Pump My Ride! Why Petrol Prices are Sky High Again
Hi there wannabe money savers! Whilst in my car this morning, the radio blurted out that the UK has emerged from 18 months' of recession. This filled
me with some optimism, despite the tenuous 0.1% growth figures on which the recovery claim hung.
However, when I pulled into the petrol station it struck me that even though the country's economy is growing again, my car, and specifically the petrol
it drinks, will be contracting my own personal wealth for the foreseeable future.
The reason for this is petrol price rises. From summer 2008 (when the price per litre peaked in the Â£1.20s) until January 2009 (when the price dipped
as low as 86p) we enjoyed a sustained drop in the cost of petrol and diesel. But the past year has seen prices creep back up to today's average petrol
price of Â£1.12. The bad news is - the cost could well rise for the rest of 2010.
Reasons for the High Cost of Petrol
The main culprit is tax, which accounts for around 65% of the total fuel charge. Tax is levied in two ways: fuel duty and VAT. Fuel duty currently adds
56.19ppl (pence per litre) to the cost of petrol and diesel, with VAT adding 17.5%.
Since December 2008, duty has gone up by nearly 6p from 50.35ppl, and is due to rise again on 1 April 2010 by 1% above inflation (around 1ppl). The
government says it charges such high duty to generate revenue and to discourage the use of cars (it claims the latest duty increase will save two
million tonnes of CO2 (MtCO2) per year by 2013-14).
However, the Petrol Retailers Association (PRA) believes that several more fuel price rises are on the cards before 2010 is through.
A further penny may be added from 1 April, when the government withdraws its duty incentive to refiners who produce biofuel. The PRA expects this
duty increase to be passed on to us at the pumps.
Post election, the PRA also expects that any government new will look to raise taxes to replenish national coffers - with whispers of 20% VAT being
one very unwelcome rumour.