How are UK fuel prices set?
Published - 4 min read
What goes into a litre of petrol or diesel in the UK: wholesale costs, fuel duty, VAT and the retailer margin, and why prices rise faster than they fall.
What you pay for in a litre
- The fuel itself: the wholesale price, which follows the oil price and refining costs, and is traded in US dollars.
- Fuel duty: a fixed tax per litre set by the government.
- VAT: charged on top of everything else, including the duty.
- The retailer's margin: what the forecourt adds to cover its costs and make a profit.
Duty and VAT make up a large share of the pump price, so even a big change in the oil price moves the pump price by less in percentage terms. For current duty rates, see GOV.UK.
Why prices differ between stations
Retailers buy fuel at different times and prices, have different costs, and face different local competition. That's why the gap between supermarkets and other forecourts can be large.
Rockets and feathers
Drivers often notice that pump prices rise quickly when wholesale costs go up, but fall slowly when they come down. The Competition and Markets Authority has looked into retailer margins, and the Fuel Finder scheme was introduced so drivers can compare prices more easily.
What you can do
You can't change the oil price, but you can choose where you buy. Comparing stations near you is the simplest way to pay less.