Petrol Prices Fall, but are we Better Off?

Just under a month ago the Chancellor of the Exchequer, George Osborne, announced that there would be a freeze in fuel duty across the UK. Even though this sounded like good news at first, the fact of the matter is that fuel prices across the country are still extremely high and fuel tax makes up a substantial amount of this cost. Many groups said that it would have been better for the Chancellor to reduce the amount of fuel tax instead of just freeze it, however this is an extremely unlikely move for the Chancellor to make while the UK still has a large deficit.

However, even though the government failed to reduce fuel duty, reports have suggested that the cost of petrol is currently at a five year low. According to the AA, the average cost of a litre of petrol in mid-March was 129.46p, while a year ago it would have cost around 138.42p. Surprisingly, London is one of the cheapest areas in the UK to buy petrol, where a litre costs an average of 136.3p, while Scotland has the most expensive average petrol price at 137.3p per litre.

The AA went on to warn that even though petrol prices have fallen, average earnings have also decreased at an extremely rapid pace, meaning that most people are still struggling to afford the cost of running their vehicles including car insurance and fuel. According to the Office of National Statistics, there was an eight per cent fall in average earnings between 2009 and 2013, while usually there is a two per cent increase. After the Budget was announced back in March, President of the AA Edmund King said: “Appalling weather up until 10 days ago will have reduced car use and fuel consumption.

“However, official figures on inflation-hit earnings reveal a more persistent dark cloud hanging over the ability of UK drivers to use their cars. This is clearly making business difficult for fuel retailers too.” The fact that business has been so hard for many petrol retailers recently has led to some coming up with new ways to attract customers, such as national supermarkets who are now battling against each other to offer the best deals.

Tesco for example, is offering their customers 2p off each litre of fuel for every £50 they spend in store, and shoppers can accumulate this amount to the point where they receive a maximum of 20p off per litre of fuel each month. Meanwhile, Asda reduced their petrol prices across the board by 2p per litre in January, and claimed that motorists would never pay more than 126.7p per litre of petrol and 133.7p per litre of diesel at their stores. In fact, Asda’s chief executive, Andy Clarke, recently claimed that families are five pounds better off this year compared to the same time last year due to the falling cost of fuel.

He added: “At a time when household budgets remain under pressure, the continuing rise in disposable income should be a positive sign that families are finally feeling the benefit of the economic recovery. However, our customers are telling us that it’s still tough out there and that they face a long road to financial stability.” Even with their offers of low-cost petrol, recent reports have shown that a number of supermarkets are struggling due to a falling amount of customers.

Discussing the current situation, Edmund King said: “From September to November, the pump price of petrol fell from a late summer peak 138.38p a litre to a low of 130.13p, before hovering around the 131p level for the rest of the year. In 2012, petrol sales recovered when prices fell – but not in 2013. We think that, having learnt to use car travel and fuel consumption as a budgetary lever, UK families reacted accordingly when faced with the threat of a 10 per cent rise in domestic energy costs.

“In December, when we gauged how 17,629 AA members would respond to a power cost surge, 35 per cent said that cutting back on car use was their way to balance spending. Although supermarkets have been charging more consistently for fuel, with the price gap between rural towns much less, their share of petrol sales has fallen more than for other retailers.

“Price-matching and reward point schemes that offer pretty much the same may have made it harder for consumers to distinguish between the two types of retailer. However, Tesco’s new reward card fuel offer may indicate a fight back that other supermarkets will follow. More competitive diesel prices, though, seem to be working better for supermarkets.”

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