OFT blames tax for high petrol prices in the UK

Ben Southwood
Follow Ben

fuel prices in the UK are due to high duty and VAT, not a lack of competition, competition authorities concluded yesterday.

There is no need for a full inquiry into UK petrol pricing, the Office of Fair Trading (OFT) said yesterday, because there is no persuasive evidence of anti-competitive behaviour in fuel markets.

In fact the UK enjoys some of the cheapest pre-tax fuel in Europe, according to the OFT. It said that high tax levels are to blame for inflated prices at the pump.

Between 2003 and 2012 petrol pump prices grew from 76p per litre (ppl) to 136ppl, while diesel prices climbed from 78ppl to 142ppl. But of this rise, 89 to 95 per cent came from increased duty and higher crude oil prices around the world. Only a small amount extra went to those selling the oil, the OFT found.

“We recognise that there has been widespread mistrust in how this market is operating,” said OFT chief Clive Maxwell. “However, our analysis suggests that competition is working well, and rises in pump prices over the last decade or so have largely been down to increases in tax and the cost of crude oil.”

And the OFT said that it was a misconception that firms were engaging in so-called rocket and feather pricing – where pump prices rise rapidly when input prices climb, but only recede slowly when inputs cheapen. The watchdog could find “very limited evidence” to suggest firms used this pricing strategy.

But competition has not driven all prices to exactly the same point. Supermarkets sell fuel around 2ppl cheaper than the average oil company owned vendor, which was in turn 2.3ppl cheaper than the average independent dealer.

And most expensive were motorway service stations, where consumers often cannot see the prices on offer before they drive in.

A separate report out yesterday, from British Car Auctions revealed that high oil prices were driving consumers to re-think their car usage. Some 53 per cent said they would eventually buy a more efficient vehicle or change their driving habits.