Total Impact that Fuel Taxes Have on Petrol Prices
In the UK there is a fuel duty that is applied to all fuel that you put in your car, be it unleaded petrol, diesel, LPG, biodiesel, bioethanol or pretty much any other type of car fuel you can think of.The tax rate of the fuel duty is usually set during the government budget, where they lay out their plans for the changes over the next 2 to 3 years (usually fuel duty increased). Specifically fuel duty is an additional tax that is applied to every litre (or Kg in the case of LPG) of fuel that is sold. The tax is applied before VAT (currently 15%), which means that when the government announces an increase in fuel duty of 1p, the actual amount of tax increases by 1.15p (sneaky huh?).
As of September 2009 the cost of petrol, the fuel duty, the VAT tax, and the proportion of fuel costs that is tax is shown below.:
Type of Fuel | Total Cost at Pump | Fuel Duty | VAT | % of Fuel Cost that is Tax |
Unleaded | 105.64p | 56.19p | 13.8p | 66% |
Diesel | 106.08p | 56.19p | 13.8p | 66% |
LPG | 54.54p | 13.4p | 7.1p | 38% |
Biodiesel and Bioethanol fuels have a lower fuel duty rate of 36.19p which is aimed at encouraging the production of these fuels. Unfortunately at present the additional processing costs means that these fuels are not cheaper when sold at the pump
Fuel Duty and Petrol Prices
If fuel duty on unleaded or diesel were abolished then the cost of these fuels would be around 41p, and if the VAT on fuel were removed as well this would be reduced to just over 35p/litre. However the government would lose a significant amount of revenue if these fuel taxes were abolished. We at Whatprice estimate that 40 billion litres of fuel are sold per year meaning that the government tax income is around £30 billion per year from fuel duty. Which happens to be a similar amount to what the government paid to bail out the banks...
The full report on the government budget relating to Fuel Duty can be found here: http://www.hmrc.gov.uk/budget2009/bn66.pdf
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