The cost make up of a litre of fuel
In a litre of fuel costing £1 at the pump…
- fuel duty is 57.95p
- VAT is 16.67p
- cost of the oil and retailers’ margin is 25.38p
- tax therefore represents three quarters of the forecourt price.
Information on the cost of fuel and how small business owners and company car managers can make the most of fuel savings while they are still available
IT’S fair to say that a year ago, hardly anyone would have predicted the kind of drop in the cost of fuel at the pump that we have seen since October.
It’s thanks largely to the price of a barrel of oil dropping more like a stone than a feather. This is due to a combination of factors, such as production levels remaining high, lower than predicted demand because of stalling economic growth and the fact the US has become far more self-sufficient due to fracking.
It’s not necessarily unusual to see the price of diesel and petrol falling at the pump, but that is usually followed by a return to higher prices shortly afterwards.
This time there is a real sense that lower prices are here to stay for a significant period, and in fact Bob Dudley, group chief executive of BP, has suggested prices could remain low for perhaps the next three years.
This presents businesses with an unexpected but very welcome cut in the cost of running their vehicles, on average around 14% off the weekly fuel bill, based on the reduction of the price of a litre of diesel between October 2014, 133p, and the start of January 2015, 114p.
However not all of these benefits have flowed through yet to operating costs because many business, including the RAC, forward-purchase their fuel up to a year in advance.
At the RAC we have been saying since early December that the average price of a litre of unleaded petrol is likely to drop below £1, and we have already seen some retailers marketing fuel at 99p.
However, there is a point where the retailers can go no further without making a loss, and we are fast approaching that due to the level of duty being taken out by the Government (see panel).
you can be certain that the level of duty will only go one way
So the real question now is what happens to that level of duty after the General Election on May 7 when a new administration will be in place?
The feeling is that the next government may well take the opportunity to raise some much-needed revenue to plug gaps in public spending by increasing the duty on fuel, nudging prices back up and once again hammering private motorists and businesses alike.
The message to businesses should be to look at making the best of the current cost savings, and try to re-invest the proceeds for future growth.
For whilst the cost of the raw materials may well remain low for the coming years, you can be certain that the level of duty will only go one way.
