Blame the Government for high Petrol prices

In 2003 The UK government took 57.6p in tax on every litre of unleaded (74.2% of the pump price), while companies like Esso and Shell operate on a paper thin margin of just 6%. That's gross margin - not net. To work out how much is in it for them you have to deduct the cost of paying the petrol station, getting the fuel to the UK, additives and credit card charges etc. Let me put it like this - if they ran their business at break even the cost of fuel would still be 78p/l. No wonder they've branched out into selling dead flowers.

This document does a good job of explaining that the UK has the lowest supply price vs. the highest taxes in Europe.

In real terms a barrel of oil (158 litres) cost nearly $60 at the time of the Gulf War and $80 in the 1970's oil crisis. While $40 seems like a lot in absolute terms - the truth is that oil's been insulated very well from inflation over the past few decades meaning that it gets cheaper every year. This has been mercifully reflected in the price at the pump. While 82.9p/litre sounds a lot - petrol is cheaper than ever when adjusted for inflation

This coupled with a general increase in fuel economy has helped to bring down the relative costs of motoring. What the Treasury does using the Fuel Tax Escalator every year is to sneak back the difference between inflation and the inflation proof cost of oil, adding a bit on top for good measure. That formula works well for the Treasury as it causes only negligible pain for the consumer since few of us know how much tax comes out of a litre of petrol. What the taxpayer should be asking is - why isn't petrol getting cheaper? This graph shows very nicely what has happened with world oil prices since 1947. You'll see that there's a lot of volatility but no long term general upward trend as you would expect for other consumables over the same period.

I can illustrate this easily by saying that oil cost $14 a barrel in 1952. If it rose according to the Retail Price Index it would be 22 times more expensive today - a whopping $308 a barrel. If you think that's insane then look at the cost of bread or beer or butter.

One other thing to bear in mind is that Western economies are now far less reliant on oil. The US for example uses only half as much oil per unit of GDP as it did 30 years ago. The share of oil commodity imports in OECD countries shrunk from 13% in the 60's to just 4% in the 90's. This is chiefly due to a move towards service based economies and the effect of efficiency focussed taxation.

I'm not convinced that the global bully petrol companies are acting as any kind of an -opoly. The fact that their prices are broadly the same doesn't evidence the existence of a cartel at all. This isn't price fixing; it's healthy discounting according to local market forces. Filling stations are crucially aware that they need to stay competitive to within 3 or four miles. There are plenty of oil companies besides the big three and nothing to suggest that this industry is any more top-heavy than say supermarkets.

There are 2 main reasons why petrol prices are going up:
1: The Chancellor increases tax and that has to be passed on by law
2: Commodity traders factor in a risk premium for the war and terrorism and increase the price of oil. The oil co's need to pass these increases on to stop them going out of business and maintain profits.

Frankly if you believe that the government has a responsibility to tax people out of their cars with a rate of 400% on vehicle fuel then you have to agree that it has a corresponding responsibility to ignore calls for lower taxes from frustrated motorists like myself.

An alternative argument states that the British motorist contributes £45Bn a year to the Exchequer and receives only £2Bn back in road improvements and extensions. With no viable alternative being found in the joke that is public transport - our average driver is caught between and a rock and a very hard place to get to.

Comments

[e westernhagen]

Petrol prices are being pushed up 'gently'; i.e. Governments motto is not to upset the voter at this very critical time for them. How come that none of Britain's people seem to object that the fuel pump price is very close to the £1.00 mark per litre?
Why is Diesel more expensive than Unleaded?
Where are the hauliers to object? Let's make the cost, or better, the tax on petrol an election issue. We all know that the cost of crude oil is up, that is why we must see a reduction in the tax element.
We must refuse to finance the unwanted and illegal war with Iraq via continuous stealth taxes!