Petrol prices in the UK: profiteering, overtaxing or just the way it is?
 A discussion has opened up on the price that UK consumers (and businesses) pay for petrol and diesel. Prices in the UK have headed upwards sharply in the past few months, and it now seems certain that by April the average price for unleaded petrol will be over 1.20 pounds. This has brought a lot of disquiet, particularly given the vast amount of tax that the Treasury collects, made worse by the fact that very little of it is spent on improving roads and transport.
What follows are my purely personal thoughts on the topic.
Much focus falls on the behaviour of oil companies. Quick to put up prices as oil increases in cost, they appear slow to lower them as the barrel price falls, prompting accusations of profiteering in the press.
I agree it does appear that oil companies are slow to respond to falls, although a lot of hedging goes on with oil prices. This means I agree to buy a barrel of oil from you in six months time at today's price. It doesn't matter what the price of the oil is six months from now, I know the price I will pay for it. This creates a lag in the system, not least because as the price starts to rise oil companies will buy more stock at what they perceive to be a lower price, creating a stockpile.
Yet even if oil companies were responding to the barrel price there isn't a huge amount of scope for them to pass on cuts. Around 70% of the cost of fuel goes to the government in tax, which provides an amazingly small margin for the distribution chain to work on (some retailers claim as little as 2 pence in the litre is the amount they make). I'm struggling to think of another sector where the entire chain - from production to wholesale to retail - has just 40 pence in the pound to cover all of their costs and their profits (and let's not forget corporation taxes!) There doesn't seem to be the scope for cutting prices as significantly as I have seen argued for elsewhere because the tax burden just won't allow it.
Competition is also a bit of a red herring in the "force prices down" argument from what I can see. Oil companies make their profit from global operations that include investing in discovering new sources of oil, extracting it, refining it and selling it to a great many different markets, of which the UK petrol retail market is tiny. Anti-competition laws prevent the big companies from cross-subsidising their pumps to protect the small and independent retailer. If this were relaxed then there is a risk that overnight the small companies could be priced out of the market space by larger companies diverting profits to fuel a price war that smaller firms would not be able to compete in.
It would be a little ironic that some of the activists who denounce the power of the oil companies would more or less hand them the keys to the UK retail market!
Even if they were allowed to mount a cross-subsidy would they divert profit away from global operations to keep the British people happy? Surely not as it has the potential to create similar demands from elsewhere in the world, with the resulting profit erosion that would follow. After all why should profits from France be used to offset the actions of the British Government?
At the moment I can't see an easy way out of this. The UK Government has a massive cost base given we all have free healthcare at the point of use, layers of bureaucracy in every sector of the economy that has to be maintained and massive inefficiency, duplication and waste. We've also got a war to fund and more people want their pensions and benefits paying!
I'm sure all of the players in this problem are aware of the depth of feeling and the concerns. Yet I'm equally sure we won't see falling pump prices.
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