As petrol hit £2.02 per litre at the Washington services on the A1 near Gateshead, drivers reacted with dismay. “I’d sooner abandon my car and walk the A1,” one driver wrote on Twitter on Tuesday. Another branded the move “disgusting”.
Less than 48 hours later, the RAC marked a “truly dark day” as the average petrol price across the UK approached similar levels: As of Thursday, petrol costs £1.82 per litre, while diesel is at £1.88.
It takes the cost of filling a 55-litre family car with petrol above £100 (£100.27) for the first time, while a full diesel tank costs £103.43. RAC spokesman Simon Williams says it is a “thoroughly depressing threshold” as households struggle with the deepest cost of living squeeze in a generation.
Petrol has risen 11pc in the last month and now costs 40pc more than this time last year, outpacing inflation fourfold, with significant local variation. The rally has triggered a blame game, with ministers accusing retailers of failing to pass on tax cuts, retailers accusing Government of taking too much tax, and even consumer groups at odds over how to respond.
With motoring groups warning the rally is unlikely to be over, tensions and calls for Rishi Sunak, the Chancellor, to give further help are growing by the day. But what is behind the prices motorists are paying, is anyone profiteering, and will the Government slash taxes?
Crude oil prices have surged since the start of the year, with Brent crude up 60pc to $123.06 (£98) per barrel as of Thursday, as Vladimir Putin’s war on Ukraine disrupts supplies from Russia, the world’s third largest oil producer. It comes just as demand for oil recovers from the pandemic.
Limited global capacity as also led to record margins for refiners, with Bloomberg calculating that crude oil may as well have been trading at $150 to $275 per barrel last month, as far the buyers of refined products are concerned.
But the costs of the refined fuel only account for around half of what drivers are paying for at the pump. The Government is taking around 45pc at current prices in taxes, with fuel retailers’ margins and delivery costs accounting for the rest.
Current high prices have led to concerns that retailers are taking too much, with the Government saying it is “not confident” that retailers have passed on the 5p cut to fuel duty in March, and asking the competition watchdog to keep an eye on the market.
The Petrol Retailers’ Association, which represents independent retailers, insists the duty cut has been passed on and margins are “extremely tight”, given rising wage, power and other costs. Sales of coffee, newspapers and the like at forecourts are needed to make the business work, it adds.
Alasdair Locke, chairman of the giant Motor Fuel Group fuel courts operator, told the BBC the company had lost £2m by immediately passing on the fuel duty cut despite having already bought the fuel at the higher level.
“It would be easy if there was evidence we were just profiteering but there is no evidence of that – in fact the opposite, our margins are under pressure along with everybody else’s,” he added.
Moto, which runs the £2 per litre garage on the A1, said wholesale oil prices had climbed 6pc over the past week and it had held off passing that on as long as it could. Howard Cox, at the campaign group Fair Fuel UK, says retailers are being “held to ransom” by fuel suppliers further up the supply chain, who “should be exposed”.
However, Luke Bosdet, at the AA, notes that supermarkets no longer compete heavily on forecourt prices, and a “postcode lottery” is developing. Regionally, average prices are most expensive in London at £1.83 for petrol and cheapest in the North East at £1.81, according to Experian data.
The price differences between areas can be stark. While the price of petrol in Gateshead was north of £2 per litre, drivers in Leicester were paying £1.67 on Thursday and in Brighton that rose to £1.72, according to data from comparison website Confused.com.
The latest RAC figures indicate retailers’ margins are not high: averaging 2pc on petrol and 5pc on diesel, although that may mask significant variation.
Their take is certainly vastly outweighed by the Government’s. VAT charged at 20pc and fuel duty at 52.95p per litre means the state is making 83.07p per litre of petrol and 84.05p per litre of diesel, at current prices.
The Office for Budget Responsibility (OBR) estimates that fuel duty will raise about £26bn this year, indicating at least £5bn will also be raised from VAT on fuel. That compares to the entire annual defence budget, for instance, which is £32.4bn.
The Government insists it has not had any ‘windfall’, however, as VAT gains from fuel are likely to be offset by lower spending elsewhere as households tighten their belts. The OBR cut its overall VAT forecasts for 2022-2023 in March, it notes.
The OBR’s downgrade for this year was, however, partly because soaring energy bills are expected to take more of households’ spending but incur lower VAT of 5pc. The overall VAT take is expected to rise after this year, with rampant inflation.
Edmund King, president of the AA, wants the Government to introduce a “fuel price stabiliser”, which would see fuel duty automatically lowered when prices go up. “Enough is enough,” he said.
Having just announced £21bn in spending to help households battling soaring energy bills, the Chancellor may be hesitant to leap in with further tax cuts that risk fuelling inflation and denting the Government’s balance sheet, amid an uncertain outlook.
“It may well be that high prices are not a short-term phenomenon,” adds Stuart Adam, at the Institute for Fiscal Studies think tank. “When it might really bite is next year.”
The Government is funding the support for households on energy bills partly through a windfall tax on oil and gas producers. It is considering extending this to electricity generators, although has not yet indicated any willingness to go deeper into the petrol and diesel supply chain.
Instead, the Prime Minister last month ordered Department for Transport officials to draw up proposals to “name and shame” companies failing to pass on the fuel duty cut.
It comes as Kwasi Kwarteng, the business secretary, has fired off letters to fuel retailers insisting they pass on the fuel duty cut, alongside letters imploring oil and gas drillers to increase production and coal power generators to stay open.
But for motorists driving up the A1 and elsewhere, strong words need to turn into action fast.
A Government spokesman pointed to the at least £1,200 being paid out to eight million of the most vulnerable households to help with their energy bills this year.
He added: “We are also saving the typical employee over £330 a year through a tax cut in July, allowing people on Universal Credit to keep £1,000 more of what they earn and cutting fuel duty by 5p saving a typical family £100.”