The sharp fall in the oil price in recent weeks is as welcome as a tax cut. We see the results at the petrol pumps, with petrol and diesel for our cars, vans and lorries down in price.
Politicians have made clear they want to see further falls. They may have their way. It always takes a bit of time for the fall in the oil price to feed through to a fall in the retail price of oil based products. There can be a good reason – the oil companies have to work through their stocks of oil bought at dearer prices before they get the benefits of cheaper oil which they buy now. The price of petrol of course never falls at anything like the percentage of underlying oil, because so much of the price at the pumps is government imposed duty. Total tax is almost two thirds of the price we pay.
A fall of 10-12 p a litre is still good news. It’s a gain of more than £100 a year for someone travelling for 8000-10000 miles year in a typical vehicle with reasonable fuel economy. That’s £100 available to spend on something else, which can help provide a further economic boost. It’s also part of the process of getting people used to much lower inflation than the UK has experienced for many years. Surveys show people still expect inflation to be above the Bank’s 2% target and are suspicious of claims it is lower. At the moment it is visibly lower, with food price competition also helping the family budget.
November 11, 2014
Fall in oil price is certainly welcome, but this is not a tax cut! The argument about the delay does not hold: prices go up as a rocket, but down as a feather.
Otherwise, JR, wonderful try to move the “conversation” far from the mess yesterday in Parliament! But that’s politician’s speak for the rest of us.
November 11, 2014
Well less VAT on it! But they will probably up the fuel duty after the next election to get that back.
November 11, 2014
“Total tax is almost two thirds of the price we pay.”
Actually…
Fuel tax is levied at 200%
Say a litre of fuel is £1.50 at the pump, then the refinery price is 50p. The Govt add a stonking 100p to that.
Not only are we taxed on our pay (often at 40% for ordinary jobs) – we are also taxed on virtually everything we buy and everything we sell.
To be spent on things which we dislike.
No wonder we are losing skilled and moneyed people at a rate of 3oo,000 a year. Sure. Some are coming into the country but are our home trained doctors being replaced like-for-like ? Obviously not if price is the determinant.
November 11, 2014
It’s not correct to say fuel duty is levied at 200%.
Total tax is 61.3% as reported by DECC and the RAC foundation. That still leaves us with the highest level of fuel taxation in Europe. So we can’t entirely blame the EU for our high cost bases.
http://www.racfoundation.org/uk-fuel-market-review/overview
November 11, 2014
“Total tax is 61.3% as reported by DECC and the RAC foundation”
From your link:
With a litre of fuel costing 50.2 pence and the tax charged being 79.55 pence, how can the tax be less than 100%?
The rate quoted is 158%.
November 11, 2014
I used £1.50 for simplicity, Stephen.
It depends how it is spun, John. I’m sticking with it being a huge underestimation of fuel tax.
November 11, 2014
It would be interesting to know how low the price would be if the oil companies gave the fuel away for free. Fuel duty + 20% VAT = ???
November 11, 2014
Back in August , Murphy Oil sold 228 Murco UK forecourts for $335 million which was at the time £203m .
This equates to an average price of only £890k per forecourt .
That must be some way below replacement cost and suggests that the businesses themselves aren’t exactly cash machines .
Maybe Murphy are selling at less than real estate value because the underground tanks are an environmental liability .
Once the financing costs , liability insurance , regulatory risk , depreciation , regulatory costs , staffing , electricity , management overheads are taken into account it’s hard to see how they can compete with the supermarkets .
November 11, 2014
And do not forget CGT at 28%, including the effect of inflation over time (no longer indexed) and 40% Inheritance tax when you die, again on inflated assets, not on the real underlying gain. Saving is a mugs game.
November 11, 2014
Mondeo Man,
Totally agree regarding the percentage of tax.
A £100 item attracts £20 VAT for a total of £120. We don’t say that VAT forms 16.7% of the cost of that item. We take the cost of an item and add VAT at 20% on top.
Figures show that the taxes added to fuel when it was 132.9 pence per litre were 151%. This tax percentage will have increased with the reduction in oil prices.
Perhaps if everyone started using these correct percentages, a bit of realism could be introduced into the debate. Then again, it might not suit our rulers to do so…
November 11, 2014
Meanwhile electric cars get a £5000 grant to buy them and virtually no tax on the electricity and still they make little sense with current battery technology.
November 11, 2014
It annoys me that people commuting to work are charged VAT on travel costs for their efforts.
Also various other things – like forgetting our door key going to work the other day and forking out for a locksmith – wallop ! The Govt there with £30 of VAT to add to our woes.
I suppose with hundreds of people unable to make sandwiches for a living we must subsidise them instead and also subsidise their imported replacements – so every penny must be squeezed from the rest of us.
How many votes does the always-wrong-and-never-right CBI account for ?
November 11, 2014
In fact it is even worse than that. By forcing these large tax collection costs onto the Oil distribution companies they further increase the costs/security/capital costs for the distribution and oil companies. Daft employment laws, OTT regulation, pump regulations and restrictive planning laws further push up their costs.
November 11, 2014
On the 6th Nov, I did wrote the following numbers, which, with a little arithmetic, shows that total “taxes” at that time was 63.5%.
Non-leaded Petrol is 35.6 pence per litre today, Diesel 40.1 p/l. The price has dropped about 15% since this time last year, Crude has dropped circa 22% in the same period.
So that is 35.6 p/l for petrol; 10.5 p for the supply chain margin and 79.3 p/l for the Treasury. Just imagine if all our taxes and duties were added at the till. 46.1 petrol; 57.95 excise duty and 20.9 VAT = 124.9 p/l.
November 15, 2014
Fuel duty is 57.95p per litre. VAT is 20% of the retail price before VAT, so 1/6 of the price you pay at the pump.
I paid 124.9p per litre last time I filled up, so the VAT is 20.82p, and when you add that to the fuel duty, the total tax is 78.77p.
If there was no tax, the the price would be 46.13p, so the tax rate is 171%.
November 11, 2014
Indeed the reduction in oil, gas and coal prices is very welcome indeed (was oil not supposed to run out in 1990 or something according to the green doom and disaster loons). It could be even more if they got on with fracking like the US. This of course makes Cameron & Ed Davey’s idiotic “renewable” agenda even more relatively expensive, damaging and total pointless than it was before. Cancel all subsidies for on shore and off shore wind, silly electric cars, biomass, PV roof nonsense and the likes and let them stand on their own feet where they can. We do no want England and the UK plastered in these absurd pointless bird & bat chomping wind farms.
Of course it will not be long before government (299+ tax increasing so far) put up taxes to grab the reduction for themselves. This so they can continue their tax borrow and piss down the drain policies. Perhaps on about May 8th 2015.
On airports (as flights can be cheaper with cheaper oil) just get on with a new runway at Heathrow and Gatwick. Then you can link them with an HS train line and have a proper hub airport. It even gives the government a good reason (for a change) to build a usefull HS train, They seem to love trains and bikes against all rational logic, economics & reason. But an airport link in say 15 mins would be great. Call it London Hub.
No comment on the government’s despicable behaviour in the commons last night?
Reply I made my points during the debate and have posted on it today under debates and local issues.
November 11, 2014
Thank goodness Red Ed was not in power to freeze the prices at their former higher levels!
The reasons for the oil price fall are curious, probably mainly driven by high politics. We might best regard ourselves as collateral beneficiaries of some sort – i.e. it is not being done for us but whilst the sun shines, we might enjoy.
November 11, 2014
Unless you are big energy consumer which has to hedge against increases in energy prices why buy for the future now when you think you will be able to buy cheaper next year ?
November 11, 2014
I agree but I hope environmental leftists including people such as Ed Miliband and Ed Davey will be intellectually honest enough to say they think its bad news, as lower petrol prices in their view must mean more global warming. They should be proposing extra taxes to compensate if they are honest, another good topic for the election.
November 11, 2014
Hopefully Ed Davey will cancel his idiotic renewable and wind agenda and grants, now that we have had no warming for 18 years and anyway UK co2 is a very tiny percentage of worlds C02 we will not get World agreement to reduce. Anyway about a 1 degree warming as is perhaps the most likely outcome is on balance a net benefit to the World.
November 11, 2014
Ed Davey do something sensible? I really cannot see the day where he will realise his current energy policy is stupidity itself. Whoopee, some of us are going to be £100 a year richer if fuel prices stay down. That’s more to spend on every increasing gas and electricity bills! Ed will be telling us how lucky we are soon. As most of the renewable energy firms are foreign that will be most of the money leaving the country. Isn’t that sensible?!
November 11, 2014
If politicians are so keen for the fuel price to fall then perhaps they should cut the huge rates of tax on it. Just one more instance of political hacks pretending they care about peoples problems yet doing nothing in reality.
What they should really say is “We want you to believe we are here to help you so that you will continue voting for us but really we just want to keep milking you for tax so that we can continue with our subsidised lifestyle.”
November 11, 2014
They are not keen on falling energy prices as it makes their absurd misallocation of capital with green grants and feed in tariffs look even more moronic than it is already. Also the more it costs people to get to work they more they have to work to make a profit after income tax as it is not deductable.
They want to pretend oil, coal and gas are running out very, very soon so they can push their rotating and shiny roof PV religious symbols. Using your taxes to bribe people to “invest” in this uneconomic and un-environmental drivel.
November 11, 2014
We have some of the cheapest fuel in Europe. Unfortunately we have the most greedy government.
November 11, 2014
A greedy government yet delivering a poor NHS, pointless & damaging wars, a poor education system, a lack of road space (and runways) and a huge deficit to boot.
But lots of pointless wind turbines and PV roofs.
November 11, 2014
This is good news for me . I have 2 jobs to make up my F/T job . The day job Itried to get many years ago to eliminate the travelling imposed on me by private contractors when the NHS decided to get rid of senior nurses in the 90’s. In the morning I travel just a few miles and 10 years ago would have cycled, BUT in the evening I travel 30 – 40 miles around to patients houses as a District Nurse. This is not a pleasant laid back job The job depends upon meeting patient contact targets and trying to find houses in the pouring rain , when the sat nav takes you the wrong way and in the snow and ice with time limits. The trust has recently put a limit on the mileage we are allowed to claim for and unfortunately this does not cover the amount we spend on petrol and wear and tear on the car. This reduction in petrol price will certainly help.
November 11, 2014
That’s ridiculous, Margaret. If you have to do the mileage you have to do the mileage and so should be paid for it. Otherwise you are donating to ‘charity.’ (And I don’t doubt that you are btw)
The truth is that public funds are not as clearly demarked as is made out. All finds its way into one pot and is distributed thereafter whatever we are told.
November 11, 2014
Dr. JR , you are right to point out the amount of tax in the price of a litre of fuel ; it does produce an enormous contribution to the treasury but it has detrimental effect on the cost of goods manufactured and distributed . The trips that I make show no diminution in the volume of traffic on the roads making my journeys more of a trial than a pleasure , so , the other side of the coin is – would a substantial drop in the price of fuel bring about even more traffic on the roads ?
I am not so sure that a drop in the price of fuel would convince voters who to vote for in the coming GE ; it might marginally . Knowing where the red lines are in the negotiations with the EU would be much more convincing evidence and I await this announcement with bated breath . Yesterday did not help my appreciation of Theresa May one bit ; I thought the approach taken was a very “slippery” one and a far cry from her normal independent self . I still believe that the EAW deserves a debate and vote of its own and should not be fudged way by government jiggery pokery .
November 11, 2014
Dr Redwood is correct: the price of crude oil is a fraction of the total cost of petrol and diesel and that stocks are bought weeks in advance. Refinery profit margins have been going down and have led to several recent closures. Fuel retailing has never been so competitive. The government want you to believe Shell, Bp etc. are the bogeyman.
The blame lies squarely at the governments door for high prices.
It is the government that a)manipulated the bond markets to encourage speculation in commodities such as oil hiking the price b)knocked 1/3 of the value of the pound by pursuing inflationary policy QE, . Crude is traded in dollars c) kept fuel duty high:their only action has been to abolish the duty escalator.
I for one would apprciate some commentary by JR on yesterday’s undignified events in the commons.
November 11, 2014
Tell me John, important though fuel prices undoubtedly are, do you choose the topic for debate, or does the Tory Chief Whip?
It seems to me the party hierarchy would like us to conveniently forget all about the underhanded dealings and events in parliament yesterday, but I very much doubt that is going to happen. Their subterfuge was aid bare right before our very eyes. I can’t recall anything so dishonest being so obviously mismanaged. It was shamelessly desiged to fool the Tory party’s own MPs as well as the public.
I believe they have finally lost the last vestiges of whatever credibility they had left, and the sooner Cameron and his cohorts get booted out, the better for everybody. There wasn’t even any honour amongst thieves!
Tad Davison
Cambridge
Reply NO the whips have nothing to do with my site. I posted on the EU issues yesterday, and have posted again today with some of my comments yesterday in the Commons! For heaven’s sake there is no plot from me.
November 11, 2014
I see CMD is calling on Labour voters today to vote Conservative in the Rochester bye-election, in order to thwart UKIP. No question of voting for sound policies or with integrity then ?
November 11, 2014
The reductions have pretty well fed through to the pump already .
Price of petrol/diesel is only one element of the cost at the pump and price of crude only one element of that . Our diesel is imported .
If the Govt want to improve peoples lives they need to address the cost of accommodation/cost of land but they won’t , presumably because of self interest .
November 11, 2014
The general public are too econmically illiterate to understand inflation. It would be terribly daring to take the scissors to petrol duty but it’s one of those taxes.. blame the price of petrol on oil companies not 2/3 duty. A thoroughly modern hidden tax, Obama has doubled the price of ‘gas’ in the states.
Mondeo man I notice that more new doctors than ever before are needed in the UK; another deficit of sorts. The more we educate people the quicker they are able to jump ship! My friends in Australia joke about the prevalence of British doctors as we used to Aussie barmen! But this is an interesting one: http://www.dailymail.co.uk/news/article-2827625/Factory-bosses-forced-recruit-Hungary-locals-not-apply.html . Is the problem with the local job centre who should surely threaten the withdrawal of job seekers allowance or the govt?
Grim night for parliamentary democracy last night John. Well done for speaking up. What a farce.
November 11, 2014
Truly Mr Milliband has the midas touch. No sooner does he insist on an energy price freeze than the price drops. I wonder if he would propose to put the prices back up in the interests of his Green agenda?
November 11, 2014
Well, £100 pa saving is welcome, but commuters like me with business both sides of the Thames crossing are paying up to£4 a day to cross, shortly going up to £5, an increase pay of over £250 for weekday travel alone. Thanks to Mr, £800m saviour or not, Osborne.
November 11, 2014
If stocks have reduced in terms of lower of cost and realisable value they should be written down now. It is news to me that the loss involved, for that is what it is, should be smoothed as you describe.
November 11, 2014
The fall in oil price might have something to do with confidence returning to the dollar (god knows why) and it being used less as a hedge than before and, due to the success of fracking in the USA.
What I fail to understand is why the UK still hold on to the idea that all underground mineral rights are vested in the crown.
No advantage would seem to be gained given that the government controls both planning and taxation whilst great damage it done by not allowing private land owners to benefit from what is under their own land.
The USA have mobilised the necessary finance for fracking as a result of their less restrictive practice.
Maybe if the UK government followed their lead then the price of oil would fall even further
Oil prices where I live are now down to 91 centimes a litre ie 73p per litre.
November 11, 2014
Maybe the Govt can encourage landowners to shoot anti-fossil fuel protestors instead of foxes so everyone can be happy .
November 11, 2014
Oil is priced in dollars .
Back in June,July the pound was hovering around 1.70 dollars , now it is 1.59 .
Those folks in Euroland are going to realise even less of the reduction in crude prices than us .
At least the devaluation of the pound helps those of us who have to compete with workers in other parts of the world in work .
November 11, 2014
At any given time, governments could have straightway given a giddy-up to the economy and put money directly in the back and front pockets of consumers and industry at a stroke by reducing fuel tax.
Instead it man-handled pensioners’savings via interest rate cuts coupled with knock-on reduction in stock market share prices which fuel pension fund pots and nest-eggs.
Good a Canadian a foreigner, is Head of the Bank of England. Clearly a native Brit does not have it in him to manage.
November 11, 2014
I really hope that the idea someone came up with the other day catches on.
I’d love to see signs outside petrol forecourts that say:
Unleaded – 30p per litre
Tax to government – 90p per litre
Total 120p per litre
We apologise for the high prices due to government greed.
November 11, 2014
My local chippy already has one up on his wall -saying how much of the “family supper” is VAT.
November 11, 2014
Indeed the more people realise how much they pay and how little of value they get back from the bloated state sector the better it will be.
£1000 growing at 10% for a lifetime untaxed grows to £1.27M (perhaps 138K in real terms)
£1000 growing at say only 6% (after the tax) and then having 40% IHT taken OF on death leaves only £47,000 (perhaps £5000 in real terms) so taxes have taken 96% of your wealth off you.
Worse in fact, as the over regulation, green crap, expensive energy, daft tax laws, incompetent bank regulation, litigation culture and bloated state reduces the pre tax return you can get too.
And those figure are if you do quite well with you investments!
November 11, 2014
I assumed 75 years and 3% inflation.
November 11, 2014
It would also be far better if they did not help themselves to you money under PAYE and sent you a bill at the end of the year. The more visible the better. Also Payslips should show the employers circa 12% NI taken of you before you even see your wage.
November 11, 2014
The sums really aren’t that difficult. The current reported wholesale prices basis Rotterdam are around $785/tonne for diesel, and $780/tonne for unleaded 95 octane petrol, and the exchange rate is $1.59/£. At 1190 litres/tonne for DERV, that is 41.5 ppl wholesale, plus shipping cost (we are big importers of diesel, especially now we have lost another refinery to Green taxes, so pay a premium to Rotterdam price), inland distribution and profit. A pump price of 126.9 ppl (local supermarket today) is 105.75 ppl before VAT, or 47.8 ppl before duty and VAT. That doesn’t leave a large margin to cover costs – 6.3ppl. For petrol, at 1360 litres/tonne, and a pump price of 121.9, that works out at 7.5ppl. The normal margin to cover costs and a very modest profit is around 10 ppl.
Politicians are being optimistic if they think that there are further falls to come against current pricing. Rather, it sounds as though they are piling in the excuses for a duty increase in the Autumn Statement.
November 11, 2014
“The sharp fall in the oil price in recent weeks is as welcome as a tax cut.”
“That’s £100 available to spend on something else, which can help provide a further economic boost. ”
True the fall in petrol hasn’t been caused by a tax cut – but it theoretically could have – and if it had there could have been a welcome economic boost generated in exactly the same way.
That’s the basis of Keynesian economics. It’s not all about spending more, it is equally about taxing less. Raising VAT to 20% in the middle of a deep recession wasn’t the most intelligent of moves.
The problem of reducing taxation could be to generate too much inflation, which seems ironic as the effect is to reduce prices, but anything that increases aggregate demand has the potential to increase inflation too. That’s not a big problem right now so the correct course of action should be to lower taxes and only stop lowering them when inflation starts to creep up. As there is a lot of slack in the economy that could take some time.
November 11, 2014
Oh, John!
Mr Cameron has now switched tactics from begging voters not to support UKIP for fear of waking up with Labour: he is now begging Labour voters to support the Conservative Party to keep UKIP out.
The man hasn’t got a principle he can call his own (apart from the Big Society – remember that?) but wants anyone who can vote to vote for HIM. And no doubt he will bribe them with promises of what he will do for them … if he were to win a majority.
Silly man. He is so far out of touch.
As Lord Tebbit pointed out:
“It would help if we didn’t abuse former Tory voters by attacking Ukip as nutters.”
The Conservatives, he said, were at risk of looking like jealous shopkeepers “shouting abuse” at former customers choosing to shop in a newly opened store.
Instead … Conservatives should learn what Ukip was doing differently that was so appealing to former Tory voters and offer them the sort of “stock that they wanted”.
And that does not include more broken promises, more obfuscation, more EU, more cover-up.
November 12, 2014
I should imagine that all ordinary people will welcome falling fuel prices, as well as recent reductions in some food prices. If the oil price stays low then this will feed through into gas prices and domestic gas and electricity bills will also fall, releasing yet more money for people to spend in other, more useful ways for the economy. Yet still I see far too many economists and financial commentators, and not always of the swivel-eyed left wing variety either, who are bemoaning the falling oil price as a bad thing since it will add to deflationary pressures. These are usually the same people who regard the EU as an unmitigated good, think that anyone who doubts the seriousness AGW should be locked up and the key thrown away, and believe more and more firmly (like the CBI from what was said at their shindig) that ordinary people aren’t really clever or sophisticated enough to be allowed to have real democracy, and that all the important decisions should be taken by unelected technocrats (like themselves, of course). Listen to the will of the people – bah, humbug!
November 12, 2014
UK wholesale gas prices have already fallen: gas for delivery in January, 2015 is now trading at around 55 p/therm, compared with 70-75p/therm throughout 2013. The problem is that politicians (Ed Miliband, Ed Davey yes – you) and OFGEM encourage the Big 6 to hedge their commodity risk a long way forward. OFGEM suggest 18 months as effectively a benchmark. Miliband’s suggestion of a price freeze only encouraged further forward hedging, which had the effect of bringing forward demand, keeping prices high – followed by a fall once the hedging was complete. This can be seen if you look at the price trends for gas for January, 2017 delivery. Meantime, consumers are stuck with the consequences of the politically inspired hedging.
November 12, 2014
Unless the inflation index is modified to include some measure of house prices, it is meaningless.