Every time you fill up your car, roughly 58% of what you pay is tax. Understanding how UK fuel prices are structured helps explain why pump prices feel so high — and why they don't always fall when oil prices drop.
What makes up the price of a litre of petrol?
Example: 130p per litre
The two taxes — fuel duty and VAT — are layered. You pay VAT on the entire price including the duty, which means you're effectively paying tax on top of tax. This is sometimes called the "tax on a tax" problem.
What is fuel duty?
Fuel duty is a flat rate excise tax charged per litre of fuel sold in the UK. It applies equally to petrol and diesel. The rate is set by the Chancellor and announced in the Budget.
The current rate is 52.95p per litre. This includes the temporary 5p cut introduced in March 2022 during the energy crisis, which has been extended multiple times since. The standard rate before the cut was 57.95p.
Key facts about fuel duty:
- It's a fixed amount per litre, not a percentage — so it doesn't change when oil prices move
- It was frozen from 2011 to 2022, meaning it didn't rise with inflation
- It raises approximately £25 billion per year for the Treasury
- It's collected from fuel suppliers, not directly from consumers
How does VAT apply to fuel?
Standard 20% VAT is charged on the total pump price — including the fuel duty. This means:
- On 130p/litre, VAT is 21.67p (130 ÷ 6)
- Of that 21.67p, about 8.83p is VAT on the fuel duty itself
- When pump prices rise, VAT revenue rises too (unlike fixed duty)
This is why the government actually collects more tax when fuel prices increase, even without changing the duty rate.
Why don't pump prices fall when oil drops?
Because over half the pump price is fixed tax, a 10% drop in crude oil only reduces pump prices by about 3–4%. The tax component doesn't change.
Additionally, there's a well-documented "rocket and feather" effect: retailers raise prices quickly when wholesale costs rise, but lower them slowly when costs fall. Competition eventually forces prices down, but it takes time.
This is why comparing local prices matters. Some stations pass on savings faster than others. Check prices near you to find stations that are already cheaper.
Can you reduce the tax you pay on fuel?
Individuals can't avoid fuel duty or VAT — they're baked into the pump price. But you can reduce your total fuel spend:
- Compare prices: A 10p/litre difference between stations is entirely in the non-tax portion. See our guide to finding cheap petrol
- Drive efficiently: Using less fuel means paying less tax in absolute terms
- Choose the right fuel: Don't pay for premium if you don't need it. E10 vs E5 explained
Businesses can reclaim VAT on fuel used for business purposes through their VAT return.
You can't cut the tax, but you can find the cheapest station
Even a 5p saving on the retailer portion adds up. Compare prices near you in seconds.
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