The RAC is urging the government to abolish the 5p fuel duty cut, claiming it has failed to deliver promised savings for drivers.
- Initially introduced to alleviate pressure from soaring fuel prices, the measure is now costing the Treasury £2 billion annually with little benefit to motorists.
- Fuel retailers are said to maintain high profit margins, negating the intended relief for consumers at gas stations.
- Retailers’ resistance to lowering pump prices suggests the cut’s benefits are not reaching the public as envisioned.
- Amid high retail margins and unyielding prices, pressure mounts on the government to reconsider the fuel duty strategy.
Introduced in 2022 amid escalating fuel prices following Russia’s invasion of Ukraine, the 5p fuel duty cut was intended to provide relief amid the cost-of-living crisis. Expected to save motorists 6p per liter once VAT was accounted for, this measure has reportedly cost the Treasury £2 billion each year while failing to deliver on its promise at the fuel pumps.
The RAC has charged fuel retailers with absorbing the relief, an act which has reportedly led to record-high profit margins of 13p per liter on unleaded gasoline and 15p per liter on diesel, figures notably higher than the pre-pandemic margins of 8p. Simon Williams, head of policy at the RAC, criticized larger retailers for keeping prices unreasonably high despite the government’s efforts, stating, ‘The biggest retailers’ refusal to reduce prices to fairer levels is continuing to cost drivers dearly.’
Originally implemented by then-Chancellor Rishi Sunak, the cut was aimed at offsetting skyrocketing fuel costs triggered by global disruptions. However, substantial hikes in wholesale oil prices quickly eroded these potential savings. Despite a subsequent decline in wholesale prices, retail profit margins remain robust, indicating that the anticipated benefits of the duty reduction have not manifested for consumers.
Fuel duty, comprising a significant 52.95p of each liter of gasoline, is subject to scrutiny, as the cut has remained static since 2011. Williams argues for a reversal of this measure in the upcoming October budget, proposing a reinstatement to 58p per liter. The RAC posits that this would put an end to the overcharging faced by drivers, a sentiment echoed by the Competition and Markets Authority, which reported motorists were overcharged by £1.6 billion last year due to inflated margins.
The RAC is advocating for gasoline prices to be adjusted to reflect lower wholesale costs, potentially dropping average petrol prices from 142p per liter to 136p, and diesel from 147p to 139p. However, this perspective is contested by the Petrol Retailers’ Association. Gordon Balmer, the executive director, asserts that the RAC’s focus does not account for rising operational costs, including increased interest rates, energy prices, crime, and labor expenses.
Additional insight from the AA highlights a slower reduction in prices at motorway service stations compared to general fuel stations during the summer. Luke Bosdet, the AA spokesperson, criticized these service areas for maintaining high costs, stating, ‘Pump prices at motorway service areas continue the tradition of being almost completely uncompetitive.’ This situation raises questions about the efficacy of current pricing strategies, particularly as the CMA transitions its pump price transparency scheme to a statutory mandate aimed at clarifying fuel pricing practices.
The ongoing discourse places substantial pressure on government entities to reassess the current fuel duty strategy. With the RAC’s call for the cessation of the duty cut, and mounting public dissatisfaction over unreceived savings, policymakers face the task of balancing fiscal responsibility with public benefit.
The growing scrutiny over the 5p fuel duty cut underscores the need for government reevaluation amid unresolved public discontent.
