How is the cost of fuel broken down?
Fuel isn’t getting any cheaper, but who profits most from the price you pay? According to the RAC, the price per litre of petrol and diesel hit £1.67 and £1.78 respectively as of 21 August 2023. Those are both historic highs.
We can work out why it’s so expensive to run your vehicle by breaking down the price of a litre of fuel.
This can be split into roughly six parts:
- The wholesale cost of petrol or diesel, determined by the price of oil. Oil is sold in US dollars so the strength of the pound also plays a role
- Biofuel content, the cost of making fuel more eco-friendly
- Retailer profit margins, the cut taken by garages and supermarkets who sell you the fuel
- Delivery and distribution costs for taking the fuel from A to B
- Fuel duty, the specific government tax on fuel
- VAT, added on top of product-specific taxes
The amount represented by each of these elements is slightly different between petrol and diesel. In either case, it’s the tax man who benefits most.
Breaking down the cost of petrol
With unleaded petrol currently at £1.67 per litre, here’s what you’re paying for:
Breaking down the cost of petrol
With unleaded petrol currently (22/08/23) at £1.50 per litre, here’s what you’re paying for:
| % of the Total Cost | What you pay per litre | |
| Wholesale cost | 33% | 49.5p |
| Biofuel content | 7% | 10.5p |
| Retailer profit | 8% | 12p |
| Delivery costs | 1% | 1.5p |
| Fuel duty | 35% | 52.5p |
| VAT | 17% | 22.5p |
Breaking down the cost of diesel
Out of diesel’s £1.52.41 per litre cost currently (22/08/23), you pay:
| % of the Total Cost | What you pay per litre | |
| Wholesale cost | 36% | 54.8p |
| Biofuel content | 10% | 15.2p |
| Retailer profit | 4% | 6p |
| Delivery costs | 1% | 2p |
| Fuel duty | 32% | 48.7p |
| VAT | 17% | 25.9p |
How do fuel costs compare by region?
These are UK average prices, some regions have it better (and worse) than others. In February 2022, the RAC found that people in the southeast paid most; £1.49 per litre for petrol, £1.52 for diesel. Meanwhile, Northern Ireland had the lowest fuel costs; £1.44 for petrol, £1.47 for diesel.
Why is fuel so expensive?
Fuel prices were already rapidly rising above pre-pandemic levels when Russia invaded Ukraine. Since Russia is such a big oil and gas exporter, the war has disrupted supply chains all over the world and driven prices even higher. Those who were enjoying the cheaper fuel available throughout 2020 have been in for a rude awakening.
Save money by going electric
Petrol and diesel costs aren’t likely to drop any time soon, even homes who make use of every fuel-saving tip in the book are likely to pay more. By switching to an electric car, you can sidestep the fuel crisis and potentially save a lot of money.
The cost of charging an electric car is typically much less than that of petrol and diesel. If you install a charger in your home, those costs go even lower while you charge overnight.
