A royal advisory committee has called for the 5p fuel tax cut to be scrapped, claiming motorists are not benefiting as intended.
Introduced in 2022 to ease the cost of living crisis, the cut is costing the Treasury £2bn a year but has failed to translate into savings at the pump for drivers. The car group has accused fuel retailers of profit-taking, leading to record margins of 13p a litre on unleaded petrol and 15p on diesel, compared with a pre-pandemic margin of 8p.
Simon Williams, head of policy at the RAC, criticised the biggest retailers for keeping prices high, saying: “The refusal of the biggest retailers to lower their prices to fairer levels continues to cost drivers dearly, which is even more infuriating when you consider the fact that we are all supposed to benefit from a temporary 5p cut in fuel duty.”
The cut was introduced by then Chancellor Rishi Sunak in response to rising fuel prices following Russia’s invasion of Ukraine, and was intended to save motorists 6p a litre once VAT was added. However, sharp increases in wholesale oil prices quickly wiped out the savings. Although wholesale prices have since fallen sharply, retail margins remain high, suggesting that motorists are still not seeing the intended benefits of the charge cut.
Fuel duty currently stands at 52.95p per litre, down from 57.95p before the cut, which has been frozen since 2011. Williams argues that the Chancellor should reverse the cut in the October Budget, and raise the duty back to 58p per litre, highlighting that the 5p cut is costing the government billions while overcharging drivers. According to the Competition and Markets Authority (CMA), drivers were overcharged by £1.6bn last year due to inflated margins.
“We normally oppose any increase in the charge, but we have long argued that drivers have not benefited from the current discount due to retailers’ much higher than average margins,” Williams added. The RAC is urging retailers to adjust their prices to reflect lower wholesale costs, calling for average petrol prices to fall from 142p a litre to 136p, and diesel from 147p to 139p.
But the Petroleum Retailers Association has rejected the claims. CEO Gordon Palmer said the association’s focus on historical margins fails to take into account the rising costs facing retailers, including rising interest rates, energy prices, crime and labor costs.
Another analysis by the American Automobile Association found that while gas prices generally fell over the summer, highway service stations were slow to adjust, leading to higher prices. Luke Bosdet, the AAA’s spokesman for pump prices, criticized highway service areas for their consistently high prices: “Highway service area pump prices continue a tradition of being completely uncompetitive—the persistence of high prices up and down the main grid is astonishing.”
The Competition and Markets Authority’s fuel price transparency scheme, which is set to be transformed from a voluntary to a statutory scheme, is expected to shine a light on fuel pricing practices and potentially offer more competitive options for long-haul drivers. However, it remains uncertain whether the scheme will lead to significant changes to motorway service areas.
As the debate continues, the advisory committee’s call to scrap the fuel tax cut puts pressure on the government to reassess the effectiveness of the measure, amid growing frustration that the intended savings are not reaching drivers.