posted 4 years ago

Opinion: Time To Cut Fuel Tax

Government rakes in 70p from every litre of £1 fuel

Guest article by TaxPayers’ Alliance Policy Analyst Harry Fairhead

Everyone knows that fuel prices are on their way down.

This is certainly good news for beleaguered motorists who are sick of being taken for a ride.

However, the reason that fuel prices remain over £1 per litre is the atrociously large amount of tax still being levied.

Fuel Duty and VAT is taxed on a per litre basis, meaning that those on low incomes – already hard-pressed by other taxes – are feeling the pinch more than anybody.

It also, of course, means that as the oil price falls, the percentage of the pump price that goes direct to the Treasury’s coffers goes up .

George Osborne has made a song and dance about getting tough on the fuel companies, but perhaps he should use the power in his own hands.

The uncomfortable truth is that the tax component of the fuel price is still close to its historical high. The Office for Fair Trading says the fuel market is working well – if only this was true of government tax policy.

  • Only once (in March 2011) has the rate been cut since the turn of the Millennium
  •  The graph below demonstrates how successive governments have not done enough to bring fuel prices under control by reducing the Fuel Duty rate
  • Tax (Fuel Duty and VAT) represents 70 per cent of the price of a litre of petrol and 67 per cent of a litre of diesel
  • This rises with every fall in the underlying petrol price – the fuel duty escalator is alive and well.
  • Moreover VAT is charged on the total cost - including fuel duty. Another shameless example of double taxation!

Changes in Fuel

The small fall in 2011 was welcome, but hardly made up for a decade of rises.

During the price war that OPEC is waging, Britons have seen the cost of their fuel fall to close to £1 per litre in some areas of the country.

But if George Osborne really wants to give hard-pressed motorists a break (already battered by road tax and parking charges) then cutting Fuel Duty is a painfully obvious place to start.

  • The average price of petrol (ULSP) and diesel (ULSD) has fallen to lows of 108.87p and 116.2p respectively (12/01/15) from 130.83p and 135.50p in July 2014. This represents a fall of c.22p for petrol and c.19p for diesel
  • The tax component of July petrol prices was 79.75p and 80.53p for petrol and diesel respectively. But in January 2015 this had only fallen to 76.09p and 77.32p respectively
  • Falls of Just 3.66p and 3.21p in the tax revenue for each litre of petrol and diesel
  • Over this same period the underlying price of petrol and diesel has fallen from 51.07p and 54.97p to 32.77p and 38.90p respectively: falls of 18.30p and 16.07p
  • The underlying cost of both petrol and diesel has fallen five times faster than tax revenues has fallen

What does this mean? Well, despite oil falling below $50/barrel the Government’s tax policies mean that we (the motorist) don’t benefit from falling prices to the extent that we should. Essentially the model of Fuel Duty we currently have simply protects government tax revenues. 

  • The Government collected £26.9bn in Fuel Duties in 2013-14

Consider a few scenarios. The graph below shows six months of UK fuel prices, slightly lower the prices are shown as if Fuel Duties and VAT were levied at 2001 levels and at the bottom are indicative prices subject to US Fuel Duties.

Average Pump Price

  •  With 2001 rates petrol would currently average 92.35p/Litre and Diesel 99.55p/Litre
  • With US rates, a mere 40.72 and 47.83p/Litre for petrol and diesel respectively

These indicate in starkest terms the real costs to UK taxpayers imposed by fuel duties.  

  • UK total tax per litre of petrol and diesel is 76.09p and 77.32p respectively
  • The US taxes a mere 7.9p and 8.9p/litre (based on national average tax rates, and a six month average of the USD/GBP exchange rate)
  • Petrol is taxed 68.19p/litre less and Diesel is 68.42p less in the US

This only serves to highlight that if there is a cost of living crisis, it is taxes that fuel it.

The power to reduce the price of a litre of petrol is in the Chancellor’s hands. He should use it.

Sign up to the TaxPayers’ Alliance to register your protest.


What a load of crap. Nearly 60% of our fuel costs in petrol are through tax. No longer does the fuel duty specifically get used to fund road repair and instead funds stupid political moves like 2 useless aircraft carriers and 142 brand new unworkable fighter jets instead of fixing the roads of Britain. Having high fuel costs is one of the main reasons that businesses stay away from Britain and why our previously amazing shipping and transport businesses died overnight in when they bumped up the fuel tax and now it's taken over by Polish and German companies. Maybe they should think about cutting ALL fuel taxes and instead bumping up the road tax on all those idiots driving SUVs on their school runs and idiots driving Z-class 5.0 litre sports cars that put out more emissions a mile than a bus or lorry.

I understood that if you are registered for VAT you are able to claim the VAT on fuel back.

I have to take issue with Gerald Sorley who seems to think the government has lost 24p per litre in tax revenue as a result of the pump price dropping by 35p per litre. That is not true and I can't understand where he gets those figures from. Let's do the maths.....The rate of Fuel duty is currently 57.95p per litre and has not changed. VAT is also charged (presumably on the final pump price) and is an unfair "Tax on a Tax". If the pump price has dropped by 35p per litre, the government's 'loss' is 20% of this or just 7p per litre. However, you can guarantee that lower prices have almost certainly increased demand so, overall, the government is unlikely to be out of pocket.

Fuel at £1-40 a litre raises on average 96p tax. Fuel at £1-05 a litre raises 72p tax. So why would the government want to see fuel prices drop as quickly as they rise and why reduce the rate as collecting tax from fuel is easy to do as the system is already in place.

With all the vat and tax they rake in i think it's about time they should reduce the tax in fuel they might get more votes when it comes to voting in the elections

Any future UK government that even think about increasing fuel tax is living in cloud cuckoo land. Fuel tax adds to the cost of virtually everything and means that all products we manufacture in this country are more expensive than they need to be and are uncompetitive to sell in world markets. Because our exports are so poor, we don't earn real money in world markets and the government has to balance the books by raising its revenue from unreasonable internal taxation. Its a viscous circle and to break the mould we have to start cutting these punitive taxes. Fuel tax should be the prime target for reduction, accompanied by legislation that ensures savings are passed down all supply chains as lower prices. Products then become more competitive, we sell more overseas, earning the government new revenue that covers the tax reductions. Break the cycle and our economy will then become more "healthy".

Cut fuel tax as fuel prices are too high

Why nat nationalise petrol stations? Cut out all the profit made by the retail stores.


It seems that the bottom line is: a) The Government needs £x of revenue, therefore if there is a cut in one tax, that money has to be found from somewhere else eg income tax. b) The tax on fuel goes down, the treasury monitor the government's spending closer so as to reduce it proportionately to make up the difference. I can only see a) being a realistic option in this country as Government don't like having budgets cut only increased!

In response to Roger Beattie's comment, I agree that the NHS has to funded somehow. Government should look at the way it's run and the money wasted. In order to succeed, it has to be efficient. Bring back Matrons and get rid of overpaid pen pushers and non essential admin.

No NHS in USA. Fall ill over there without expensive medical insurance or selling your home you will not be treated. Even then you can still hit a cieling.

Mr Jeffries is correct, as is Mr Beattie. Whatever any Government does to "help us" are always lies as a big fuss is made of how good they are at saving us money but the underlying fact is based upon Newton's third law! Every budget is the same too. What they give with the right they take with left. It's all metaphorical, if they cut fuel duty they will only shaft us another way instead !!!

Successive governments have not grasped the real reasons why our economy is so vulnerable to changes in international problems. We have absolutely no fat left to ride economic downturns like America does. Why is the US so quick to come out of recession . Generally I think a lot of it is due to being taxed reasonably on day to day living expenses like fuel. We are so strangled by this ridiculous high tax it leaves poor old Brits nothing left at the end of a month to save or get a pension or anything else. Just live . It is strangulating uk citizens like a noose. Does nobody any good. Just madness.

How many of you on here complain about the NHS. Without more funding and with medical advances the NHS will only get worse. The money has to come from somewhere!!!!

Tax on fuel should be reduced and VAT. It is ridiculous that if the tax was placed on the cost of a barrel of fuel now in the correct proportion it may make a litre of fuel less than £1.00 Government grab grab for everything lowering tax bands for normal workers. About time the ones earning excess were taxed like us

Its ok to reduce the tax on fuel but then the government will then increase our income tax. In america and australia they bragg how cheap fuel is for them but they fail to mention that they pay double the income tax than we pay here in the uk. Votew ukip.

When I bought my first diesel car in 2005 diesel was 2/3 pence cheaper than petrol. Why then, if diesel tax is 67% & petrol 70%, is diesel now some 6/7 p dearer? Can't be cost of production as cost differential in France & Belgium is the other way round. Paid €1.09 per litre at Christmas!

If we stop talking about higher taxes being inevitable allowing government who will no doubt be scrutinizing comments will of course raise taxes in line with what we expect. You all know the past present governments are useless,so why not vote for a massive change in politics and vote UKIP the only democratic party in Britain.

Rather than acut in fuil duty I would rather see our roads kept in a reasonable state of repair. Our roads are probably the worst in western Europe and deep potholes cause damage/wear to vehicles

hear hear , Paulie and If it wasn't an election year you can bet your boots that the duty would jump up in the next budget. In fact I wouldn't be surprised if ------- ????? it does anyway !!!!!

Sorry, but all I can add is "and?" What did you expect? There will be no reduction as the country finance is in such a hole. Any party offering to reduce tax will be lying. If it wasnt an election year I would fully expect George to have raised fuel duty already...

When the price of petrol was increasing there was talk of reductions in fuel duty to keep the price more constant. There was public support for this but no action. Now that the prices is falling I'm surprised that the government has not called for a similar increase in duty. But the public call for a reduction in duty.

next budget will see a rise in duty on fuel, because of the drop in resent price the government will say we have kept duty down in the last so many budgets So as of midnight tonight we will add 4p a ltr duty

I guess it is one of the most Visible and best known Taxes. Yes it sounds extreme in this article, but having a car is a luxury not a right, and yes I need a car to do my job as I travel a lot, but it is still a luxury and the same as smoking and drinking alcohol it gets hammered with Tax. The country needs an income to run, none of us like taxes, but we expect there to be police, hospitals, schools etc etc.. these all need to be paid for and a balance needs to be met, then we all moan about the defecit if you was in charge what would you do? OK reduce the fuel tax, then increase VAT or Council tax, 29.6 billion is no small amount if reducing taxes took it to 26 billion they would still need the 3 billion back so it would have to come from somewhere. If you want to reduce the amount you spend on fuel tax, use the car less, drive more economically, get a more economical car or go electric. Tax like death is inevitable, you want to live in a first world country with all the benefits, then it has a cost, and we all have to contribute.

This article tells us nothing new. Most of us already knew that the majority of the cost of a litre of fuel was duty and VAT, just as it is with the cost of a packet of cigarettes and a bottle of Whiskey, but as a number of people have pointed out, the money to run the country has to come from somewhere, and if not from these sources, it would have to come from somewhere else (Income Tax/VAT etc). The Institute for Fiscal Studies website has some very instructive charts on what we all pay and how, if anyone’s interested. If you don’t like the amount you pay in taxation on fuel, buy an electric car. Not only will you not pay tax on running costs (well actually you will if you charge at home, because your electricity supply is subject to VAT), but you probably won’t pay any VED either (another notionally car-related tax that just goes into the general ‘pot’). Better yet, the Government is underwriting public charging stations across the country, so (for the moment at least) your running costs could drop to zero. If you buy a Tesla you will be trendy as well (less so if you buy a Leaf). Of course if we all bought electric cars tomorrow, there would be a massive hole in the budget and either Income Tax/VAT/NI would have to rise to compensate (these being the biggest current sources of revenue), so you will pay anyway.

would be nice, but lets face it, if red ed gets in all taxes will increase rapidly and fuel most of all.

Everyone has the ability to buy their energy for their car at a mere 5% tax.... Go electric! Electric cars are superior in every way and cost virtually nothing to run in fuel costs and little for servicing. Our BMW i3 can charge at public points for free and costs £2.20 at home for a range of about 80 miles. It is quick (very quick) and has a back-up petrol generator. It takes 30 mins to charge at a motorway service station to 90%. The Tesla Model S is a revolution; very very fast and again cost nothing to fill its 300 mile battery. When driving these cars you are driving the future. Are you an Electronaught or a Fossil? Justin

Harry Fairhead is an Air head his reasoning for reducing the cost of fuel is complete and utter nonsense. It is a rational based on The Labour Party Socialistic remedies to help the poor motorist, simply because as the comment made by Chris Metcalf clearly points out, the enormous cost of the Nanny State we are exposed to means that any cuts on fuel duty will have to be collected elsewhere to balance the Exchequers books and even now, brought to your attention in Airheads article he will have to find the 4p per litre loss in vat. Before anyone feels to irate about what I am saying please consider that the consumption of fuel by the average vehicle has also halved in the last twenty years, so in terms of the amount of fuel purchased, it also has halved. So it would appear Airhead may have a rather naive political agenda not an economic one against the government. Past and present. Political agenda

Whilst I agree with the sentiment, the Government would simply find another way to increase its revenue income from us - The forever paying public!

There is no way the government is going to give up a tax revenue like fuel. It still has to gather revenue to waste and squander. The only thing you can say about UK governments is they all waste our taxes, the only differences is how efficiently they waste them!

about time, motorists have been easy target for governments for long time!

If the government cut fuel tax I think it would be a great help to the economy then transport prices go down then everything else follows

I remember in 1993 when the price of unleaded used to be only 47.9p a litre in Cambridge and in 20 years+ its tripled but mostly for VAT I think its terrible!!

What we all need is a People's Union, the French get there voice responded too, but with us it's divided we stand and together we fall.There's no other way unless we unite and fight for fairness.

The government are pushing the fuel retailers to be fair and cut prices, it is about time the government was fair and cut fuel taxes to a sensible level.

A cut in how much to fill up the car? that would be great! Hold on a minute... all that money that is currently going into the old coffers of the government has to come from somewhere doesn't it? if the govt lowers that tax, it is going to have to lay it on somewhere else to gain that revenue back. Am not defending the price of petrol - just pointing out that the govt gets a shed load of money off of it - money that it will need to recoup somehow.

Get real. It is simply a revenue stream for the treasury - a tax. Not a hope in ____ of getting it reduced as the government tax pot is already losing around 3p or 4p on every litre bought. Unless there was to be a carrot dangled, for your vote later in the year, forget it. Its just not going to happen.

Welcomed cut in UK fuel but still nowhere near what some other European countries are paying at the moment. I could fill up the same vehicle for half the price of Uk Fuel last year in eastern europe.

It is time motorists got a break from such high taxes for fuel.Government's big election point!