High taxes are why fuel is so expensive

November 07, 2014 9:55 AM

Good news for motorists! The chancellor is “watching very carefully” to make sure fuel companies reduce petrol prices to reflect the recent drop in oil prices. But the reason pump prices remain high is because the biggest chunk of the price paid at the pump is tax. And tax on tax.

Not content with some of the highest fuel duties in the world, the VAT is charged on not just the price of the petrol, but on the tax they have levied themselves.

Petrol currently costs around 124p a litre. Of that, 57.95p is Fuel Duty and 20.7p is VAT. So 63 per cent of the price you pay at the pump goes straight into the government’s coffers.

Motorists are probably the most grossly overtaxed group in the UK. Last year they forked out £33bn on Fuel Duty and Vehicle Excise Duty whilst just £8.4bn was spent on roads. Previous TPA research has exposed just how badly the Treasury treats motorists.

Freezing fuel duty is supposed to be part of the long-term economic plan we hear so much about. And while freezes are welcome, there is room to be more ambitious.

Particularly since periodic freezes haven’t arrested an upward trend. Fuel Duty is higher today than when the coalition came to office, and VAT has also increased – two kicks in the teeth for motorists.

There are myriad reasons why pump prices rise faster than they fall and because oil is traded in dollars, motorists are at the mercy of exchange rates.

The anti-business noises are depressingly familiar and baseless. Just last year the Office of Fair Trading dismissed claims that the fuel market was being manipulated by “big oil”, laying the blame for high prices squarely with politicians.

Instead of trying to pass the buck for the pain suffered by motorists, the Chancellor should announce big cuts to Fuel Duty at the Autumn Statement – at the very least 5p a litre.

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