A new law change is in force this week which looks to save drivers money on petrol by pitting stations against one another to drive down the price - but it's tax, not retail profits, which makes up most of the money you spend on fuel.
On Monday, new rules came into effect which mean all petrol stations have to report prices to a centralised Fuel Finder map, which shows drivers the cheapest forecourts wherever they live. The scheme, pushed through by the Competition and Markets Authority, is aiming to push down petrol and diesel prices through increased competitiveness between rival filling stations, and will pocket drivers an estimated £40 a year saving on average.
But drivers may not realise just how much of the fuel they're pumping into their car is actually pouring straight into the government's coffers.
Right now, even before the current fuel duty freeze ends later this year, every single litre of petrol has 52.95p, nearly 53p, added to it for fuel duty.
Then, 20% VAT is applied on top, including on the fuel duty, which means that most of every pound you spend on petrol is actually just tax.
The RAC explains how it works: “The total retail price paid at the pump also includes a significant amount of tax – 57.95p per litre in fuel duty [currently 52.95p due to the temporary fuel duty freeze] and 20% VAT.
“This means that over 60% of the price we pay at the pump goes direct to the Treasury, which together with car tax and ‘showroom’ tax totals more than £40bn a year.”
At current average petrol prices of 131.9p per litre according to the RAC's latest figures, drivers will pay 53p in fuel duty and 22p in VAT for a total of 75p in tax charges per litre, with the rest going to the retailer, making roughly 56% of the price purely tax.
Later this year, this will increase again, as the fuel duty freeze gradually thaws out with increases of between 1p and 2p between September 2026 and March 2027, when the full 5p freeze will be reversed.
From April 2028, electric vehicles will be charged a new ‘mileage tax’ to fill in the gap left by no fuel duty being paid for the vehicles. From April 2028, drivers will be charged an equivalent of 3p per mile for battery electric cars and £0.015p per mile for plug-in hybrid cars. The Chancellor says that this will go towards helping road maintenance.
That price will increase annually with the Consumer Price Index. At present, there is no announced framework for how this policy will be implemented or how drivers will pay for it. It would add an estimated £300 per 10,000 miles driven in an EV.