Gas at $7.70 a Gallon? UK Pump Prices Hit New Highs

A combination of high taxes and constrained supply continues to push fuel prices ever upwards, with average prices at the pump reaching a dizzying new high in the United Kingdom, with petroleum selling on average for £1.48 a litre — $7.60 a U.S. gallon — for the first time.

Britain’s Automobile Association (AA) has revealed that average vehicle fuel prices over the weekend had hit new highs, with petrol (gas) on sale at 148.02 pence a litre ($7.60 a U.S. gallon) and diesel at 151.57 pence ($7.76 a U.S. gallon). These are new historic highs, nudging out the previous high at the end of last year.

The steady rise in price for auto fuels is being driven by stronger demand for energy as the global economy re-opens after years of lockdowns imposed by national governments and the state of relations with Russia, The Guardian reports. Oil is trading at a high not seen for several years.

The paper reports that fuel prices are so high that many families polled by the AA are cutting back on travel to save money.

Drivers are more fortunate in the United States, where even a potentially historic high of $4 a gallon estimated to be on the way works out to just 77p a litre, a price not seen at UK pumps since the beginning of the century.

While prices are impacted by global events like coronavirus and Moscow, actually the biggest upwards pressure on fuel prices in the UK is taxes.

Vehicle fuel is stung by two separate taxes in the United Kingdom: fuel duty and VAT. Duty is a flat rate of 58 pence per litre ($3 a gallon) no matter how much the fuel costs, with a 20% VAT then charged on the full amount of the cost-price of the fuel and the duty added. The double-whammy of tax — with duty taxed twice — means there’s an effective minimum price imposed on petrol and diesel by the government, and the lower the pump price, the higher the proportion of the consumer’s spend goes to the taxman.

With prices now at £1.50 a litre ($7.70 a U.S. gallon) taxes account for about half of the price of the fuel. But should prices drop to £1 a litre ($5 a gallon) — as it did during the early days of the Coronavirus lockdown when fewer people driving led to a glut of supply and prices cut at the pumps — then that £1 a litre spent sees an incredible 75% of the spend going to the government.

For most of the history of the motor-car, the United Kingdom sold petrol and diesel in gallons, but this was phased out — along with a series of other traditional imperial weights and measurements — amid a campaign of metrication associated with the country becoming closer to the ideals and practices of the European Union. While liquid gallons were phased out completely by the 1990s and fuel was instead sold litres, vehicle efficiency is still measured in miles per gallon.