Knowing some of the basics behind what powers the fuel economy can help to not only shed some light on the complexities of the industry but also provide you with insight into how you can benefit from knowing where to get your fuel from.
The Price of Fuel
What causes fuel prices to change over time? When will UK fuel prices go down? Who gets paid for the litres of fuel you are adding to your car? There are many questions that get asked about fuel which is why this guide has been created, to help you understand all of the nuances of petrol, diesel and other fuels.
Price of Fuel in the UK
Patterns and Variations
Fuel price swings are a typical phenomenon. The majority of the time, a rise in the cost of petrol, diesel, and other fuels is brought on by a number of causes, including:
- Market dynamics (inflation, seasonal demands, taxes, cost of crude oil and refined fuel).
- World events (wars, gas shortages, security threats to oil supplies).
- Updated technology (alternative fuel sources, new types of vehicles).
Price of Oil
Around the world, changes in the oil business have a big impact. The most commonly traded commodity in the world is crude oil, which is refined to make petrol. In 2005, the price of crude oil reached levels not seen since the oil crisis of the 1970s. Oil prices have fallen in more recent years as a result of a supply overhang.
Fuel Duty
Fuel tax is a sales tax that is levied on fuel purchases. Fuel tax is frequently viewed as a source of general revenue, with some funds going toward the upkeep of roads and highways.
UK Fuel taxes
The UK’s fuel tax is subject to frequent change and has progressively increased over the past 15 years. Fuel duty increases were 3% above inflation from 1993 and 1999, which was a significant rise. The Conservatives’ introduction of the “Fuel Price Escalator” in 1993 marked a significant shift in the taxation of petrol. By restricting car use, the government was able to generate revenue while also promoting environmental protection.
Fuel esculator drives up costs
With the help of this fuel price esculator, prices went from being among the lowest in Europe to currently being among the highest. Fuel prices increased by 3 pence per litre when it was originally added, and tax accounted for 72.8% of the overall cost.
By 1997, the escalator had increased the price of unleaded gasoline by 11.1p and was at 75%. The escalator went up and 3 pence were added to each litre, and when the conservatives left office and Gordon Brown took over, things didn’t get any better. This increased tax to an astounding 81.5% of the entire cost of fuel.
The 2000 Fuel Protests and Fuel Tax
Despite the removal of the fuel escalator in 1999, fuel prices did continue to grow quickly, with an increase of 2 pence per liter following the 2000 budget, which helped spark the fuel protest. The government countered that these hikes were due to rising oil prices rather than tax increases.
When we examine the graph above, which demonstrates that while the cost of petrol has increased overall, the tax proportion has remained largely steady and has even decreased this year, we can see that this argument does have some merit.
With VAT included, the tax on gasoline and fuel in April 2005 was 47.1 pence per litre, which amounted to an incredible 69.9% of the price we paid for unleaded and 67.3% for diesel.
Fuel advocates say that VAT is calculated on both the cost of fuel and the duty, which they believe would result in a more equitable pricing for petrol. British drivers are subject to two taxes on the fuel they purchase at the pump.
On October 1, 2007, the UK hiked fuel taxes once more, this time by 2 pence per litre for unleaded and diesel and considerably more for LPG and natural gas.
Fuel tax statistics
The fuel tax data and/or budgets from 2007 through this year are available here.
2007 fuel tax and pricing data
Effective rates of duty on non-road fuels increased by 2 percent as of October 1st, 2007. On April 1st, 2008, and again on April 1st, 2009, these rates are scheduled to increase by the same proportion as the primary transportation fuels.
Unleaded petrol, leaded petrol, aviation fuel, and other heavy oils used as road fuel all saw a duty rate hike on October 1st, 2007 of the same amount as the primary road fuels.
As of October 1, 2007, the United Kingdom’s fuel duty was:
- Ultra-low sulfide unleaded petrol and diesel are priced at 50.35 pence per litre.
- For regular unleaded petrol, the price per litre is 53.65 pence.
- For standard diesel, the price per litre is 56.94 pence.
- Low tax for biodiesel and bioethanol at 30.35 pence per litre to stimulate consumer conversion
- For gas that isn’t natural gas, it costs 16.49 pence per kilogram (LPG)
- Natural gas used as transportation fuel costs 13.70 pence per kilogram.
- 9.69 pence per litre for gas oil with a refund (red diesel)
- 9.29 cents per litre for fuel oil with a refund
2008 fuel tax and pricing data
In order to balance the VAT rate reduction from 17.5% to 15%, a permanent 2p increase in fuel tax was implemented on December 1st, raising the duty rate for the principal road fuels to 52.35p per litre.
2009 fuel tax and pricing data
As of September 1, 2009, the United Kingdom’s fuel duty was:
- Unleaded petrol and diesel for main roads are priced at 56.19 pence per litre.
- Leaded petrol costs 65.91 pence per litre.
- The cost of biodiesel and bioethanol is 36.19 cents per litre.
- Road fuel natural gas costs 22.16 pence per kilogram.
- Liquefied petroleum gas, also known as “road fuel,” costs 27.67 pence per kilogram.
The duty rate for unleaded petrol and diesel was raised by 1.84ppl to 54.19p per litre on April 1 and by 2ppl to 56.19p per litre on September 1. From April 1, 2010, until April 1, 2013, these rates were scheduled to increase by 1ppl above indexation annually.
2010 fuel price, pricing, and tax data
The VAT rate returned to 17.5% on January 1st, 2010. The 2010 Budget postponed the 3p increase in fuel duty that was originally planned for early 2010; instead, the duty would increase by only 1p per litre on April 1. On October 1, 2010, it increased by another penny per liter, and on January 1, 2011, it was expected to increase by 0.76 pence.
2011 fuel tax and pricing data
The duty rate for primary road fuels increased by 0.76p on January 1st, 2011, bringing it to 58.95p per litre. This happened at the same time as the VAT rate increased by 2.5% to a record-breaking 20%.
2012 fuel tax and pricing data
Fuel duty was increased by 3.02p per litre on September 1st with no changes to the current arrangements. Although road haulers’ vehicle excise charge increased with inflation, it was frozen. Fuel duty increases above inflation could only be reinstated if the price of oil fell below £45 ($70) per barrel, according to an existing fair fuel stabilizer.
2013 fuel tax and pricing data
There were no other modifications made in addition to the 3p decrease in gasoline duty.
2014 fuel tax and pricing data
Fuel price duty did not vary; it stayed the same for the entire year.
2015 fuel tax statistics
Fuel duty did not change; it was frozen for the entire year.
2016 fuel tax and pricing data
Fuel duty did not change; it was frozen for the entire year.
2017 fuel tax statistics
Fuel duty won’t change; it will stay at its current level for the entire year.
2018 fuel tax statistics
Fuel duty won’t change; it will stay at its current level for the entire year.
2019 fuel tax and pricing data
Fuel duty won’t change; it will stay at its current level for the entire year.
2020 tax data for fuel prices
Fuel duty has not changed, although there are rising rumors that it will be raised in 2021.
Final thought
One of the most contentious problems in British culture is the price of petrol, which is almost as spoken about as the weather. Taxation, including Value Added Tax (VAT) and the special levies first placed on petrol to discourage driving and reduce pollution, is the main factor behind the UK ranking seventh in the world for fuel prices. As long as the economy is still going through a period of austerity, fuel duty will continue to be an important source of revenue for the UK government.
The fact that fuel retailers themselves make very little money off of selling petrol is perhaps most telling, since it explains why they haven’t been able to pass along savings from the price of crude oil to customers at the pumps as easily as people might think.
As the use of fossil fuels declines along with the popularity of electric vehicles, the government will receive less tax revenue. The first fuel that will likely be phased out is diesel, it seems. When the number of EVs hits a certain point, we’re confident that the government will begin to impose some kind of tax on the cost of charging your car. Of course, if new fuels emerge, like hydrogen, increased prices and taxation rates will undoubtedly follow.