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Petrol and diesel prices: pass on fuel duty cut to customers, retailers told

The government has raised concerns that petrol retailers are not passing on the fuel duty cut to consumers, after diesel prices hit another record high. Photo: Getty
The government has raised concerns that petrol retailers are not passing on the fuel duty cut to consumers, after diesel prices hit another record high. Photo: Getty

The UK government has told fuel retailers that they must pass on the 5p per litre cut in fuel duty to consumers as prices at the pumps continue to rise amid an intensifying cost of living squeeze.

In a letter to the industry, business secretary Kwasi Kwarteng said: "The British people are rightly expressing concern about the pace of the increase in prices at the forecourt, and rightly frustrated that that the chancellor’s fuel duty cut does not appear to have been passed through to forecourt prices in any visible or meaningful way."

Chancellor Rishi Sunak introduced the 12-month cut on 23 March to bring down the cost of fuel for motorists as prices skyrocketed due to "unique circumstances globally, including the war in Ukraine."

The government said: "Cutting fuel duty will benefit anyone across the UK who uses fuel and represents savings for consumers worth around £2.4bn over the next 12 months."

However, the government has raised concerns that petrol retailers are not passing on the cut to consumers, after diesel prices hit another record high.

Read more: Diesel prices hit new high despite Sunak fuel duty cut

The average price for a litre of diesel hit a record of just over £1.80 a litre on Monday, according to motoring group RAC.

Petrol prices stood at £1.66 a litre on average – a rise of nearly 3p a litre since the start of May.

RAC said retailers were taking an average profit of 2p per litre more than before the 5p duty cut.

Petrol retailers said their costs were still too high to pass on the fuel duty cut to customers.

The Petrol Retailers Association told the BBC that margins were "often not enough to cover operating costs".

Kwarteng said he had engaged the Competition and Markets Authority (CMA) about this issue in response to the "perceived intransigence to date" and said they were "closely monitoring the situation and will continue to do so".

He said the CMA would "not hesitate to use their powers to act against petrol stations if there is evidence that they are infringing competition or consumer law".

Watch: Business Secretary Kwasi Kwarteng writes to fuel giants reminding them to pass on tax cuts to motorists as diesel price hits record high

But Gordon Balmer, executive director of the Petrol Retailers Association, which represents independent forecourts, told the BBC that comparing retail fuel prices against wholesale prices "only gives a partial picture".

Once "additional expenses" such as storage and delivery costs are taken into account alongside the "volatility of product prices", retailers' margins are "often not enough to cover operating costs", he said.

"5p per litre did not represent a substantial enough cut to ease the burden of rising prices on motorists.

"While the chancellor was announcing it, oil prices rose and effectively cancelled out the reduction. In addition to this, sales volumes of petrol and diesel are still not back to their pre-pandemic levels.

"Supermarkets and independent fuel retailers are competing vigorously with each other on the thinnest of margins."

Read more: UK inflation hits 40-year high of 9% as cost of living squeeze intensifies

RAC also said that the "big four" supermarkets — Asda, Morrisons, Sainsbury's (SBRY.L) and Tesco (TSCO.L) — are not doing enough to help customers cut their fuel bills.

RAC fuel spokesman Simon Williams told the BBC: "Despite operating just a fifth of petrol stations in the UK, the big supermarkets are responsible for around half of all fuel sales so how they choose to price petrol and diesel has a huge impact on what drivers end up paying."

He added: "When wholesale fuel prices fall dramatically it can be enormously frustrating for drivers when pump prices don't start coming down.

"It normally takes one retailer to effectively 'fire the starting gun' and cut its prices in order for others to follow.

"We know that the biggest retailers tend to be reluctant to reflect falling wholesale prices at the pumps day-to-day, yet they seem to pass on increases quickly when wholesale prices are rising. This can often be to the detriment of drivers."

A Sainsbury's spokesperson told the BBC: "We understand that the cost of living is a real challenge for many households and we are committed to helping our customers as much as we can.

Read more: How to cope with bills out of the blue when you really can’t afford it

"We lowered prices the day the chancellor announced fuel cuts so that our customers could benefit as soon as possible."

Morrisons said it took the full 5p fuel duty cut off its prices at 6pm on the day of the chancellor's announcement.

Asda and Tesco did not respond to Yahoo Finance's request for comment at the time writing.

Watch: Why are gas prices rising?