RAC responds to Prime Minister’s comments on falling fuel prices

RAC fuel spokesperson Simon Williams said: “Frankly, there is a danger that this sort of of-the-cuff comment will confuse motorists, who at the moment are enjoying price reductions at the pump on at least a weekly basis – the likes of which many people will not remember seeing before. It also risks raising unrealistic expectations among drivers of the extent to which prices can fall still further.

“In less than four months, average unleaded petrol prices have fallen 21p – a substantial drop of 16% and one that represents a reduction in the price of filling up an average family car of £11.55. The Government’s call for ‘further, faster’ cuts is therefore misleading.

“While there is no indication that oil production will be slowed to stabilise the barrel price, there is a limit to which further falls can benefit pump prices. The huge elephant in the room here is tax – we are at the point where fuel duty and VAT together represent 70% of what we pay when filling up. The fact is that £42 of a £60 fill up is tax - £32 duty and £10 VAT, with the cost of producing fuel, delivery and oil company and retailer margins accounting for just £18.

“The RAC closely monitors crude oil, wholesale and pump prices on behalf of motorists on a daily basis and would be happy to share data with Number 10 in order to highlight what is really going on with prices. We are committed to fighting for fuel price transparency and have kept on the back of retailers to ensure they pass on savings in wholesale prices as swiftly as possible. Motorists would also welcome clarity on their petrol receipts so they can see first-hand exactly what it is they pay for at the pump.

“We predicted at the start of December that we would see the price of petrol drop to £1 per litre, which has now happened in some places, and retailers up and down the country deserve recognition for their willingness to pass on these savings. So long as oil prices stay low, and the pound remains stable against the dollar, we could see competitive retailers reducing the price to nearer 95p per litre in the next few months.

“While there is a relationship between the crude oil price and the wholesale fuel price, it is not a direct relationship. Other factors influence the wholesale price, including the strength of the pound, since oil is traded in dollars. The pound has lost 7% against the dollar since October which has softened the impact of oil price drops on the wholesale price. This helps explain why the wholesale price of unleaded which every retailer pays has fallen by 19%, while crude oil prices have fallen 52% over this period.”