Fuel costs in the UK

The Prime Minister, Gordon Brown, would have us believe that his Government has done the car-driving British public a favour by suspending a proposed 2 pence per litre increase in fuel duty. The rise, announced in the 2007 Budget statement, was originally scheduled for April 1st 2008 but had already been put on hold for six months. At Prime Minister’s Questions on July 16th, the Oppostion leader, David Cameron, asked if this had “anything to do with the Glasgow East by-election”.

But Gordon Brown said the move, coming just before Parliament starts its four-month summer break and amid rising oil prices, would help people facing high food and fuel bills [ BBC ].

The price of fuel in the UK is currently running at about £1.20 per litre for unleaded petrol and £1.30 per litre for diesel. At the start of 2008 prices were around £1.05 and £1.10 respectively. The increases have been blamed on the soaring price of oil and general economic malaise sweeping vulnerable economies such as the UK.

Yet at £1.20 per litre most of the money goes direct to the Government. Even fuel duty (currently 50.35p) is taxed at 17.5%! The Government has therefore enjoyed an income boost with each incremental rise in forecourt fuel costs – fuel duty may be fixed but income from VAT increases every time the cost of a litre rises. In fact the Government is earning about an extra 2 pence per litre in VAT today compared with January 2008 when fuel was 15-20 pence per litre cheaper. The Prime Minister could therefore well afford to suspend the official 2p rise in fuel duty!

How much fuel is sold by UK filling stations each year?
In 2006 9832 operational filling stations sold on average 4081904 litres [Energy Institute].

How much tax per litre do we pay?
For a £1.20 litre of petrol or diesel the breakdown of cost is:

Fuel Duty: 50.35p
VAT: 17.9p
Cost of fuel + forecourt charge: 51.65p

In total, given an average sale price of £1.20 the UK Government will receive over £20207 million per year from fuel duty plus at least £7300 million from VAT on fuel, which in total equates to about £872 per second…