Why the full fuel duty cut is not being passed on to drivers as oil and petrol prices fall

Prices at the pumps fail to reflect 5p per litre tax cut and recent drop in oil costs

Wednesday, 30th March 2022, 2:45 pm

Drivers around the UK are still not seeing the full benefits of the cut in fuel duty, a week after the change was introduced.

Chancellor Rishi Sunak announced a temporary 5p per litre reduction in the levy from 6pm on Wednesday 23 March but seven days later and with the price of oil also falling, forecourt charges have failed to come down in line with the cut.

Some retailers, including the major supermarket chains and larger operators such as Shell and BP did say they would pass the tax saving - equivalent to 6p per litre after VAT - but the price at many other pumps does not reflect that.

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According to the latest price information from the RAC, the average price of a litre of petrol has fallen by just 3.49p since last week’s Spring Statement and diesel prices have reduced by just 2.43p per litre.

Petrol prices have not fallen in line with the fuel duty reduction

That is despite a significant drop in the price of oil and the wholesale cost of fuel over the same period.

The RAC’s Rod Dennis said that many retailers would be holding off reducing their prices until they could buy fuel in at the new lower prices.

He said: “Unfortunately, wholesale fuel prices were already rising before the Chancellor made his announcement on fuel duty last week.

“This meant retailers were buying fuel in at a higher cost than they were a week earlier, which meant drivers may not have immediately and fully benefitted from the duty cut. Thankfully, wholesale prices are now falling, but it’s likely to be next week before we see the impact this has at the pumps.”

The cost of a barrel of oil has fallen from $126 on the day of the Spring Statement to $112 on 30 March. Over the same period, wholesale petrol prices have reduced by around 4p and diesel has come down 11p.

How much of those reductions and the fuel duty cut drivers will actually see comes down to individual retailers.

The body which represents filling station operators said that smaller independent operations in particular were vulnerable to market volatility and had to set their prices accordingly.

Gordon Balmer, director of the Petrol Retailers Association, said: “Forecourt operators have purchased the fuel they are currently providing at the higher fuel duty rate. As a result, they must first deplete their stocks and resupply with fuel bought at a reduced rate before motorists will see a change in pump prices.

“The PRA understands why motorists are frustrated with high fuel prices. The Government should have established in their announcement that any cut in fuel duty wouldn’t be immediately reflected in pump prices.”