Why does Fuel Cost so Much?

July 16th, 2018

If you’re running even a one-person business that needs to travel from place to place, then the chances are that the cost of fuel ranks highly on your list of concerns. And this cost is getting steeper.

Let’s see if we can prise apart the causes of this rise, and see if we can estimate the running costs for our vans in the coming years. Or, at the very least, equip you all to blag your way through a conversation about why it costs so much to fill up your Transit.

The Weak Pound
Following the Brexit vote in 2016, the pound collapsed. This was great news for exporters, but not so great for importers. Since oil is extracted and refined overseas, and its crude form is exchanged in dollars, this leaves the British motorist out of pocket.

The Price of Crude Oil
Oil prices have been rising throughout 2018, thanks to a combination of Donald Trump pulling out of the Iran deal, cuts in production by Russia and OPEC, and a seemingly-neverending political crisis in oil-rich Venezuela. We should also bear in mind that the global economy is performing better than even the most optimistic economist expected, which bolsters the value of oil still further. While there’s reason to believe that the price may collapse in 2019, provided that nothing unexpected happens in global politics. Given Trump’s habit of doing the very thing that no-one expects, you’d be unwise to bet your business’s future on stability.

Duty Hikes
This month, man-and-van businesses across the land will have raised their eyebrows in alarm at the prospect of fuel duty being hiked for the first time since 2010. According to a report by the Guardian earlier this month, such a hike is being considered by the treasury.

Former minister Robert Halfon gave the most colourful reaction to the news, declaring that the hike would go down “like a bucket of cold sick”. Given that he also opposed George Osbourne’s planned hike in 2012, this should probably not come as a surprise.

Chancellor Philip Hammond needs to find the money from somewhere. Since he’s unwilling to abandon his deficit-reduction timetable, it’s likely that motorists will feel the squeeze. But even a small hike isn’t going to make much of a dent in the enormous £20 billion annual payday promised to the NHS, even if combined with changes to corporation and income tax.

Now, business owners might well vent their concerns in a short letter to their MP, but beyond that there’s not a great deal to be done. In the UK, around 65% of the price we pay at the pump goes straight to the tax-man, which is broadly similar to the amount paid in large sections of mainland Europe. With the prospect of a new rise in fuel duty now appearing very real, van-drivers across the country will want to budget accordingly, and adopt a few practices that’ll maximise fuel-efficiency. We’ll deal with them in another blog!

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