Petrol prices are FALLING to three-year lows. Could this mean fuel duty will soon be increased in the budget?

According to AA data, the average price of unleaded petrol fell to £139.5 per litre yesterday, a three-year low.

While motorists will welcome this, the price is being pushed up by the 5p cut in fuel duty introduced by the previous government.

The motorists’ association is calling on the new government to continue the fuel duty cut in preparation for the October budget.

Before petrol prices fell to 139.5p per litre yesterday, the previous lowest was 139.7p in January 2024.

The current average price was last seen in October 2021, so motorists can breathe a sigh of relief when they need to fill up again almost three years later.

Diesel also fell yesterday to 144.2 per liter.

The lowest diesel price was in October 2021 at 144.3 per liter, when the corona crisis hit and Ukraine had not yet been invaded.

The reality, however, is that without the 5p cut in fuel duty (6p with VAT), these low levels of the past three years would have been delayed by 10 to 14 days, the AA said.

In March 2022, the excise duty on fuel was reduced. The impact of this should not be underestimated.

The average price of petrol fell by a cent over the weekend to Monday and by a further 0.4p on Tuesday.

If the excise duty cut had not been implemented, it would still have taken more than 10 days for pump prices to return to current levels, even if pump prices fell as quickly as they did on Tuesday.

Without the excise duty cut, pump prices would now have been 145.5p for petrol and 150.2p for diesel.

‘The only reason pump prices are near three-year lows this week is the 5p cut in fuel duty.

“If we scrap the law, millions of low-income motorists risk returning to an era of ‘permanently high’ fuel prices,” said AA Chairman Edmund King.

‘Abolishing the fuel duty cut will deliver a £3.30 per tank (standard 55 litres) shock to the personal and family budgets of the 28 per cent of drivers who spend a fixed amount when they go to a petrol station.’

This follows warnings from the AA that if the excise duty cut had not been implemented in March 2022, UK motorists would have faced average petrol prices of more than 150p per litre from 21 February to 8 August.

Before Covid, the highest rate paid by UK motorists was £142.48 per litre in April 2012.

According to This is Money, fuel duty hikes, rising commodity prices and expanding retailer profit margins could cause real financial problems.

What would be the impact of an increase in fuel duty on motorists?

With the Labour government indicating that there is a “£22 billion black hole” in the public finances that needs to be filled by the departure of the Conservative regime, an increase in motor fuel duty seems inevitable.

This would be the first increase since 2011.

While many motoring groups expect the abolition of the 5p fuel duty to save the Treasury around £2.4 billion a year, there is more bad news for motorists, with some experts predicting the Chancellor will go much further and increase the duty by 10p per litre.

Your browser does not support iframes.

Howard Cox, a Reform UK politician and founder of the campaign group FairFuelUK, said last week: “I have good information that the Treasury has almost certainly decided… to increase fuel duty by 10p a litre.”

This could lead to the tax on each litre of petrol and diesel being increased to 62.95p.

“I predict that the October Budget will ultimately lead to a greater plundering of British motorists than at any time since 1997 to 2010, when Labour raised fuel duty by a staggering 46 per cent,” Cox continued.

The AA analysed the impact of removing the 5p fuel duty cut on workers earning a living wage and driving long miles to work or on the road.

These are employees who work 40 hours a week at £11.44 an hour and currently earn £20,653.94 a year.

In April 2022, the same worker on the Living Wage, with an hourly wage of £9.50, earned £17,748.60 a year – a difference of £2,905.34.

If the 5p fuel duty cut were to be abolished, it would lead to a 6p per litre increase in the price of petrol at the pump, making the average 55-litre fuel tank £3.30 more expensive to fill.

For an employee who fills up once a week, the annual fuel cost increases would be £171.60.

Falling Oil Prices – How Do Oil Prices Affect Prices at the Pump?

The other reason fuel prices fell yesterday was crude oil prices, with the price of a barrel of oil falling from over $80 in mid-August to $73 this week.

The resulting drop in wholesale fuel prices has contributed to lower pump rates this week.

Changes in the oil price are clearly noticeable at the pump.

The industry standard is to charge 1p per litre at the pump for every $2 per barrel change in the oil price.

This means that a $20 increase results in a £5.50 increase in the cost of filling a typical 55-litre fuel tank.