Fuel prices are about to hit £2 a litre. What can the government do?

It could soon cost well over £100 to fill up the average car. Is there any policy that would help?

In rural Denbighshire a care company has resorted to providing its nurses with electric scooters because they are struggling with the cost of driving to appointments. In Yorkshire a freight company says it is spending £20,000 a year to run each of its lorries. Local newspapers are offering tips on “hypermiling”, the practice of using as little fuel as possible. The fuel crisis is escalating – but is there anything the government can do about it?

How high is the price of fuel now?

According to the RAC it now costs £98 to fill up the average car with petrol, and more than £100 with diesel. The automotive services company said the cost of a litre of petrol rose from 177.88p on Sunday to 178.50p on Monday and this is unlikely to be the end of it; according to Simon Williams, the RAC’s spokesman, petrol prices will continue to rise over the summer. “Drivers need to brace themselves for average fuel prices rocketing to £2 a litre, which would mean a fill-up would rise to an unbelievable £110,” he says.

Why are fuel prices rising so fast?

Russia is the world’s third-largest oil producer, so when the war in Ukraine began, oil prices began to rise. Last week that escalated further after EU countries agreed sanctions that will cut 90 per cent of oil imports from Russia by the end of the year.

That’s not the only reason prices are higher than usual, however: the return to normal driving levels after the pandemic has coincided with a drop in refining capacity. The International Energy Agency (IEA) has reported that global refining capacity fell by 730,000 barrels a day in 2021, the first fall in 30 years, thanks to a drop in demand during the pandemic. Meanwhile, fuel stocks have fallen for seven straight quarters.

Should I just go out and buy an electric car?

Great idea – if you can find one. In January the IEA published a report pointing out that electric car manufacturers are facing huge supply chain problems. “In 2021, the price of steel rose by as much as 100 per cent, aluminium around 70 per cent, and copper more than 33 per cent, affecting both conventional and electric cars,” it wrote. “For electric cars, additional challenges were posed by increased prices for materials needed to manufacture batteries: the price of lithium carbonate increased by 150 per cent year on year, graphite by 15 per cent, and nickel by 25 per cent, to name just a few.”

There was also the semiconductor shortage, which caused some manufacturers to mothball their electric vehicle factories. In short: EVs are harder, and more expensive, to come by than ever before.

That said, if you can get hold of one, it might finally be worth it. Previously, the additional cost of electric cars meant it took years for an investment in one to pay off, but analysis by the Telegraph has suggested that even with the rise of electricity prices, one of the cheapest electric cars, a Mini Electric, would now cost almost £1,000 less a year than its petrol counterpart, and that’s without the £165-a-year road tax exemption.

Can the government do anything about the rise in fuel prices?

According to the RAC, almost half of the cost of petrol is tax: 30 per cent is made up by fuel duty, while another 17 per cent is VAT. In theory Rishi Sunak could eliminate all fuel taxes and cut VAT for fuel and the cost of petrol would immediately be cut in half.

In practice, that is unlikely to happen. In March’s Spring Statement the Chancellor cut fuel duty by a generous 5p a litre, which lowered petrol prices to the exact amount they had been a week earlier. After the recent spike in prices, the RAC called for “more radical government intervention”, whether that’s a cut to fuel duty or a cut in VAT.

The government hasn’t said anything about that, but it does have one idea: last week it emerged that Boris Johnson was so angry that some petrol stations hadn’t passed on the fuel duty cut to customers, he is said to have asked the Department for Transport to draw up plans to “name and shame” the ones that didn’t. Grant Shapps, the Transport Secretary, has suggested a government-run a “pump watch”, according to the Telegraph.

So should I start charging people to give them rides?

It depends how old they are. In a survey by the RAC, 82 per cent of 18-24 year-olds said it was socially acceptable to charge your passengers if you give them a lift, compared with 58 per cent of those over 65. Information worth knowing.