UK motorists are taxed more heavily at the fuel pump than any other European country; fuel duty currently raises approximately £27 billion for the Treasury, but when you add the VAT (Value Added Tax) to that, the figure is closer to £35 billion.
Currently, the fuel duty rate is 57.95 pence per litre (£2.19 per gallon), be that petrol or diesel, but it isn’t that simple; combine the raw, untaxed price of fuel – approximately 42 pence per litre (£1.59 per gallon), with the tax at (nearly) 58 pence sees a total of £1.00 per litre (£3.78 per gallon), and then you need to add your VAT.
In other words, a tank of fuel costing £60 is just £21 worth of actual petrol. Indeed we pay that much tax on top of the tax that we pay for fuel.
Flat-rate VS Percentage
Truth be told, it’s always been the same, certainly in living memory at least. The difference now is that the duty is a flat-rate, so regardless of price fluctuations, we’re going to be paying the same 57.95 pence per litre (£2.19 per gallon).
The average taxation rate currently is around 66.17%, back in February 2004 the rate was 76.97%, and an all-time low of 57.4% was recorded in June 2008. On the face of it, that sounds good news, but it only took seven months for it to climb to a staggering 73.9%.
Ask any UK motorist on their opinions of UK fuel duty, and it’s doubtful that you’ll find any agreeing that it’s fair. However, it’s worth noting that our European counterparts aren’t actually that far behind us, or at least not as far as popular misconception leads us to believe.
The cheapest fuel in Europe can currently be found in Luxembourg for diesel – averaging just 98p per litre (£3.7 per gallon), or Bulgaria for petrol – averaging £1.05 per litre (£3.97 per gallon) – the tax coming in at between 41 – 45%. The UK’s average price is £1.19 (£4.498 per gallon) for petrol and £1.22 (£4.61 per gallon) for diesel.
Since decimalisation, there have been just three years where the overall tax dropped below 50%; 1977, ’79 and ’80, and in 1998 we saw a record of 83.1%.
Of course, fuel duty goes back much further than that – in fact all the way back to 1909, but was stopped in 1919 thanks to the introduction of road tax, but soon brought back – just 9 years later and it’s stayed with us ever since. As has road tax.
Looking to the government as the cause of all our motoring related financial woes is rather short sighted though. Of course they could make things easier for us, but we must remember that they don’t set the base price of the fuel, only the tax rate.
When the price of crude oil drops, we often think that we should instantly see those savings at the pump, but the reality is that the suppliers have brought their fuel at the higher rate; dropping prices instantly to reflect the lower rate would be a loss-leader for them, and it’s not exactly as though they need to drum up business.
More often than not, our best method for obtaining cheaper fuel is competing stores going head-to-head in a price war – we’ll often see discounts as much as 5 pence per litre (18.9 pence per gallon) when one supermarket decides to take on another. Again, this is usually a loss-leader for the supermarket but it’s an invaluable tool in their arsenal of customer retention.
We should consider the opposed argument as well – a rural petrol station often charges considerably more for their fuel, not necessarily because they’re paying more, but because of market forces and demand; if they’re the only petrol supplier for miles around, what else can people do other than pay over the odds?
Is Paying Less an Option?
Talks are currently taking place in Parliament regarding changes outlined in the Vehicle Fuel (Publication of Tax Information) Bill; these relate mainly to the printing of fuel duty on all receipts printed for fuel sales in a bid for transparency.
Fuel prices will always be a contentious issue with the UK motorists, but perhaps some of that stems from being led to believe that European motorists have it much better, and as we’ve seen, they don’t.
Fuel has a finite lifespan, not just in terms of ecology, but in the here and now; from manufacturing, transportation and storage, the shelf-life of petrol (in particular) is shorter than most people realise. Manufacturing costs rise consistently and the fuel costs reflect that.
Whilst it would be great if the large suppliers dropped prices, the reality is that it isn’t financially viable for them to do so, as motorists, our issue should be with the heavy taxation.