The RAC is calling for the abandonment of the 5p fuel duty cut, claiming it benefits retailers more than drivers.
- Introduced in 2022, the duty cut was meant to ease the cost of living but has cost the Treasury £2 billion annually.
- The RAC accuses fuel retailers of maintaining high profit margins, preventing savings from reaching consumers.
- Retail giants have been criticized for not reflecting lower wholesale prices in their fuel pricing.
- There is growing pressure on the government to reassess the efficacy of the fuel duty reduction.
In a call for change, the RAC suggests that the 5p fuel duty cut, which costs the Treasury £2 billion per year, has not resulted in the intended fuel savings for motorists. Initiated in 2022 during a spike in fuel prices post-Ukraine conflict, the duty was supposed to alleviate financial pressure on drivers. However, the RAC asserts that the reduction has primarily increased the profit margins for fuel retailers, with historical profit margins soaring to 13p per liter for unleaded and 15p for diesel — significantly higher than the 8p recorded prior to the pandemic.
Simon Williams, the head of policy at the RAC, has voiced strong criticism of major fuel retailers, accusing them of keeping fuel prices high. His statement highlights that the temporary 5p cut was expected to benefit consumers, but retailers’ reluctance to reduce prices proportionately has rendered this relief ineffective. The cut was intended to provide a 6p saving on each liter when VAT is considered, a goal quickly undermined by rising wholesale oil prices. Despite recent drops in wholesale costs, the benefit has not been seen in retail prices, according to the RAC.
Fuel duty, currently standing at 52.95p following the cut, was originally 57.95p per liter. The duty has remained frozen since 2011. Williams has argued for reversing the cut in upcoming budget discussions, suggesting the rate return to 58p per liter. The RAC’s position is that the 5p reduction burdens the government financially while drivers remain overcharged.
The Competition and Markets Authority (CMA) has found that motorists were overcharged by £1.6 billion last year, due to elevated margins. Williams has further stated, “We’d normally be against any increase in duty, but we’ve long been saying drivers haven’t been benefitting from the current discount due to much higher-than-average retailer margins.” The RAC urges lowering average petrol prices from 142p to 136p per liter and diesel from 147p to 139p.
However, there’s a challenge from the Petrol Retailers’ Association, with Executive Director Gordon Balmer countering that the RAC’s data fail to account for soaring operational costs, such as heightened interest rates, and utility and labor expenses. The discrepancy in viewpoints extends to analysis from the AA, which reports that while general fuel prices have declined, motorway service stations continue to charge exorbitant rates.
The call for a reassessment of the fuel duty cut underscores the complex dynamics between government policy and retail pricing strategies.
