Guess What? We're Being Swindled!

** I must declare an interest up front - I drive a diesel powered car and I do about 30 000 (non-business) miles a year. I travel 20 miles each way to work every day, so that's around 10 000miles a year just getting to and from work. The rest is mostly maintaining contact with family who are all at least 200 miles from me.

So - the price of diesel in the UK, as I write this, stands at about £1.41 per litre. That's about US$2.18 per litre or US$8.28 per US gallon.

UK petrol prices are around the £1.31 mark making diesel about 10p per litre or 45p per UK gallon dearer than petrol. How does this compare to prices across Europe?

Source

We can see from this data that UK diesel prices are second only in the EU to Italy (by €0.01 per litre) but we have the biggest, by far, additional cost of diesel over petrol. Our diesel is €0.11 per litre more expensive than petrol. Why is this? Well, the obvious answer, you'd think, is taxation. At present, in a litre of diesel, 57.95p is fuel duty, VAT (now 20% of course) of the total price, making taxation on a litre of fuel around the 80% mark.

So, is diesel more heavily taxed than petrol? No. The UK fuel duty for petrol is exactly the same as it is for diesel. So it's not taxation that directly causes the differential.

Well, in that case, diesel must cost more to produce? No. Diesel is actually less heavily refined than petrol.

Ok, it must be demand that's driving up the price of oil then? It's true that there are more diesel cars in the UK now that there was 25 years ago. There are several reasons for this. Modern diesel cars are now faster, more comfortable, less noisey and more efficient than the first passenger diesel cars from 20-ish years ago. Another big impact has been the introduction of the current road tax system based on CO2 emissions. A diesel engine nearly always produces less CO2 than a similarly sized petrol counterpart.

We know that the US uses vast quantities of petrol every day, but diesel cars are rare by European standards in the US, so the ratio of petrol used to diesel used is vastly in favour of petrol.

So who's making all the money on motor fuel then? It certainly is not the retailer. The retailer makes about 5p per litre whether it's diesel or petrol.

By process of elimination then, this leaves us with the big oil companies. We've seen how much of the retail cost is taxation, and how much is for the retailer. The remainder goes to the oil company. Of course they have their costs involved in extraction, refining and delivery, but their global profits are obscene. Sure, banks have played a major role in screwing up the economies of the world but oil companies have not been far behind. Here in the UK, motor fuel prices have gone up from around £1 per litre to now £1.40 per litre, a hike of 30-40%. Fuel duty has gone up by a penny or two in this time but it's a small part of the overall increase.

Some of you will be saying "So what? Fuel's gone up by 30 or 40 pence. Big deal!". Some 80% of our food is transported by road in the UK. This means that the transport costs of that food has also gone up by 30%. The increase in inflation to over 5% has been in large part down to the increase in the price of fuel. Guess what else gets transported by road? Petrol and diesel! It's a vicious circle.

This statement accredited to Brian Madderson, Chairman of BMI Petrol was published on Twitter on Tuesday via the account of a BBC journalist:

So, effectively we aren't refining enough in this country to supply ourselves, so we have to buy it on the "international market". BP, Shell and the other oil companies in this country have been making astronomical sums of money in the UK, yet apparently have not invested enough of this money back into the generation of fuel. Why is this? Who decided to reduce the number of refineries from 19 to 8? Call me cynical.....

In winter the demand for heating oil increases apparently. Well, if we're buying on the international market now, then it's always winter somewhere. Unless perhaps the northern hemisphere uses a lot more heating oil than the southern hemisphere? Really? The argument about heating oil used in the UK might have made sense last winter, when it was one of the coldest winters on record. This winter has been extremely mild and yet the same tired old excuse is being trotted out. Diesel is currently more expensive now than during that cold winter last year.

Madderson also brings up the different level of taxation across Europe. He's right, some countries do tax diesel less than petrol. But think for a second, why is this? Could it be that they realise that the price of diesel is a crucial part of the national infrastructure? That the price of almost everything is related to the price of fuel?

Oh, but the UK finances can't support a huge reduction in fuel duty, the politicians will tell you. Looking back at the graph near the top of this article, let's exclude Greece and Italy as the two countries whose economies are even more broken than ours. Let's look at, say, Luxembourg. They have one of the lowest diesel prices in Europe at €1.20 per litre, €0.07 per litre less than their petrol prices.

Or, let's look at Belgium, Denmark, or Germany. All of these countries have more than a double-digit Euro cent price gap between diesel and petrol. Germany is €0.11 a litre cheaper, Denmark €0.14. Look at The Netherlands - the price of diesel in Holland is a whopping €0.23 per litre cheaper than petrol.

If we're all buying our diesel on the international market, then why are we, the UK, getting a worse deal on diesel than the rest of the EU? And if the actual wholesale price of diesel is the same, are UK consumers getting ripped off? Or is it that successive UK governments are woefully out of step with other EU countries on fuel taxation? If that's the case, how are UK companies meant to compete with the rest of the EU region with higher transportation and inflatory costs?

We are being royally screwed in this country, by the oil companies and a succession of governments (of all colours). Probably both. Why can't we do anything about it.