The RAC has called for the abolition of the 5p fuel duty cut, highlighting its negligible benefit to drivers despite its high cost to the Treasury.
Retailers’ profit margins have overshadowed the intended savings, prompting criticism from consumer organisations keen on achieving fair pricing.
Background of the Fuel Duty Cut
In 2022, a 5p cut in fuel duty was implemented by then-Chancellor Rishi Sunak as a measure against rising fuel prices following geopolitical tensions, particularly Russia’s invasion of Ukraine. This initiative was intended to provide relief to motorists by saving them approximately 6p per litre when including VAT. However, the expected benefits of this relief measure for drivers have been diminished due to market dynamics.
Current Market Dynamics
Retailers are reportedly maintaining high profit margins, thereby undermining the purpose of the fuel duty cut. According to the RAC, these margins have set records, reaching 13p per litre for unleaded petrol and 15p for diesel, compared to the pre-pandemic margins of 8p per litre. Such behaviour has exacerbated the lack of discernible savings for the average driver despite the duty reduction.
Simon Williams of the RAC has explicitly criticised major retailers for this pricing strategy. He emphasises the unfairness of high retail prices, stating: “The biggest retailers’ refusal not to reduce their prices to fairer levels is continuing to cost drivers dear, and it’s all the more outrageous when you factor in the fact we’re all meant to be benefitting from a temporary 5p cut in fuel duty.”
Fiscal Impact and Retailer Profits
The fiscal implications of the 5p duty cut are significant. The Treasury incurs an annual cost of £2 billion due to this relief, a figure that the government must offset in other budget areas. This raises questions about the efficacy of the cut, especially when drivers perceive no real savings. Compared to the original 57.95p duty per litre, which has been stable since 2011, the current rate has only reduced by a mere 5p.
Against this backdrop, the Competition and Markets Authority (CMA) highlighted that inflated margins last year led to motorists being overcharged by £1.6 billion. Despite the RAC’s usual opposition to duty increases, Williams has argued that it might be necessary to re-evaluate the cuts given the inflated retail profit margins.
Retail Adjustments and Challenges
The RAC urges petrol retailers to recalibrate their prices, suggesting a decrease in average petrol costs from 142p per litre to 136p, and diesel from 147p to 139p. However, these recommendations have met resistance. The Petrol Retailers’ Association counters that the RAC’s view overlooks evolving market realities.
Gordon Balmer, executive director of the Petrol Retailers’ Association, points out the rising costs that retailers face, such as increased interest rates, energy expenses, and labour costs. These factors contribute to the ongoing challenge of implementing the RAC’s suggested price reductions.
Motorway Service Stations and Competition
Further compounding the issue, motorway service stations have not aligned their prices with general market trends. The Automobile Association (AA) has noted a persistent pattern of elevated charges in these areas. Luke Bosdet of the AA commented on this trend, criticising the lack of competition by stating: “Pump prices at motorway service areas continue the tradition of being almost completely uncompetitive — the consistency of exorbitant prices up and down the major network is breath-taking.”
A proposed regulatory solution is the shift of the CMA’s pump price transparency scheme from a voluntary to a statutory framework, anticipated to enhance competitive pricing.
Such a regulatory shift may not immediately impact prices at motorway services, yet it is considered a crucial step towards more transparent pricing structures across the board.
The Call for Reassessment
The RAC has been vocal about rescinding the fuel duty cut in light of its failure to deliver intended savings. Additionally, there’s mounting pressure on the government to reconsider the measure’s overall efficacy. The organisation underscores the disparity between the intended and actual outcomes, viewing the cut as fiscally unsustainable given the current retail profit margins.
The overarching sentiment is one of frustration, as drivers continue to bear a financial burden not fully alleviated by the duty cut. Reassessing this policy could align fiscal strategies with tangible benefits for motorists.
As the dialogue around the 5p fuel duty cut progresses, it becomes increasingly evident that the measure’s potential benefits for drivers remain unrealised. Amid rising calls for fiscal reevaluation and fair retail pricing, the government faces significant pressure to ensure that future policies effectively translate into meaningful savings at the pump.
