24 FEATURE Fuel prices
oil traders get nervous about supplies, so the price rises. These price rises tend to take around five weeks to filter through to the retail market, so a week or so after this issue of Driving hits your doorsteps, the uprisings in North Africa and the Middle East – and the resultant rise in crude to around $120 a barrel – will be costing you an extra 5p at the pumps. But it’s not just the price of crude oil that determines what
you pay at the filling station. If you consider the price of a litre of unleaded at 126.9p, the cost of the product itself is 41.8p: for a litre of diesel at 131.9p, the price of the actual product is 45.97p. Which means that despite the costs of exploration, extraction and refining, the cost of the petrol or diesel itself accounts for just 33-35% of the price at the pump. (Retailer and delivery costs account for another 5p per litre.) Which brings us to the government’s cut. From the 126.9p
litre price, 58.95p – the biggest individual component of the total price – goes on fuel duty, with another 21.15p for VAT going to Treasury coffers. That’s 80.1p of the price that motorists pay (63.1%) going straight to the government. (For diesel, the duty is the same, but the extra VAT takes the total to 80.93p.) Why does the Treasury take so much? You can trace the start of higher fuel prices back to 1993,
when the last Conservative government under John Major introduced the fuel price escalator, which was intended to dissuade people from using their cars in an attempt to limit the damage to the environment from car emissions. Initially, the extra cost meant that tax contributed to 72.8% of the price: by the time New Labour came to power, the escalator had added 11.1p to the cost and the proportion of tax was 75%. Under Labour, the escalator added another 3p and the tax element rose to a staggering 81.5%, before it was abandoned in 1999. Duty has continued to increase over the past decade, but it’s worth pointing out tax as a proportion of the pump price has fallen. That’s not to say that motorists aren’t getting a raw deal,
though. The double whammy of fuel duty and VAT – and the VAT is charged on the total price, including the duty, so it’s a win/win situation for the exchequer – is bad enough, but the fact that the income generated from petrol and diesel isn’t spent on improving the road network just adds insult to injury. The only silver lining is that the increase in fuel prices
(along with the need for cars that are less damaging to the environment) has been a factor in the drive by car manufacturers to build more fuel-efficient cars. So in recent years we’ve seen the introduction of lighter materials for moving parts and bodywork, more aerodynamic shapes, low rolling resistance tyres, lower friction lubricants and lighter engine oils, stop-start systems, regenerative braking and hybrid drive (the addition of electric motors working in tandem with internal combustion engines). These developments mean that it’s possible to get 50-60+ mpg figures out of a modern diesel-powered car. If you drive in a more fuel-efficient way. Starting in this issue of Driving, we’ll be running regular features on ‘eco-driving’ tips to remind you of some of the tactics and strategies you can employ to improve your fuel consumption, but in essence, you need to consider a car that is as light and aerodynamic as possible, driving smoothly and planning your journeys. More efficient driving will lead to fewer trips to the petrol station, saving you money. And not only on fuel: the average visit to fill up also encourages motorists to spend £5.40 on non-fuel products.
We all need to become more efficient drivers, as the future
for petrol prices doesn’t look rosy. The other major reason for thinking again about fuel economy is the inevitability that oil supplies will run out at some point. The only question is when. Estimates vary from 40 years upwards: it’s all finger-in-the-air stuff really, as nobody knows how much oil is left under the ground. What we do know is that discovery of new oil fields peaked in 1966 and has been falling ever since. The fact that we’re consuming petrol and diesel at a rate three times faster than it’s being extracted means that demand is far outstripping supply. If that isn’t a recipe for high prices, nothing is. There was some brief respite during the recent recession – in August 2008, when oil prices peaked, Americans (the world’s biggest consumers of oil) drove 15bn miles fewer than the previous August, the largest drop since the government started collecting data in 1942. But the increase of car sales in China suggests that even another recession in theWest won’t retard demand too much. A price of $200 a barrel for Brent crude isn’t unimaginable, especially if the domino effect in the Middle East eventually reaches Saudi Arabia (which usually steps up to the plate to increase production to minimise any increase in the price of crude). The uncomfortable reality for motorists is that petrol and
diesel prices will continue to rise and the government will continue to use fuel duty as a cash cow (especially in times of austerity). Perhaps we should take a cue from the pro- democracy demonstrators in north Africa and start making demands of our elected representatives? The first thing we could do is pressurise the coalition government to introduce the fuel price stabiliser the Conservatives included in their manifesto for the May 2010 general election. The actual text of the manifesto commitment stated: “We would consult on the introduction of a Fair Fuel Stabiliser. This would cut fuel duty when oil prices rise and vice versa. It would ensure families, businesses and the whole British economy are less exposed to volatile oil markets
driving | April / May 2011
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