British drivers are paying significantly more at the pumps than drivers in several other European countries.
According to RAC data, petrol currently costs around 156p per litre in the UK, compared with roughly 136p in Cyprus, 130p in Spain and 116p in Malta.
Drivers don’t have to refuel too many times before the difference starts hitting their wallets. According to the RAC, filling a 55-litre tank in a typical family car now costs around £87 for petrol and just over £100 for diesel.
Elsewhere in Europe, Polish drivers pay just 122p per litre for petrol, while a litre of petrol costs Bulgarian motorists 131p. If European countries access the same global oil market, and face the same geopolitical challenges, why are petrol and diesel so much more expensive in the UK?
For Luke Bosdet of the AA, the answer is simple. “It’s a tax thing,” he said. “Some countries load their tax onto car ownership – car tax and the like. Others load it on to car use – duty on fuel. And others combine the two.”
At this week’s average petrol price of 152.7p per litre, UK drivers pay 26p in VAT and 53p in fuel duty, according to the RAC. That means 79p of every litre sold is tax, equivalent to just over half of the pump price.
Compare that with Spain, where the cost of a litre of fuel is around 130p. RAC figures show why Spain is cheaper. The fuel and retailer margin account for about 76p in both countries. But rather than the 79p in duty and VAT paid by UK drivers, those in Spain pay 53p.
The Malta outlier
But there are outliers too. In Malta, for example, petrol costs just 116p per litre. Yet based on RAC figures, tax accounts for 56% of the pump price, not dissimilar to the UK tax take despite the much lower pump price.
However, if British drivers think they are hard done by, spare a thought for Dutch motorists who pay 193p per litre of petrol and 182p per litre of diesel.
For Stuart Adam, a senior economist at the Institute for Fiscal Studies (IFS), “the UK is roughly in the middle of the pack in terms of prices and slightly above average in terms of tax rate”.
He said that 20 years ago, the UK had “easily the highest tax rates in terms of both petrol and diesel” but “a series of real-term cuts to fuel duties” has meant that’s no longer the case.
So why is petrol and diesel cheaper in Spain, Malta, Poland and Bulgaria? Steve Gooding, director of the RAC Foundation, said: “More often than not, the fact that fuel prices are cheaper in southern and eastern European countries is likely to reflect government policies, including state-owned fuel production, designed to keep fuel prices down where average wages are also relatively low.”
Take Malta, for example. A spokesperson for the Central Bank of Malta told Autocar that fuel prices have remained stable in recent years due to a “fixed energy price policy”. Through energy subsidies, retail fuel prices have been “maintained at fixed levels despite fluctuations in global oil prices”, the spokesperson said.
Duty and VAT: why doesn’t the government cut it?
In the UK, however, the focus has been on fuel duty. Adam said ministers could reduce it if they wanted to, but it would come at a cost.