Need to fuel prices be even lower?

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 over the UK are celebrating as the cost of fuel continues to fall.

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

Collapsing oil value

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

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

But must fuel prices be even lower than they are at present? Are we receiving a fair deal from retailers and – given that tax makes up the lion’s share of what we spend for fuel – the government?

It is a frequent complaint that when the price of oil falls, petrol retailers as properly 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 much faster to increase what they charge.

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

But with the price tag of oil down by properly more than half given that final summer’s peak, it is reasonable to ask why the expense of petrol and diesel has only fallen by about a fifth.

Element of the purpose is that the raw material that goes into a litre of fuel – the oil itself – only represents a part of the all round price tag.

Tax is the large concern

There is also the price of processing, transportation and retailing to take into account: the value of oil may have slumped but the exact same certainly can not be said of these aspects.

The real situation, however, 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.

Simply because this duty is fixed, the lower the cost of petrol is the greater the proportion motorists spend in tax.

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

Greater tax take

This month, however, the proportion of fuel bills going to the treasury is nearly 70%.

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

But from the coalition’s point of view, it is not that simple: although the Treasury’s percentage take from each litre of fuel has risen, the government is actually getting significantly less income per tank than last summer season.

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

Lack of political stress

This does not necessarily imply we are paying much less in duty overall – the decrease cost of fuel has boosted sales, and that could be enough to make up the revenue shortfall.

But if the government cut duty, it would most likely want to raise tax revenues in other approaches.

And with most drivers enjoying this unexpected fall in pump costs, it is hard to see political pressure to reduce tax increasing considerably in the subsequent few months.

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Need to fuel prices be even lower?