With average petrol prices this week rising above £1.56-a-litre for the first time on record, filling up an average family car is now £18 more expensive than it was a year ago – and it’s set to continue rising.
With no end in sight for skyrocketing prices, motorists will be asking what the Government can realistically do to ease the growing financial burden – reducing tax is the obvious suggestion.
Currently, more than half (around 54 per cent) of what motorists are paying at the pumps is taxation, both fuel duty and VAT.
Could either of these taxes be cut? We asked the AA and RAC and received conflicting responses…
What impact would reducing fuel duty or VAT have on record-high petrol and diesel prices? We take a look as leading motoring groups have conflicting opinions on cuts
Pump prices have been on the rise for months, but Russia’s invasion of Ukraine has sparked a surge and pushed fuel costs to unprecedented levels.
On Monday, the average UK price of unleaded rose to 156.37p per litre while diesel was up to 162.28p – that’s a day-to-day increase of 0.75p and 1p respectively.
Just a year ago, government statistics show that petrol was 33.43p-a-litre cheaper (112.94p on 8 March 2021) and diesel cost 34.88p less than it does today (127.40p on 8 March 2021).
That’s the equivalent of an extra £18.39 to brim the tank of a 55-litre petrol family car, or an additional £19.18 if you drive a diesel.
And worse is still to come.
With oil already at a 13-year high above $130 a barrel on the back of the fallout from the war, Russia’s threat to double the cost if it continues to face tough sanctions from the West will undoubtedly trigger yet more increases.
Chancellor Rishi Sunak is coming under increasing pressure to reduce fuel taxation to spare businesses and the public from the surging cost of petrol and diesel
Experts and bookmakers have said the possibility of prices rising well above £1.70-a-litre is now odds-on to happen and could eventually push the average cost to fill up to £100.
As a result, Chancellor Rishi Sunak is coming under increasing pressure to reduce taxation to spare businesses and the public from the surging cost of fuel until they go into decline.
But motoring groups are at odds over which tax the Chancellor is most likely to cut…
What makes up the cost of a litre of fuel?
It’s important to understand how much of today’s fuel prices is made up by taxation.
With the help of the RAC, we’ve based our breakdown on Sunday’s average unleaded price of 155.6p-a-litre.
Some 37 per cent of what drivers pay at the pumps is 57.95p in fuel duty.
That’s only around 6p less than the current wholesale cost of petrol, which accounts for 51.7p in every litre, which is a third (33 per cent) of the total price.
Add the cost of E10 biofuel (11p), fuel retailer margins of 8.1p and delivery and oil company margins of around 1.7p to the equation for a litre and 20 per cent VAT on top of all that accounts for another 25.2p per litre.
The two duties combined see the Treasury pocket over 83p for every litre of unleaded pumped into our car fuel tanks at the moment.
Below, we have also provided the breakdown in costs for a litre of diesel.
Which fuel tax should be cut?
The Chancellor has been told by Tory backbenchers to lower the cost of a tank of fuel in his spring statement later this month.
But should he be reducing fuel duty or lower VAT – which is essentially a ‘tax on a tax’ that’s charged on both the product price and the duty – from 20 per cent for petrol and diesel?
Campaign group FairFuelUK has called on the Government to lower fuel duty by 5p to 52.95p per litre, but the RAC believes Mr Sunak should instead be targeting VAT.
Its fuel spokesman, Simon Williams, told This is Money: ‘The Chancellor needs to act now to cut VAT to save homes and businesses from untold financial pain.
What impact could slashing VAT have on fuel prices?
Savings based on average UK petrol price on Monday of 156.37p per litre.
VAT REDUCED TO 15%
Reduce price to: 149.85p per litre
Save drivers: 6.5p-a-litre
Cut fill up price by: £3.58
VAT REDUCED TO 10%
Reduce price to: 142.34p per litre
Save drivers: 13p-a-litre
Cut fill up price by: £7.71
VAT REDUCED TO 5%
Reduce price to: 136.82p per litre
Save drivers: 19.5p-a-litre
Cut fill up price by: £10.75
Reduce price to: 130.31p per litre
Save drivers: 26.1p-a-litre
Cut fill up price by: £14.33
‘A cut to 15 per cent would save drivers 6.5p on petrol based on the current average of 156.37p whereas for diesel at an average of 162.28p the saving would be 7p per litre.’
Based on Monday’s average unleaded price, if Mr Sunak was to go even further and halve VAT to 10 per cent it would save drivers around 13p-a-litre.
Lowering it further to 5 per cent would see drivers pay 19.5p less and deleting it entirely until oil prices soften would see motorists paying 26.1p less per litre, with the latter option cutting average unleaded prices to 130.27p-a-litre.
‘Mr Sunak also needs to be prepared to go further if prices continue to rise as expected, after all it doesn’t seem fair that the Government’s coffers should benefit from the hike in the oil price while drivers suffer,’ Williams went on.
‘Currently, around 26p-a-litre is going to the Treasury from VAT alone, so a cut to 15 per cent would only take the tax back to around 20p-a-litre which was broadly what was collected over the last three years.’
But the AA says it has its doubts that the Government would even consider making cuts to VAT on petrol and diesel.
Luke Bosdet, the group’s fuel price spokesman, said any reduction of VAT on fuel ‘would open up Pandora’s box elsewhere’ and could spark demands for the 20 per cent taxation to be lowered across the board.
He told This is Money that he instead expects the Chancellor later this month to announce a continuation of the fuel duty freeze as a victory for motorists.
Having been frozen at 57.95p-a-litre for over 11 years, the AA’s expert believes Mr Sunak will tell drivers how much they have saved on the fuel tax remaining unchanged for over a decade, rather than cutting it.
With cuts to taxation unlikely, Bosdet says it will be up to motorists to reduce their own fuel bills.
He told us: ‘The point that needs to be stressed is that drivers, who haven’t started using really simple eco-driving techniques, can easily save the equivalent of 9p-a-litre – today.
‘That’s primarily because the transition from winter to spring driving improves mpg significantly. An extra three miles to the gallon is almost guaranteed for most.’
OUR TOP 10 TIPS TO DRIVE MORE EFFICIENTLY TO LOWER FUEL USE
Bar replacing your car with one that’s more economical – or even electric – and driving less frequently, there are ways to drive more efficiently that can help you to cut down on your fuel bills.
Using really simple eco-driving techniques – like those listed below – ‘can easily save the equivalent of 9p-a-litre’, says the AA.
For motorists desperately wanting to get the most out of the expensive fuel they’re currently pumping into their cars, This is Money has compiled our top 10 best tips to drive as efficiently as possible…
1. Make sure the vehicle is in tip-top running order
If you drive an older car that hasn’t been serviced for a few years, now might be the time to get it booked in to ensure it is running as efficiently as it possibly can be.
Sticking brakes, ageing tyres, faulty sensors, old oil and general poor engine maintenance are just some of the factors that could hit your car’s optimum miles per gallon (mpg) performance.
Ensuring tyres are correctly inflated is one of the easiest ways to ensure your car isn’t being inefficient with its fuel
2. Check tyre pressures
One of the easiest fixes to ensure your vehicle is running at peak efficiency is to regularly check that the tyres are inflated to the correct level.
Underinflated tyres are estimated to impact a car’s fuel consumption by up to 10 per cent.
Check the car’s owner’s manual to find out what the optimum pressures are. Most models also have the tyre pressure info detailed on a sticker on the driver’s door sill – while modern cars might also display the pressure in the instrument cluster, or alert you to pressure that is incorrect.
Most modern cars have adjustable driving settings that modulate how quickly they accelerate. If yours has an ‘ECO’ mode, like the one pictured, you should use it
3. If your car has an ‘eco’ mode, use it
Many modern motors are now fitted with adjustable driving modes.
If yours does, it likely has an ‘eco’ setting. Using these mode will restrict how quickly the car accelerates.
Slower and smoothers acceleration will but will help reduce fuel consumption.
4. If your car doesn’t have an eco setting, be gentle on the throttle
If you have a car that doesn’t have adjustable driving modes, try to replicate what it does with your right foot. This means taking it easy on the throttle pedal when you can.
Excessive speed is the biggest fuel-guzzling factor so having a light right foot and ensuring all acceleration is gentle is very important to fuel-efficient driving.
When you set off from a standstill, such as at traffic lights and junctions, try not to react like you’re on the starting grid at Silverstone.
The RAC says choosing a higher gear will mean you’re not overworking the engine and therefore lessening the demand for fuel
5. Use the highest gear possible
The RAC says that the biggest secret to achieving high mpg is driving in the highest possible gear for your vehicle while keeping within the speed limit.
‘The best advice in urban areas is to change up through the gears as quickly as you can with the lowest revs possible, probably at around 2000rpm,’ it says.
6. Anticipate well ahead to preserve fuel when braking
Heavy acceleration will sap fuel economy, but braking too heavily also has the same impact, as you can use less fuel by coming to a standstill more gradually.
This requires a driver to anticipate traffic flow ahead, but is a great way of limiting fuel use.
If you’re a long-distance driver who relies on cruise control, it might be worth avoiding using it while petrol and diesel prices are as high as they currently are
7. Cruise control isn’t your friend if you want to save fuel
While many will believe that using cruise control functionality will provide the lowest fuel use, this isn’t always the case.
Cruise control is most likely to benefit mpg on motorways with a constant speed and a flat surface.
However, if you were to use your cruise control regularly and not on flat roads, you would see fuel consumption increase.
‘This is because your cruise control would be slower to react to gradient changes, meaning when reaching the brow of a hill – at which point you would normally take your foot off the accelerator to maintain more of a constant speed when descending – your cruise control will keep the power on for a little longer as it’s unable to see the gradient change in front of you.
‘Driving in this way regularly would lead to worse fuel consumption,’ says the RAC.
Don’t use your air conditioning unless you really have to as it uses engine power and therefore increases fuel consumption.
8. Avoid using the air-con and heater
Don’t use your air conditioning unless you really have to as it uses engine power and therefore increases fuel consumption by as much as 10 per cent on shorter journeys.
This shouldn’t be an issue during the cooler months, though using a car’s heater will have a similar impact, with it running off the engine power and therefore lowering fuel economy.
Dress accordingly for the weather, is the best advice.
9. A warm engine is more efficient, so run multiple errands in a single journey
Once an engine is warm it will operate most efficiently, whereas several cold starts will increase fuel consumption.
So if you have a number of errands or trips in a day, try to do all of them in one go.
The AA adds that the changing season from winter to spring should also help improve fuel economy.
Warmer temperatures should improve mpg ‘significantly’ with an extra three miles to the gallon ‘almost guaranteed for most’, it claims.
Having an empty roofbox fitted to the top of your car will make it far less drag efficient, which means the engine will have to work harder – and use more fuel – to counteract this
10. Lighten your car’s load
While this isn’t going to make the biggest difference to your mpg figures, emptying heavy clutter from your car will fractionally improve its fuel economy.
And if you’re not using roof bars and a roof box, take them off as it could make your motor less drag efficient.
According to the Energy Saving Trust, an empty roof rack adds 16 per cent drag when driving at 75mph. At the same speed a roof box adds 39 per cent, making your vehicle much less fuel efficient.
Driving with a window fully open also has a similar effect.
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