For an individual or a family reliant on their car, the cost of fuel can be an almost constant source of worry.
Fuel prices have been volatile over the past couple of years, with sharp increases including record breaking high prices for both petrol and diesel. Back in April of this year the average price per litre of unleaded petrol reach 142.5p, a rise of 7p on the previous year, causing distress and struggle for many people trying to fill up their vehicles.
It is a frustrating situation for motorists, as the cost increases creep up suddenly, and most consumers are unaware of the forces which drive prices up and down.
Petrol and diesel prices are largely driven by 4 factors:
- Market forces, such as the cost of crude oil and refining, inflation and supply chain costs.
- Global forces, such as war, changes in government in the supplying countries and threats to crude oil supplies.
- New developments, such as electric vehicles providing competition and alternatives to petrol and diesel.
- Government policy, largely the tax that the government imposes on fuel, both at the pump and on suppliers.
Most people are aware that they pay tax on fuel when they fill up their car, and will also be aware that the cost is split between the retailer and the other suppliers, but it is not as simple as that.
The retailers actually take a very small percentage of the money you pay at the pump. Firstly, approximately 60% of the price you pay goes to government in tax. This is a mixture of VAT and fuel duty. Fuel duty is a tax which is applied before VAT, so if fuel duty goes up then VAT also goes up. Fuel duty is currently a source of debate in the UK. Back in the Budget earlier this year the Chancellor announced a planned increase of 3p in fuel duty for August. This was delayed after protests, and rescheduled to January 2013. Labour and various other motorist organisations are still calling for it to be scrapped altogether, claiming it will do more harm through squeezing people’s budgets further and causing job losses in industries like transport and delivery than it will good through taxes.
The second largest chunk of the money you pay goes to the oil suppliers and refiners. There have been criticisms of this part of the chain as well, with people saying that the cost of crude oil has been artificially inflated, and that when the cost of crude oil rises pump prices go up instantly, but when it falls suppliers take too long to reduce the price again, meaning consumers are over paying.
So retailers are left in a difficult position. It costs them a lot to buy the fuel from the suppliers, but motorists want to get the cheapest deal they can. This is the cause of the regular “supermarket wars”, in which supermarkets slash petrol and diesel prices. Supermarkets are able to do this more easily than petrol stations because they can make the profit up on other items, whereas petrol stations have less wiggle room.
By understanding how this works, there are several things you can do to try and reduce your petrol costs. Firstly, you can support groups who are urging the government to stop the fuel duty increase. Secondly you can do your research about fuel suppliers and retailers and shop around for the best deals in your area. Thirdly, by being aware of things like planned tax increases, new developments in fuel types and global events which could potentially impact prices you can be prepared for fluctuations and any increases will be less likely to hurt you.