‘Pump-price competition is broken’: AA disagrees with watchdog’s verdict that 5p tax duty cut WAS passed on at the pump

Motoring groups have disagreed with Competition and Markets Authority’s verdict that the 5p fuel duty cut was reflected in pump prices, as the watchdog calls for further investigation and more transparency.

The CMA’s urgent review, ordered by Business Secretary Kwasi Kwarteng, found an increase “refining spread” added 24p a litre to petrol and diesel over the last year, which led to pump prices rising despite the wholesale price falling.

In its report published this morning, the watchdog found that the main drivers of increased road fuel prices had been the cost of crude oil, and a gap between its price and wholesale.

The AA however said “pump-price competition in the UK is broken” as it welcomed the CMA’s further investigation.

The so-called ‘refining spread’ tripled in the last year from 10p to 35p a litre while the ‘retailer spread’, which is the difference between wholesale and pump costs, remained about 10p per litre.

The CMA said “on the whole” the Spring budget’s fuel duty cut had worked, with most retailers passing it on straight away.

“The recent rises in pump prices are a major worry for millions of drivers. While there is no escaping the global pressures pushing up fuel prices, the growing gap between the oil price, and the wholesale price of petrol and diesel, is a cause for concern”, Sarah Cardell, CMA General Counsel, said. 

“We now need to get to the bottom of whether there are legitimate reasons for this and, if not, what action can be taken to address it.
 
“On the whole the retail market does seem to be competitive, but there are some areas that warrant further investigation. These include finding out whether the disparities in price between urban and rural areas are justified. 
 
“This area of work is a major priority for the CMA and if we can help, we will. That’s why we are immediately launching a market study that will use our formal legal powers to investigate this in more depth. If evidence emerges of collusion or similar wrongdoing, we won’t hesitate to take action.”

It also announced the launch of a market study to further investigate the issue of soaring pump prices, with an update published in Autumn.

The CMA was also asked by the government to advise on measures “to increase the transparency that consumers have over retail prices”.

Motoring groups responded with anger, with the AA’s head of roads policy, Jack Cousens, saying “pump-price competition in the UK is broken.”

“A month of major wholesale price falls without a penny coming off the average pump price of petrol is testament to that.”

While saying it’s “very welcome and timely” the CMA probe agreed there is a need for further investigation, they disagreed with the findings.

“The AA argues that the problem is not the gap between the oil price and wholesale price feeding through to the forecourts but the length of time it takes for that wholesale price to be reflected at the pump. The fuel trade has no trouble in passing on rising costs to the customer but lags badly in passing on savings. It has been labelled ‘rocket and feather’ pricing, and it exists.”

The motoring champions reflected on trying to return to the pre-pandemic “rhythm” where wholeale preach reductions “would start to be passed on in a matter of days by ‘cost-cutter’ supermarkets” such as Asda.

““That didn’t mean that oil company forecourts couldn’t cut their prices sooner. However, most of them just sat back waiting for the supermarkets to make the first move.”

“That trigger appears to have gone, and now there is a need to find another way to re-invigorate pump-price competition.

Launched in early June at request of business secretary Kwasi Kwarteng, the investigation focused on whether the 5p fuel duty cut announced in March by former Chancellor Rishi Sunak was being passed on to customers. 

Sunak – who resigned on Tuesday night – said in late June he would consider cutting fuel duty by an additional 10p following mounting pressures from motorists. 

Over the last few weeks, the AA and RAC have accused forecourt retailers of profiteering, as pump prices continued to increase throughout June despite a slump in wholesale costs. 

According to data from the RAC Fuel Watch, the average cost of a litre of petrol jumped by 16.6p last month, smashing previous records. 

Against the backdrop of a cost-of-living crisis, the surge in fuel prices led to nation-wide protests earlier this week, which brought the country’s motorways to a standstill for a few hours. 

On Monday morning, campaigners targeted major arteries such as the M4 in South Wales and Somerset, as well as the M5 from Devon to Bristol and the A38.

Demonstrations, in the shape of 30mph “go-slows” also affected the M54 in Shropshire, the A12 in Essex and the A64 near York.