Fuel prices explained: understand how prices are calculated, and why you pay what you do at the pumps, with our handy Q&A.
1 What factors influence the price we pay for fuel at the pumps?
The price you pay for petrol and diesel at the pumps is governed by the wholesale price, which in turn, is affected by:
the global price of crude oil
supply and demand for crude oil
refinery production and capacity
the pound to dollar exchange rate, as refined fuel is sold in US dollars per metric tonne
distribution costs
the margin fuel retailers decide to take
fuel duty charged by the Government, currently 57.95p a litre
VAT (20%) charged at the end of every forecourt fuel transaction
2 How is fuel taxed?
The total retail price paid at the pump also includes a significant amount of tax – 57.95p per litre in fuel duty and 20% VAT.
But the total proportion of tax we pay to the Treasury varies depending on the pump price.
For instance, with fuel at 120p a litre at the pumps, 65% of the cost is tax.
But at £1 a litre it rises to 75%, meaning 75p in every litre sold goes to for the Treasury.
Fuel duty raises more than £26bn a year, which together with VAT charged on fuel, vehicle tax and ‘showroom’ tax totals, means motorists contribute more than £40bn a year to the Government’s coffers.
3 How much fuel does the UK use?
The UK Petroleum Industry Association reports that each day, 46m litres of petrol and 74m litres of diesel are sold in the UK.
According to HM Revenue and Customs data for 2015, 46bn litres of fuel were used by drivers – 17.3bn litres of petrol and 28.8bn litres of diesel.
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