Are petrol retailers ripping-off motorists?

Petrol stations and supermarkets have shamelessly "pocketed" the benefit of the Government’s fuel duty price cut, which was intended to help motorists struggling with the cost of living crisis. This is the claim of Harriett Baldwin MP, the chair of the Treasury Select Committee. She has also accused the fuel retailers of not passing on the fuel tax reduction to drivers.

Fuel duty was cut last March by 5 pence per litre, but there were concerns that this was not immediately reflected in lower pump prices. An investigation by the Competition and Markets Authority (CMA) found the cut had been passed on, but said an increased profit margins had then cancelled out the benefit of the tax cut.

The CMA has recently revealed that supermarkets, who usually have cheaper fuel prices, had sought to increase profits from selling fuel, increasing their margins by 6p per litre on average between 2019 and 2022. They also discovered that profit margins on diesel across all fuel retailers had cost drivers an extra 13 pence per litre during the first five months of this year.

Ms Baldwin claimed that because the profit margins of sellers had been higher, the tax cut on petrol and diesel had "gone straight to the bottom line" of the businesses. According to her: "The thing that annoys me from a Treasury point of view is that the Chancellor cut fuel duty by 5 pence to help families with their cost of living, and yet it doesn't seem to have been passed on."


What have the supermarkets been doing?

The CMA began an investigation after concerns were raised that fuel prices were not falling as fast as they should be in response to the wholesale costs dropping. They found that supermarkets were still typically the cheapest place to buy fuel, but warned that competition between them was "not working as well as it should be."

The CMA noted that Asda (historically the cheapest for fuel) and also Morrisons "made a decision to increase their target margin" on petrol and diesel from 2021, with the largest increase coming in 2022 and 2023.

It said other retailers, including Sainsbury's and Tesco, "maintained largely passive pricing policies", rather than responding to compete with Asda and Morrisons to secure more customers, and "there followed the same trend in prices and margins.”

According to the CMA the additional cost to drivers paying at supermarket pumps as a result of the higher margins, was estimated to be "around £900 million" last year. It now plans to force supermarkets and other fuel retailers to publish live prices under a new scheme aimed at creating more competition between retailers, and reducing cases of overcharging.


What do the supermarkets say?

Supermarkets chiefs, who were questioned over fuel and food prices by MPs, denied that they were profiteering from higher prices. Morrisons' chief executive David Potts told the Parliamentary Business and Trade Committee that the supermarket had passed on the 5 pence cut to customers "on the same day it was announced.” According to him: "Right now the prices on our supermarket forecourts are lower than the independents and continue to be so," He also claimed that energy, transport and labour costs had all added to overall costs.

All supermarkets have backed the idea of a price transparency scheme, similar to the type already in place in Northern Ireland, where fuel is cheaper. However, the CMA has admitted that petrol and diesel in Northern Ireland is less expensive than in other parts of the UK because of competition from filling stations in the Republic of Ireland.

Darren Bugg, Editor of The Customer Service Blog said: “It’s patently obvious that fuel retailers have been profiteering recently, and it was very na├»ve of the Government to think that their 5 pence cut in fuel duty was ever going to be passed on to the motorists."

He continued: "If this wasn’t bad enough, they have also been very slow to pass on cuts in the wholesale price of fuel, especially the cost of diesel which has been kept artificially high for a very long time. This inevitably has led to an increase in other forms of inflation, such as food inflation, which is partly dependent on the cost of fuel to transport food items around the country.”

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