Motorists should brace for higher fuel duties and ‘permanently high’ petrol costs, warns AA

Families, businesses and workers face an era of “permanently high” fuel costs, the AA warns.

A combination of fuel duty increases, rising commodity prices and increasing retailer profit margins will hit motorists hard.

There are concerns that the Labour government will raise fuel duty, something Sir Keir Starmer refused to do during the election campaign.

If the Treasury increases fuel duty in the Budget, on top of fuel retailers’ “inflated” margins and already high commodity prices, it will “trap and condemn” British families to huge outlays on fuel and road transport, the AA has said.

In March 2022, fuel duty was cut by 5p. Until then, motorists had been faced with the worst average petrol prices in British motoring history.

According to the AA, ‘the 5p cut in fuel duty was the only mitigating factor in the three years (so far) of persistently high fuel prices’.

The fuel duty cut came as a welcome relief after a combination of the pandemic and the war in Ukraine led to astronomical petrol prices from late summer 2021.

There was only a brief two-month period when the average price of gasoline at the pump was below the pre-pandemic record of April 2012, when gasoline was $142.48 per gallon.

In July 2022, a record average of 191.53 per liter of gasoline was reached.

Many motorists would find it difficult to accept another big increase in the price of petrol. 28 percent of AA members are tied to a fixed amount when filling up. For poorer motorists this is even 40 percent.

Electric cars, plug-in hybrids and self-charging hybrids offer an alternative. Despite the falling cost of public charging outside peak hours and the savings that can be achieved by charging at home, the upfront costs of new electric cars mean that electric driving will be out of reach for lower-income drivers in the near future.

FairFuelUK has been campaigning for a freeze on fuel duty since 2011, and the Conservatives have kept that promise for the past 14 years.

In March it was predicted that motorists would save £50 this year and £250 since the 5p cut, giving motorists a £1 billion tax break.

But this relief will come to an end when Finance Minister Rachel Reeves reverses the fuel duty cut in the October budget.

The Chancellor of the Exchequer told the House of Commons this week that there was a £22 billion hole in the country’s finances that needed to be plugged.

The fuel duty hike is expected to be announced as a way to boost the Treasury’s coffers, as Labour carefully skirted the issue during the election campaign.

Sir Keir Starmer refused to rule out a rise in fuel duty altogether. The prime minister would not say whether he would continue a trend that has been going on for 15 years.

Starmer said he had supported a freeze on fuel duty “every time it was raised” but that “fuel duty should be set in each budget”.

In the run-up to the election, Shadow Secretary of State for Transport Louise Hague told Auto Express: ‘On fuel duty, we want lower taxes for working people, which is why we have always campaigned in this parliament against fuel duty increases.

‘Our plans do not state that we need to raise additional funds in addition to the measures that have already been announced.’

What is causing the sky-high gasoline prices?

A number of factors play a role here.

Oil and commodity fuel costs in the five years before Covid and the war in Ukraine, Brent crude was $60 a barrel. Now it’s $80.

The industry standard is to charge 1p per litre at the pump for every $2 per barrel change in the price of oil. This means that the $20 increase has resulted in a £5.50 increase in the cost of filling a typical 55-litre tank of fuel.

And retail margins are driving up the price of petrol by more than 6p a litre.

In last week’s Road Fuel Interim Monitoring Update, the Competition and Markets Authority reported that ‘petrol price spreads averaged 12.62ppl in the four months to June, which was 2.55ppl lower than in the previous four months – but still more than double the 2015-19 average of 6.51ppl’.

Those 6 people mean motorists will have to pay an extra £3.30.

A combination of three factors is pushing up costs at the gas pump: Crude oil now costs $20 more per barrel than it did five years ago.

Then there’s the triple whammy of a weaker pound. Exchange rates currently mean the pound is worth less than $1.3, compared to well over $1.4 before Brexit. Once commodity prices are subject to these rates, a motorist will be handed an extra £1.90 on every tank of petrol.

Luke Bosdet, AA’s pump price spokesman, said: “Overall, AA is concerned that current high prices could worsen significantly if fuel duty is increased in October.

‘But the budget of October 30 could be decisive.

‘The Spring Budget 2024 confirmed that fuel duty would remain frozen for the 14th year in a row – and the then Chancellor of the Exchequer extended the ‘temporary’ 5p per litre cut for a further 12 months. If the current Chancellor reverses this, it will hit motorists, businesses and the economy hard.’