Fuel prices have risen dramatically over the past year – that’s not news. But if you’ve had to fill up your tank over the last couple of weeks you’ll have noticed petrol prices have skyrocketed. In fact, prices at the pumps have increased on a nearly daily basis since the start of 2022.
Obviously this has negative consequences for those in the driver training industry – especially independent ADIs.
Have your say on the impact of the rising fuel prices on your business in our survey at the bottom of this page. As a reward for contributing your opinion we’ll be rewarding one participant, drawn at random, with a £50 voucher (to use on filling up their fuel tank!).
What’s driving the price rise?
Per data from the Department for Business, Energy and Industrial Strategy, the increase between 28 February and 7 March was the sharpest in 18 years: with the average price of a litre of petrol rising from 149.2p to 153.0p this Monday. Similarly, average diesel prices rose from 153.4p to 158.6p.
A year ago, the average petrol price stood at 122.50p a litre, while diesel was at 125.99p, according to the motoring group RAC.
This severe rise in prices at the pumps is largely due to the cost of crude oil, which is used in manufacturing petrol and diesel, having risen significantly following Russia’s invasion of Ukraine. Fears over the security of oil supplies have apparently pushed up wholesale prices for barrels of crude. A surge in oil prices followed a suggestion from the American government that it was talking to rival producers about increasing supplies in the event of any boycott of Russian energy. The US has since announced a ban on all Russian oil imports. This Tuesday (March 8th), fuel giant Shell said that it would stop buying oil from Russia – the world’s third largest oil producer – and “withdraw from its involvement in all Russian hydrocarbons”, including its filling station and aviation operations there.
As a result average price of a litre of petrol in the UK now stands 156.37p, according to the RAC’s Fuel Watch service, with diesel averaging 162.28p.
They now predict that petrol could hit an average of £1.60 per litre by the end of this week, whilst the cost of diesel could jump to £1.65.
What will happen to fuel prices now?
As prices continue to soar, one filling station in Wales (the BP Moto Services at junction 47 of the M4 near Swansea) is already charging 192.9p per litre, as per petrol station comparison website PetrolPrices.com. That’s despite the same site showing a price of 153.9p, a mile away at the Tesco store in Fforestfach, illustrating both how prices in the UK can vary dramatically according to location and the pessimistic outlook from suppliers (and panic amongst consumers) about the likely direction of fuel prices in the near future.
Sadly, despite drivers already facing soaring costs, the current high prices at the pump have yet to even fully reflect the latest increases in the cost of a barrel of crude oil.
On Tuesday Business Secretary Kwasi Kwarteng announced that the UK will phase out imports of Russian oil and oil products by the end of 2022. There will be a price to pay for cutting off Russia’s supply of oil to Britain (and other countries). The RAC warn that this cost will be passed on to motorists at the pumps.
The price of a litre of petrol will likely surpass £1.60 this weekend and, as the BBC reports, the RAC expect unleaded to exceed £1.65 “soon” afterwards, due to the impact of the further new sanctions on Russia.
Whilst Boris Johnson admitted diesel prices could rise further across the UK following the announcements, with prices already having rocketed after Moscow’s attack on Kyiv, the Prime Minister also opined that the UK is “less exposed” than some European nations in regards to restricting Russian oil (the EU imports more than a quarter of its oil from Russia). Conservative MP Robert Jenrick however acknowledges that Britain may be facing “the most difficult economic year we’ve seen in my lifetime”.
The UK imports just 8% of its energy from Russia, but the immediate effects of the ban will interplay with other compounding factors, cause prices to push further upwards, Cornwall Insight‘s energy analyst, Robert Buckley, told BBC news.
How could the government respond – and what difference would it make to your fuel costs?
The Government has been urged to cut VAT on petrol and diesel as prices reached new record levels.
The RAC has called on Chancellor Rishi Sunak to implement an immediate 5% cut on the tax to ease pressure on households and businesses facing spiralling costs.
With VAT comprising approximately 16% of the price of a litre of fuel, the motoring group’s fuel spokesman Simon Williams emphasised that a cut in VAT – from 20% to 15% – would save drivers more than 6p per litre, based on current prices.
Williams said: “The average price of petrol across the UK has jumped by more than 4p in a week, topping £1.55 for the first time ever which means a gallon costs over £7 – something which many older drivers will be struggling to comprehend. Diesel, however, has increased by 6.5p a litre to £1.61 or £7.30 a gallon”.
“These hikes are unprecedented and will sadly be hitting both homes and businesses hard. It’s therefore vital the Chancellor acts quickly to limit the damage by cutting VAT to at least 15% which would save drivers 6.5p a litre and take the average price of unleaded back under £1.50. Importantly, this could also limit the impact of inevitable fuel price rises in the coming days and weeks.”
He further commented: “Another day of record average pump price highs is putting petrol on a rapid journey towards 160p a litre and diesel to 165p. Given the speed of increases, drivers could unfortunately see this by the end of the week. And as these are averages far higher prices will be appearing on forecourt totems up and down the country”.
“The Chancellor needs to act now to cut VAT to save homes and businesses from untold financial pain. A cut to 15% would save drivers 6.5p on petrol based on the current average of 156.37p whereas for diesel at an average of 162.28p the saving would be 7p a litre”.
“Mr Sunak also needs to be prepared to go further if prices continue to rise as expected, after all it doesn’t seem fair that the Government’s coffers should benefit from the hike in the oil price while drivers suffer”.
“Currently, around 26p a litre is going to the Treasury from VAT alone, so a cut to 15% would only take the tax take back to around 20p a litre which was broadly what was collected over the last three years.”
It remains to be seen how the Chancellor will respond – and how quickly.
Meanwhile, do shop around next time your vehicle needs a top-up. As illustrated above, prices can vary dramatically, even locally within a very short (easily drivable) radius. A handy tool used by 2.1m UK drivers to compare petrol and diesel prices is Petrolprices.com.