Families, businesses and workers face an era of “permanently high” road fuel costs, the AA warns.
A trifecta of fuel tax increases, commodity price hikes and higher retailer margins will hit drivers’ pocketbooks hard.
There are concerns that the Labour government is set to increase fuel duty, something Sir Keir Starmer refused to rule out during the election campaign.
Starmer said he had supported a freeze “every time it was raised” but that “fuel duty will have to be decided on a budget-by-budget basis” and he had not categorically ruled out a fuel duty increase.
If the Treasury increases fuel duty in the Budget on top of fuel retailers’ “inflated” margins and already high commodity prices, it will “condemn UK families” to huge outlays on the cost of fuel and travel, the AA says.
In March 2022, fuel duty was cut by 5p. Until then, drivers were facing the worst average petrol prices in UK motoring history.
The AA says the “5p fuel duty cut was the only redeeming factor in three years (so far) of persistently high road fuel prices”.
The fuel tax cut was a welcome relief, after a combination of the pandemic and the war in Ukraine led to astronomical gasoline prices from late summer 2021 onwards.
There was only a brief two-month period when the average price of gasoline at the pump remained below the pre-pandemic record set in April 2012, when gasoline hit 142.48 per liter.
In July 2022, a historical record of average gasoline consumption of 191.53 pa per liter was reached.
Many motorists would struggle to absorb another sharp rise in the price of petrol: 28 per cent of AA members are stuck with a fixed charge when filling up, a figure that rises to 40 per cent among poorer motorists.
Electric vehicles, plug-in hybrids and self-charging hybrids offer an alternative, but despite the reduced costs of off-peak public charging and the savings to be made by charging at home, the upfront cost of new EVs in particular makes switching to electric unaffordable for low-income drivers in the near future.
FairFuelUK campaigned to keep fuel duty frozen since 2011, and the Conservatives have stuck to that promise for the past 14 years.
In March, drivers were predicted to save £50 this year and £250 since the 5p cut was introduced, offering motorists £1bn of tax relief.
But this relief will end if Chancellor of the Exchequer Rachel Reeves reverses the fuel tax cut in the October Budget.
The Chancellor told the House of Commons this week that there is a £22 billion black hole in the country’s finances that needs to be filled.
A fuel duty hike is expected to be announced as a means of filling the coffers, with Labour skirting the issue during the election campaign.
Sir Keir Starmer has refused to rule out a fuel tax rise altogether, with the Prime Minister reluctant to say whether he would continue the decade-and-a-half-old trend.
Starmer said he had supported the freeze “every time it was raised” but that “fuel taxes will have to be decided on a budget-by-budget basis”.
On the eve of the election, Shadow Secretary of State for Transport Louise Hague told Auto Express: ‘On fuel duty, we want lower taxes for working people, and that’s why we’ve always campaigned against fuel duty increases in this Parliament.
“Nothing in our plans requires us to raise additional money beyond the measures already announced.”
What is causing gasoline prices to skyrocket?
There are several factors at play here:
In the five years before Covid-19 and the war in Ukraine, Brent crude oil cost $60 a barrel. Now it is $80.
The industry standard is a 1p per litre charge at the pump for every $2 per barrel change in the price of oil, meaning the $20 increase has led to a £5.50 jump in the cost of filling a typical 55-litre tank of fuel.
And retailers’ margins are adding more than 6p a litre to the cost of petrol.
In its Interim Road Fuel Monitoring Update last week, the Competition and Markets Authority reported that “petrol retail spreads in the four months to June averaged 12.62ppl, which was 2.55ppl lower than the previous four months but still more than double the average of 6.51ppl during 2015-19.”
Those 6 people equate to an extra £3.30 that drivers have to shell out.
A combination of three factors is driving up gasoline costs: Crude oil now costs $20 a barrel more than it did five years ago.
Then there is the triple whammy of a weaker pound. Current exchange rates mean the pound is worth less than $1.30, compared with $1.40 before Brexit. Once commodity prices are pegged to these rates, the motorist will be left with an extra £1.90 on every tank of petrol.
Luke Bosdet, AA spokesman on fuel prices, said: ‘Overall, the AA is concerned that current high prices could be significantly worsened by any increase in fuel duty in October.
‘However, the Budget on 30 October could be crucial.
‘In the Spring 2024 Budget it was confirmed that fuel duty would remain frozen for a 14th consecutive year, with the then Chancellor of the Exchequer extending the ‘temporary’ 5p per litre cut for a further 12 months. If the current Chancellor of the Exchequer reverses this measure it will hit drivers, businesses and the economy hard.’
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