Ought to fuel rates be even decrease?

As pump prices fall, the proportion we give to the government in fuel taxes is rising. Campaigners are calling for a reduce in duty – but is this realistic?

Drivers all more than the UK are celebrating as the value of fuel continues to fall.

At the time of writing, the average value of a litre of unleaded in Britain is just beneath 109p a litre, with some forecourts selling it at beneath £1.

Collapsing oil price

Diesel is 116p a litre at a common filling station but less than 110p in some components of the nation.

The collapse in the value of oil considering that last summer has clearly been a boon for motorists: a barrel of Brent crude is now trading at significantly less than $ 50 dollars, compared with $ 115 last summer time.

But should fuel costs be even lower than they are at present? Are we obtaining a fair deal from retailers and – offered that tax tends to make up the lion’s share of what we pay for fuel – the government?

It is a widespread complaint that when the cost of oil falls, petrol retailers as effectively as power suppliers are slow to pass on the savings to consumers.

Why have prices not fallen further?

On the other hand, critics say, when the value of oil is on the up, these companies are considerably quicker to enhance what they charge.

An investigation by the Workplace of Fair Trading 2 years ago located no sturdy evidence that there was something unfair about the way petrol retailers set prices.

But with the cost of oil down by nicely over half given that last summer’s peak, it is reasonable to ask why the expense of petrol and diesel has only fallen by around a fifth.

Component of the purpose is that the raw material that goes into a litre of fuel – the oil itself – only represents a portion of the general cost.

Tax is the huge situation

There is also the cost of processing, transportation and retailing to take into account: the worth of oil might have slumped but the same surely can not be mentioned of these variables.

The true situation, however, is tax. The UK government imposes duty of 57.95p on each litre of petrol and diesel, with VAT at 20% then added to both the product price tag and the duty.

Simply because this duty is fixed, the decrease the cost of petrol is the higher the proportion motorists pay in tax.

According to the RAC, this indicates that the tax on petrol final July – when unleaded was nearly 140p a litre – was just over 60%.

Greater tax take

This month, nonetheless, the proportion of fuel bills going to the treasury is almost 70%.

As you might expect, retailers now want the government to cut taxes so they can pass on more of the falls in the oil price to their customers and thereby increase sales.

But from the coalition’s point of view, it is not that basic: though the Treasury’s percentage take from each litre of fuel has risen, the government is in fact obtaining much less revenue per tank than last summer.

Tax at roughly 60% on a 140p litre of petrol operates out at 84p, compared with 70% of 110p right now – just 77p.

Lack of political stress

This doesn’t necessarily mean we are paying less in duty all round – the lower cost of fuel has boosted sales, and that could be adequate to make up the revenue shortfall.

But if the government cut duty, it would possibly need to raise tax revenues in other ways.

And with most drivers enjoying this unexpected fall in pump prices, it is challenging to see political pressure to reduce tax rising substantially in the subsequent couple of months.

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Ought to fuel rates be even decrease?