Must fuel rates be even reduce?

As pump costs fall, the proportion we give to the government in fuel taxes is rising. Campaigners are calling for a cut 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 typical price tag of a litre of unleaded in Britain is just under 109p a litre, with some forecourts promoting it at below £1.

Collapsing oil cost

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

The collapse in the price of oil because final summer has clearly been a boon for motorists: a barrel of Brent crude is now trading at much less than $ 50 dollars, compared with $ 115 last summer.

But need to fuel rates be even reduced than they are at present? Are we acquiring a fair deal from retailers and – provided that tax tends to make up the lion’s share of what we spend for fuel – the government?

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

Why have prices not fallen further?

On the other hand, critics say, when the value of oil is on the up, these firms are considerably faster to improve what they charge.

An investigation by the Office of Fair Trading 2 years ago identified no powerful proof that there was something unfair about the way petrol retailers set rates.

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

Component of the reason is that the raw material that goes into a litre of fuel – the oil itself – only represents a component of the overall value.

Tax is the large issue

There is also the cost of processing, transportation and retailing to take into account: the value of oil could have slumped but the exact same undoubtedly cannot be stated of these aspects.

The real situation, nevertheless, is tax. The UK government imposes duty of 57.95p on every single litre of petrol and diesel, with VAT at 20% then added to both the product value and the duty.

Since this duty is fixed, the reduced the price of petrol is the greater the proportion motorists pay in tax.

According to the RAC, this means that the tax on petrol last July – when unleaded was virtually 140p a litre – was just more than 60%.

Greater tax take

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

As you may expect, retailers now want the government to reduce taxes so they can pass on much more of the falls in the oil cost to their clients and thereby increase sales.

But from the coalition’s perspective, it is not that straightforward: although the Treasury’s percentage take from every single litre of fuel has risen, the government is actually acquiring less income per tank than final summer season.

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

Lack of political stress

This doesn’t necessarily imply we are paying significantly less in duty general – the reduce cost of fuel has boosted sales, and that could be adequate to make up the income shortfall.

But if the government reduce duty, it would possibly want to raise tax revenues in other techniques.

And with most drivers enjoying this unexpected fall in pump prices, it is difficult to see political stress to reduce tax rising drastically in the subsequent few months.

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Must fuel rates be even reduce?