The cost of filling up your car has risen significantly over the last few years. Indeed, the Daily Mail recently reported that a family with two cars has spent an average of £241.54 more on petrol this summer than they did a year ago.
The increasing cost of petrol and diesel is often blamed on rising oil prices, but is this really the whole story? Our guide looks at exactly how much the oil price affects a litre of fuel and what impact taxes have on the cost of filling up at the pumps.
Oil less than half the cost of a litre of fuel
Contrary to what you might believe, it’s not oil companies that take the biggest share of the cost of a litre of petrol or diesel. A recent BBC report showed that in October 2011, the cost of the oil represented just 45.2p of the price of a litre of petrol costing 134.1p. And, the cost of oil represented just 51.1p of the price of a litre of diesel at 138.4p.
Even when you add a 1.5p per litre cost for the cost of refining, the actual basic cost of the fuel is still well under half the pump price of a litre.
The report also found that the fuel retailer, on average, takes 7.1p on a litre of petrol and just 4.7p on a litre of diesel.
Tax and duty form the majority of the price of a litre
The government are the main beneficiaries of a litre of petrol with almost two thirds of the cost going into the Treasury coffers.
The BBC study reports that 58p of every litre of petrol or diesel is fuel duty, whilst 22.4p of a litre of petrol and 23.1p of a litre of diesel is paid to the government in the form of VAT.
So, you pay around 80-81p per litre of petrol or diesel to the government.
But, of course, it doesn’t end there. When considering the basic ‘cost of oil’ in the section above, one of the biggest costs involved in oil production is the tax that the oil companies pay to governments on their profits. Marginal tax rates on profits in the UK are 62 per cent, more than 80 per cent in Norway and about 90% per cent in some countries.
So, the Wood Mackenzie figures reported by the BBC show that tax and the profit the oil companies themselves make will account for almost two-thirds of the overall cost of oil in 2011.
The BBC reports that ‘a good chunk of government revenue comes from taxing the profits of oil companies’ and, of course, when the profits rise, the taxes raised by the governments rise as well.
So, whilst the oil price may have something to do with the price you pay at your pump, fuel duty, VAT and taxes on oil company profits are the main drivers for the cost of fuel in the UK.