled facilities is about £370 million.

In addition to specific road user taxes, some transport expenditure is liable to VAT. For private households, expenditure on purchasing and running motor vehicles in Great Britain amounted to about £84 billion in 2018/19, including VAT. With households spending £34.3 billion on vehicle purchases, the VAT paid would amount to £5.7 billion. The proceeds of VAT on fuel duty (i.e. an enhancement of a direct motoring tax) paid by all road users amounted to £5.4 billion in 2018/19 having grown by 13 per cent in real terms since 2008/9; this increase was the result of the increase in the VAT from 17.5 per cent to 20 per cent. In addition to purchasing vehicles and fuel, road users also buy other motoring-related goods and services worth £16.5 billion a year, adding £2.7 billion to make up the total of £12 billion VAT derived from motorists buying, running and using their vehicles.

VAT is not paid on insurance premiums, as there is a separate Insurance Premium Tax (IPT). The standard rate of IPT has been progressively increased from 5 per cent in 2010 to 12 per cent from June 2017. Motor insurance premiums generated almost £1.2 billion in 2018/19 – double the amount raised in 2009/10. The sharp increase from 2015/16 was caused mainly by the increases in the rate of IPT, and the levelling off in 2018/19 was a consequence of the stabilisation of the IPT rate in June 2017.

Source: Public Expenditure, Taxes and Subsidies: Land Transport in Great Britain – April 2020

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Q18) How much is spent on roads?

A18) Latest figures show that in 2021/22, about £11.8 billion was spent on national and local roads in the United Kingdom.

This is 0.7 billion less than was spent in the previous financial year.

Source: DfT Table TSGB1303

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Q19) Is the amount of revenue raised by Fuel Duty from cars likely to decline in future?

A19) Yes. The Chancellor could face losing almost a third of the revenue he gets from fuel duty from cars before the end of the decade because of the move to green motoring.

In 2019, (pre-pandemic) income from fuel duty was £28 billion with £16.4 billion (58.6 per cent) derived from the 32.9 million cars on the UK’s roads at the time. However, an analysis by the RAC Foundation shows that under an optimistic scenario for the future take up of EVs the £16.4 billion figure could be cut to £11.4 billion (a £5 billion or 30.5 per cent reduction) by the middle of 2028.

However, the blow to the public finances – caused by the collapse in the sale of new diesel cars and the growing popularity of electric vehicles (EVs) – is likely to be cushioned by a short-term rise in the number of petrol and plug-in hybrid cars on the road caused by drivers switching away from diesels but not straight to EVs. This pursuit of petrol could lead to the amount of fuel duty derived from the use of petrol-powered cars actually going up in the short term.

The modelling work used different input values for eleven different parameters including:

The rate of EV take up
Annual driven mileage
The rate of vehicle departure from the national vehicle parc
New car sales
Changes in fuel-economy performance

The table below shows, for a range of years, and under different scenarios, how much less fuel duty will be collected on an annual basis.

	Point at which £5bn is forecast to be lost from fuel duty income from cars under a range of scenarios
	High take up of battery-electric cars	Medium take up of battery electric cars	Low take up of battery electric cars
2028	£5bn	£2.8bn	£0.7bn
2031	£7.5bn	£5bn	£2.7bn
2033	£9.4bn	£7.4bn	£5bn

The modelling does not look at potential changes to income from fuel duty from other vehicle types including vans, lorries and buses.

Source: RAC Foundation: Fuel Duty Decline

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Q20) Are there any plans to overhaul VED to encourage the greater take up of green vehicles?

A20) Possibly. The Government has called for evidence on whether the VED system should be overhauled to encourage the greater take up of green vehicles.

Currently, cars are put into bands depending what their CO2 emissions are, and the higher the emissions level the higher the cost of the first year VED rate. In subsequent years most cars then go on to pay a single standard rate. However, ministers are worried that the system is not doing enough to encourage people to go green.

Full details can be viewed here.

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Q21) Could there be a change in the way motorists are charged for using the roads?

A21) The projected fall in income from VED and Fuel Duty could lead to a change in which motorists are charged for using the roads. One possibility was outlined in the Miles Better report which won The 2017 Wolfson Economics Prize. This report was contributed to by the RAC Foundation.

Under this proposal both Fuel Duty and VED would be abolished. Instead there would be a single per-mile charge, the rate of which would depend on a vehicle’s weight (hence taking into account the damage it does to the road) and its tailpipe emissions. The lighter and cleaner a vehicle is, the lower the per mile charge. The heavier and dirtier the vehicle is, the higher the per mile charge.

The Transport Committee’s recent report on road pricing has also concluded that there is no “viable alternative” to road pricing, based on telematics, if the chancellor wants to continue to tax motorists as revenue from fuel duty dries up because of the switch to electric cars.

According to the committee “a road pricing system, based on miles travelled and vehicle type, would enable the Government to maintain the existing link between motoring taxation and road usage.”

The committee says that “the ban on the sale of new petrol and diesel vehicles from 2030 will result in a corresponding decline in two significant sources of Treasury revenue. As sales of electric vehicles increase, Treasury revenue from motoring taxation will decrease, because neither fuel duty nor vehicle excise duty are currently levied on electric vehicles.”

It says that government must start an “honest conversation” on the topic and Ministers must ensure that any new system:-

entirely replaces fuel duty and vehicle excise duty rather than being added;
is revenue neutral with most motorists paying the same or less than they do currently;
considers the impact on vulnerable groups and those in the most rural areas;
does not undermine progress towards targets on increased active travel and public transport modal shift; and
ensures that any data capture is subject to rigorous governance and oversight and protects privacy.

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Q22) How have motoring costs changed over a 10 year rolling period?

A22) The data chart that can be viewed here plots the percentage change in the price of various aspects of motoring over a rolling ten year period. The RPI cost of living index is also plotted over the same period.

The chart shows that over time, operational costs have generally risen significantly above the rate of inflation. However, the cost of buying a vehicle has not increased as much as inflation.

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Q23) What proportion of household spending is spent on transport?

A23) Households spent an average of £481.50 per week in the year to March 2021. Average weekly expenditure for all households dropped by £106.40 from the previous year, coinciding with the coronavirus (COVID-19) related restrictions on social contact and economic activities; this is the largest annual fall observed in the last two decades. Decreases were driven by reductions in spending on restaurants and hotels (a weekly decrease of £34.60, or 65 per cent), recreation and culture(£29.30 less, or 39 per cent), and transport (£20.80 less, or 25 per cent).

Similar to previous years, households spent the highest proportion of their total expenditure on housing, fuel and power (£84.60), food and non-alcoholic drinks (£69.20), and transport (£60.80).

Different households have different transport requirements, with some relying on public transport and others more on cars. Not all households buy a vehicle in any given year, but it is a major expense for those that do. The transport expenditure figures are presented averaged across all households, whether they spent on a particular item or not.

On average, £21.50 of household expenditure per week was spent on the operation of personal transport. This included £11.30 per week on the purchase of petrol, diesel and other motor oils and £6.10 per week on repairs and servicing. Households also spent £1.70 per week on other motoring costs eg parking fees, motoring organisation subscriptions and £2.30 per week on spares and accessories.

Households also spent on average £29.70 per week on the purchase of vehicles. This included £19.40 per week spent on buying second hand cars and vans and £9.00 per week spent on buying new cars and vans.

On average £9.60 per week was spent by households on other transport services, such as car leasing, rail fares and air fares. Spending on car leasing (£5.80 per week) was the highest.

Source: Office for National Statistics: Family spending in the UK: April 2020 to March 2021

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Q24) How does the cost of motoring compare to the cost of rail and bus fares over a 10 year rolling period?

A24) The data chart that can be viewed here plots over a rolling ten year period the percentage change in the cost of motoring and the cost of rail and bus fares. The RPI cost of living index is also plotted over the same period.

While motoring costs seem to have fallen in real terms, this disguises the fact that the (often discretionary) cost of buying a new or second hand vehicle has been falling whilst (non-discretionary) operating costs such as fuel and insurance have risen significantly quicker than inflation.

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Q25) Do local authorities in England make a surplus on their parking activities?

A25) Figures analysed by the RAC Foundation show that in 2019-20, English councils generated a combined “profit” of £891 million from their day to day, on and off street parking operations.

This was 4.6 per cent lower than the £934 million profit made in the previous year. This may in part reflect the impact of the first Covid lockdown which saw traffic levels plummet at the end of March 2020.

The figures are calculated by adding up income from parking charges and penalty notices, then deducting running costs. The data comes from the statutory annual financial returns made by 338 councils to the Ministry of Housing, Communities and Local Government (MHCLG). (The data for five more councils is missing as they had not made their returns by the time MHCLG published their summary.)

Although not all councils made a large surplus, very few lost money on their parking activities. Just 35 of the 338 councils in England who returned parking figures to central Government reported a loss on their parking activities.

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Q26) Which English local authority has the largest surplus from parking activities?

A26) The authority with the largest surplus in 2019-20 was Westminster with a “profit” of £69.6 million. As in previous years, the largest profits were made by London councils with only Brighton breaking into a top ten dominated by councils in the capital.

A table detailing the parking operations surpluses for all English councils in 2019-20 can be seen here. (See pages 39-47 of the report.)

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Q27) Do local authorities in Scotland make a surplus on their parking activities?

A27) Figures analysed by the RAC Foundation show that between them, local authorities in Scotland made a net surplus of £44.6 million from their parking activities in 2017-18.

This figure is 5 per cent higher than the previous financial year when the surplus was £42.6 million.

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Q28) Which Scottish local authority has the largest surplus from parking activities?

A28) The biggest “profits” were made in Edinburgh (£23.8 million). This was followed by Glasgow (£12.5 million) and Aberdeen (£3.3 million).

Between them these three local authorities generated 89 per cent of the total net surplus in Scotland.

A table detailing the parking operations surpluses for all Scottish councils in 2017-18 can be seen here.

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Q29) Do local authorities in Wales make a surplus on their parking activities?

A29) Figures analysed by the RAC Foundation show that between them, local authorities in Wales made a net surplus of £14.4 million from their parking activities in 2017/18.

The figure for 2017-18 was 3 per cent higher than the £14 million made in 2016-17.

The rise was the fifth consecutive annual increase.

Only three councils reported losses on their parking activities.

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Q30) Which Welsh local authority has the largest surplus from parking activities?

A30) The biggest ‘profit’ was made by Cardiff (£3.87 million). This was followed by Swansea (£2.85 million) and then Gwynedd (£1.38 million).

A table detailing the parking operations surpluses for all Welsh councils in 2017-18 can be seen here.

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Q31) Can local authorities use their powers to charge local residents for parking in order to raise surplus revenue for other transport purposes?

A31) No. In a ruling at the High Court in London, Mrs Justice Lang said the 1984 Road Traffic Regulation Act “is not a fiscal measure and does not authorise the authority to use its powers to charge local residents for parking in order to raise surplus revenue for other transport purposes”.

On-street parking fees and penalty charges can only be set with the intention of “relieving or preventing congestion of traffic” and covering the cost of administering the schemes. Strict rules state that any surplus, with only minor exceptions, must be spent on contributing to the cost of off-street parking, public transport, road improvements and environmental improvements.“ But councils should not set out to raise money for these or any other purpose.

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Q32) What proportion of local authorities' parking income in England comes from on-street and off street parking activities?

A32) About 58 per cent of local authorities’ parking income in England comes from on-street activities (fees, permits and penalties) and about 42 per cent from off-street activities.

About 55 per cent of councils’ on-street parking income comes from parking fees and permits and about 45 per cent from penalties.

Source: RAC Foundation

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