Sky-high UK petrol prices

HARDLY a day seems to go by without crude oil prices scaling new peaks. Shortly afterwards, petrol and diesel prices nudge up and British drivers wonder - yet again - if they are paying over the odds to fill up their cars.

In Paris, a Ford Focus hatchback with a 1.6-litre petrol engine costs about £44 to fill up with standard unleaded petrol, in Madrid £36 and in New York as little as £16, although American motorists consider that high.

But in London, with petrol at about 85p a litre, the owner will have to part with nearly £47. This time last year, it would have cost about £42, in October 2002 £41 and, just before the 1993 introduction of the fuel-tax escalator - an 'environmental tax', which kept duty ticking up ahead of inflation until it was replaced in 1999 by a Budget-by-Budget system of tax-setting - around £26.

In the last two years, the fuel cost of running a car with the Focus' specifications over 12,000 miles - the AA's estimation of the UK yearly average - has risen about £160 and, over the last 11 years, by £580.

The difference in the cost of diesel between Britain and France is even more marked, with Calais filling stations charging about 85% of Dover prices. That is of particular concern to road hauliers. With lorries notching up an average of 60,000 miles a year, the cost difference mounts up and, says the Road Haulage Association (RHA), enables European drivers to poach UK business from British haulage firms by stocking up on cheaper fuel before they cross the Channel.

Oil companies are often accused of greedily cranking up pump prices to squeeze every last drop of profit from the oppressed British motorist. But the truth, as Shell and BP have been at pains to point out, is that most of the price of petrol is tax. Their profits are slight.

Bargain buy

STRIPPING out the taxman's take, UK pump prices are the cheapest in Europe, because of the efficient distribution system and thriving competition.

Last year, according to Wood Mackenzie, a litre of unleaded 95 RON gasoline, excluding duty and VAT, cost 19.01p in Britain. Petrol in Italy, which has a relatively flabby distribution system, was Europe's priciest, at 23.79p a litre. But, with the relatively benign rates of tax applied, the retail price of Italian petrol worked out almost 3p a litre cheaper.

The bargain place to fill up was Luxembourg, where petrol stations charged a piffling 53.99p a litre. But, excluding tax, Luxembourg petrol cost about 3.5p more a litre than lean, mean UK petrol.

It is true, oil price rises push up pump prices. But a significant easing in the crude price would not make petrol much cheaper. Even if the price of oil dropped to as little as $10 a barrel, with Britain's tax regime it is hard to see the price of petrol dropping much below 75p a litre.

But, as Chancellor Gordon Brown limbers up for his Pre-Budget Report, increases in fuel prices, now at similar levels to those seen in the protests of 2000, look just as likely as falls. Road hauliers are particularly worried about more tax rises.

In July, the Chancellor deferred a 1.92p per litre increase in fuel duty until November. If he raises tax by that amount, as the RHA fears he will in the next few weeks, the average British heavy goods vehicle will face additional fuel costs of £700 a year, the organisation reckons.

'It would be foolish to increase fuel duty. Feelings are running high. Winter is the one time we don't want to see protest action,' says a spokesperson.

Tax accounts for about three-quarters of the UK petrol price. At 82.2p a litre at the start of the fourth quarter, duty and VAT amounted to 59.3p, leaving 22.9p to cover the cost of the refined oil product, transport, distribution and sales.

'It's not much,' says an analyst at the Wood Mackenzie consultancy.

Thin margins

IN FACT, the UK distribution margin - the difference between the pre-tax end-user pump price and the basic cost of the refined product - was just 4p a litre at that level, Wood Mackenzie reckons. Out of that, retailers must cover the cost of running forecourts - staff, electricity, maintenance and so on - and make a profit.

Margins are so thin, retailers have had to focus on generating revenue from other sources - hence the expansion of forecourt stores and other services.

BP chief executive Lord Browne readily admits the shop is now a vital part of a successful forecourt business.

According to information provider Datamonitor, non-fuel sales amounted to 13% of total forecourt sales last year, up from 12% in 2002, and it expects that to be 14% by 2007.

The big supermarkets have been the driving force behind price competition and even though the big chains - Tesco, Sainsbury's, Asda and Morrisons - hold only about 10% of the sites, they account for almost a third of volumes sold. At the same time, the overall number of petrol stations in Britain has plummeted to fewer than 10,000 - half the number of the early 1990s.

The sheer scale of the supermarkets enables them to undercut smaller rivals. But, as more and more independents close, prices will rise in the long term, warns Reg Holloway, director of the Petrol Retailers Association.

Longer journeys

IT ALSO means that as forecourts disappear, motorists have less choice over where they fill up and often face longer journeys to the nearest pump.

Either the Government intervenes to protect smaller retailers and preserve what remains of the petrol-station network, 'or we end up with inconvenience', he says.

The Office of Fair Trading counters: 'The economics work in the consumer's favour, holding prices down.'

And a spokesman for Tesco, which has 367 sites, says supermarkets have been 'a force for good. Price competition might not otherwise have been seen'.

But, whatever the effects of competition on the pre-tax price of automotive fuels, and however low crude oil prices fall, the days of filling up the car for £25 are a distant memory.