Most drivers know that tax makes up a big share of what they pay for petrol and diesel, but fewer know how that tax is worked out or why it changes. Understanding it helps you plan, especially as the current reduced rate is not permanent.
In this guide, V5 Solutions answers the common questions about fuel duty, then looks at how you can lower the part of your motoring costs that you do control.
How Is Fuel Duty Charged in the UK?
Fuel duty is charged per litre at a flat rate, whatever the wholesale price of fuel happens to be. The same main rate applies to both unleaded petrol and diesel. Retailers pass it on in the pump price, and VAT at the standard rate of 20 per cent is applied to the total, duty included.
Because duty is fixed in pence rather than a percentage, its share of the pump price shifts as fuel prices move. When wholesale prices fall, tax makes up a larger proportion of what you pay. When they rise, the duty stays the same but VAT grows with the price.
What Is Happening to Fuel Duty?
The main rate was reduced by 5p a litre in March 2022, and successive governments have kept that reduction in place. The main rate is currently 52.95p a litre. The government has said the reduction will end in stages, with the dates confirmed at its Budget, so the position could change. GOV.UK publishes the current fuel duty rates, and that is the place to check for the latest decision.
How Much Could a Rise Add to a Year of Driving?
Take a driver who covers 10,000 miles a year in a car averaging 50 miles per gallon. That works out at 200 gallons, or about 900 litres. Reversing the full 5p reduction would add roughly £45 in duty over the year, and nearer £55 with VAT on top. Someone driving 20,000 miles a year in a less economical vehicle could see two or three times that.
To estimate your own figure, check your average miles per gallon on the dashboard or in the handbook, divide your annual mileage by it, multiply by 4.5 to get litres, then multiply by 6p (a 5p rise plus VAT).
Which Driving Habits Cut Fuel Consumption the Most?
Anticipation and steady speeds
Every time you brake, energy you paid for is lost as heat. Reading the road ahead lets you roll towards junctions and traffic lights instead of stopping hard, and holding a steady speed uses less fuel than speeding up and slowing down. Cruise control can help on long, flat stretches.
Keeping the car in good condition
Correct tyre pressures, regular servicing and a clean air filter all help your engine run efficiently. Check pressures when the tyres are cold, and raise them to the loaded figure in the handbook if you are carrying passengers or luggage.
Cutting drag and weight
A roof box or bike rack can noticeably raise consumption at motorway speeds. Take them off between trips, and clear out heavy items you do not need to carry around.
Planning journeys
Engines are least efficient in the first few miles. Combining errands into one trip, avoiding rush hour where possible and using sat nav traffic updates all reduce the time you spend idling or crawling.
Where Can You Find Lower Fuel Prices?
Forecourt prices vary between brands, locations and even neighbouring streets. Price comparison websites and apps let you see current prices before you leave home. As a general pattern, supermarket sites tend to be competitive and motorway service stations tend to charge more, so fill up before a long motorway journey rather than during it.
Weigh any saving against the distance you would need to drive to get it. Saving 3p a litre on a 50-litre fill is £1.50, which is easily lost on a long detour.
What Else Belongs in a Motoring Budget?
Fuel is rarely the only cost. A complete motoring budget also covers insurance, vehicle tax, MOT, servicing, tyres, breakdown cover and parking, plus a buffer for repairs. Many of these are paid once a year, which makes them easy to forget until the bill arrives. Spreading them into a monthly savings amount keeps them manageable, and our guide to planning for annual and irregular bills explains one way to do it. To see how motoring fits alongside your other spending, read about the key numbers in your budget.
