Petrol and diesel prices are at record highs, with pressure mounting on the Government to take action to ease pressure on motorists.
Petrol reached a new average of 185p per litre on Sunday, 12 June, and diesel hit 191p on Saturday 11 June, before falling back fractionally the following day.
An average full tank of petrol now costs more than £101, while a diesel fill-up is more than £105.
The continuing rises in forecourt prices have led to calls for a further reduction in fuel duty and seen the competition watchdog launch an investigation into fuel prices around the country.
Retailers blame the repeated rises on the changing wholesale price of oil but the price of a litre of fuel is about more than just the cost of the raw ingredients.
There are two main contributing factors to the forecourt prices - the cost of the fuel; and tax on that fuel, which currently accounts for almost half of the price of a litre of petrol.
A large part of the cost comes down to the wholesale price of petrol or diesel, which is in turn set by global oil prices.
However there are also other factors, including refinery and transport costs, the separate cost of bio-fuel elements and retailer profit.
As we’ve seen with the current crisis in Ukraine, uncertainty over oil supply affects wholesale prices but costs in the UK are also affected by the pound-dollar exchange rate as oil is traded in dollars.
Refining the raw materials into usable fuel and then transporting it from the refineries to filling stations also costs significant amounts of money, which is rolled into the price at the forecourt.
Finally, retailers need to make a profit, which currently accounts for around 2% of what we pay at the pumps.
In total, the RAC estimates that at today’s prices, the cost of fuel accounts for 55% of the forecourt price, with the rest coming from taxes, including fuel duty and VAT.
For diesel, the wholesale price is makes up slightly less of the total cost - 41% - but the biofuel cost is more - 10% - and retailer margin is slightly higher, at 3%. As a whole, the cost of fuel accounts for 56% of the price of a litre of diesel.
Fuel duty is a standard charge applied by the Government to every litre of petrol and diesel sold at UK forecourts.
It was cut by 5p per litre in March 2022 to 52.95p per litre, with the cut to remain in place until March 2023. That means regardless of how much a retailer charges, 52.95p from every litre sold goes straight to the Treasury.
With petrol costing 185p per litre at the moment, 29% of the cost is fuel duty. For diesel at 190.9p, it is 28%.
The Competition and Markets Authority is currently investigating whether retailers have passed this reduction on to customers as part of a focused examination of fuel prices.
While fuel duty is a flat rate charged on top of the retailer’s costs, VAT is charged at 20% on top of the combined fuel cost and fuel duty.
That means that as wholesale prices climb, the amount we pay in VAT also goes up, pushing the price up even further.
Assuming retailers do pass on the fuel duty cut to drivers, that means at today’s prices, VAT adds a further 30.8p to the cost of a litre of petrol and 31.8p to diesel.
The RAC estimates that around £46 of the cost of filling a 55-litre tank now goes to the Government in taxes.