The Hidden Cost of Petrol: How Much Goes to the Government?

The price breakdown at 136p per litre

Let's take today's approximate national average of 136p per litre for unleaded petrol and trace every penny:

Fuel duty: 52.95p.This is a fixed flat-rate tax applied to every litre of petrol or diesel sold in the UK. It doesn't fluctuate with oil prices. It's the same whether crude is at $50 or $120 a barrel.

VAT: ~22.7p. VAT at 20% is charged on the totalprice including the fuel duty. So you're paying VAT on the tax itself — a tax on a tax. At 136p, the pre-VAT price is 113.3p (of which 52.95p is duty), and 20% of that is 22.7p.

Total tax: ~75.65p — approximately 56% of the pump price.

That leaves about 60p per litreto cover: crude oil purchase (currently around 35–40p/litre depending on the oil price), refining (5–8p), distribution and pipeline costs (3–5p), and the retailer's margin (typically 3–7p). At times of high oil prices, the crude component rises and retailer margins can get squeezed; at times of low oil prices, margins expand — which is exactly what the CMA found happening in 2022–23.

Fuel duty: frozen since 2011 (in cash terms)

The current fuel duty rate of 52.95p per litrehas been frozen in cash terms since 2011. That's an unusual piece of fiscal history — most taxes rise with inflation, but successive governments have avoided raising fuel duty for over a decade due to its political toxicity.

In real terms (adjusted for inflation), fuel duty has actually fallen significantly since 2011. A 2011 pound is worth considerably less today, so the real burden of the fixed duty has declined. This is one reason governments have been able to justify keeping the cash figure flat.

In 2022, during the energy crisis, the government temporarily cut fuel duty by 5p/litre (to 47.95p). That cut was extended repeatedly before reverting to 52.95p. The annual cost to the Treasury of that 5p cut was approximately £2.4 billion — illustrating just how much revenue fuel duty raises.

Why petrol prices don't fall as fast as oil prices

This is one of the most common complaints from motorists — and it's completely explained by the tax structure.

Imagine the wholesale price of refined petrol falls by 20p per litre (a major move — this would typically require a large drop in crude oil prices). Of a 136p pump price, only approximately 60p is the non-tax component. A 20% fall in crude costs might translate to around 8–10p/litre of wholesale price reduction. After that trickles through the supply chain, your pump price might fall by 7–9p.

But the duty (52.95p) and the VAT on it (~10.6p) are fixed. You never feel the "full" benefit of an oil price fall because most of what you're paying was never connected to the oil price in the first place.

Rises, however, can feel sharper. When crude prices increase, the cost feeds through the supply chain AND the VAT component on the higher pre-tax price also increases slightly. This asymmetry is sometimes called "rockets and feathers" — prices shoot up fast but drift down slowly.

What the tax revenue pays for

Fuel duty and VAT on fuel combined raise approximately £25–28 billion per year for the UK Treasury. To put that in context, it's roughly the entire annual budget for the Department of Transport. It funds roads, yes — but roads themselves cost only a fraction of what fuel duty raises. The rest flows into general government spending.

As the UK moves toward electric vehicles, this revenue stream is under increasing pressure. By 2035 (when new petrol and diesel car sales end), fuel duty revenues will have fallen substantially. The government is actively exploring alternatives — road pricing, per-mile EV charging, or reformed vehicle excise duty — to fill the gap.

In the meantime, every litre you save by using WorthThePump to find genuinely cheaper nearby stations means less going to a pump with a high retail margin — and more staying in your pocket.