Tax to blame for high fuel prices

30 Jan, 2013 11:54am Jon Morgan

The OFT has scrapped plans to hold a full inquiry into whether petrol and diesel prices in the UK are being manipulated

High fuel prices are caused by the high level of fuel tax and increasing crude oil prices, according to a five-month investigation by the Office of Fair Trading (OFT). 

The watchdog's report on the UK road fuel sector, published on 30 January, states that the market is not dysfunctional and that competition is robust. It also argues that supermarkets' growing share of the fuel retailing industry has helped consumers by keeping prices low.

RAC Foundation director Professor Stephen Glaister said: "This report will give only limited comfort to the UK's 35 million drivers who continue to pay near record prices at the pumps, but the OFT does identify the true cause of drivers' misery – the Chancellor and crude oil prices. About 60 per cent of the pump price is accounted for by fuel duty and VAT and we would now call on retailers to provide a breakdown on till receipts to show exactly what proportion the Exchequer is creaming off."

The OFT found that, pre-tax, the UK has some of the cheapest fuel prices in Europe. But in the 10 years from 2003 to 2012, prices at the pump increased from 76 pence per litre (ppl) to 136ppl for petrol and from 78ppl to 142ppl for diesel. This was caused largely by an increase of nearly 24ppl in tax and duty, and 33ppl in the cost of crude oil.

While the report acknowledged that the growing dominance of supermarket forecourts had squeezed out thousands of independent operators in recent years, the watchdog said it found no evidence that this had reduced competitiveness. 

"The supermarkets' high throughput per forecourt and greater buying power has allowed them to see fuel more cheaply than other competitors," the report states, adding: "In august 2012, for example, the average price of petrol at supermarkets was 2ppl cheaper than the average at oil company owned sites and 4.3ppl cheaper than the average charged by independent dealers."

Professor Glaister said: "Some will find it hard to believe but the report does make clear that the fuel market is helping keep prices lower and supermarkets have actually helped competition. Our analysis, which the OFT relied on, shows that 97 per cent of car-owning households are within 10 miles of a supermarket forecourt."

OFT chief executive Clive Maxwell said: "We recognise that there has been widespread mistrust in how this market is operating. However, our analysis suggests that competition is working well, and rises in pump prices over the past decade or so have largely been down to increases in tax and the cost of crude oil."

The report did highlight the OFT's concern about a lack of pricing information on motorways – and said it would not rule out taking action in some local markets if there is evidence of anticompetitive behaviour.

What's your view on the OFT's report? Do you agree with the findings? And what do you think should be done next? Tell us your thoughts in the comments section below.

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No surprise here then! Although a part of me was hoping it was down to collusion etc so the OFT could have an effect. But since its the government who are causing the problem as we all knew, nothing will be done and we'll keep paying George more and more until we're all bankrupt. If we use buses? If we all start cycling? They'll tax them heavily. If we all walk? They'll tax the air we breathe.

Fuel retailers are quick to jack up pump prices with the international oil prices thus charging motorists more for the oil they bought for less. On the other hand pump prices drop rather slowly when the international prices do.

The government IS the main culprit behind the exorbitant fuel prices that we have to pay. If they spent a decent proportion of the money they fleece from us on improving the pot-holed roads you won't find me complaining.

Strange report, since a few months ago the crude prices went well below the ones before christmas, but the petrol price didn't, not just one pump but in most of them. This is isn't the first time also.
I wonder how much the OFT got for this stupid report...

The other factor that appears has been glossed-over is that there are very many international speculators that work together to push up prices. The Government are, however, the biggest culprits as they get more in tax and duty when the pre-tax prices go up and then tell us how decent they are when they postpone duty/tax increases.

The OFT had to do an investigation to work out Tax was the reason petrol/diesel is so expensive? How much are these people being paid.....

Hey, tax is the main component of fuel prices - No Sh*t Sherlock :-)

My view is that this report is wrong but politically the OFT cannot say why prices stay high when oil prices drop.

It's not greed on the part of the oil companies but sound business practice. They know that the minute they drop their prices, Mr Osborne will increase the tax.

In business the only reason to drop your prices is to increase your turnover of goods so that you make the same or greater profit. If you have the certain knowledge that your drop in prices will be met by increased tax your sales will remain low and your profit will fall. If you also know that the cost of your raw materials is likely to rise in future you know that the additional tax will further reduce your turnover and maybe turn a small profit into a loss.

The solution is for the government to promise not to increase fuel duty for the remainder of this parliament.

Why doesn't the government simply put duty up by inflation every April? (2.7% last year). That way they can simply avoid the continuous planned increases and U-turns?

As I expected, just another whitewash report. The OFT have not addressed the reason why prices at the pump soar when there is a rise in the supply market but do not come back down by the same degree when the market falls. As others here have said we did not need this expensive report to tell us that the main problem is the greed of our corrupt government. What is needed in britain today is a public outcry to make these civil servants sit up and listen to the people who put them in power. This government is all about taxing people in everything they do and then if we have any extra cash then the government steps in and imposes cuts on just about everything the working person has.This is no longer "Great Britain" but more like "Greed Britain"

The report is nothing of which we already know. Why is there still a big gap between diesel and unleaded. We need to dig a lot deeper and kick this gov't out asap.