Every time you fill up in the UK, more than a third of what you pay has nothing to do with the price of oil. It is fuel duty — a fixed charge of 52.95p on every litre of petrol and diesel, set by the Treasury and unchanged by how much a barrel of crude costs that week. VAT is then added on top of the duty-inclusive price. This piece breaks down exactly where the money in a litre of fuel goes, why the duty rate has barely moved since 2011, and what that means for household budgets and the public finances.
What fuel duty actually is
Fuel duty is an excise tax charged on fuel producers and importers, who pass it straight through into the pump price. It is levied as a fixed amount per litre — currently 52.95p for both unleaded petrol and diesel — rather than as a percentage of the sale price. That matters because it means duty does not rise or fall when wholesale oil prices move; it stays flat whether crude is cheap or expensive.
This is different from how some other European countries tax fuel, where diesel sometimes attracts a lower rate than petrol. In the UK, petrol and diesel have been taxed at the same duty rate for years. Duty is collected by HMRC and has historically been one of the more stable and predictable sources of tax revenue tied to motoring, precisely because it does not fluctuate with the market.
Where your money goes: breaking down a litre
Using a typical unleaded price of around 145p a litre, similar to figures reported in the AA Fuel Price Report, the duty component of 52.95p accounts for roughly 36-37% of what you pay. VAT at the standard 20% rate adds a further 24p or so — and crucially, VAT is calculated on the whole price, including the duty already baked in, so there is effectively tax charged on tax. The remaining 67-68p covers the wholesale cost of the fuel itself, refining, distribution, and the retailer's margin.
That last portion is the only part of the price that genuinely tracks global oil markets and the pound's exchange rate against the dollar, since crude and refined products are priced internationally. When pump prices jump or fall sharply over a few weeks, as RAC Fuel Watch data regularly shows, that movement is almost always coming from this wholesale and margin slice, not from the fixed duty or the proportional VAT.
The freeze, the 5p cut, and why duty hasn't kept pace
Fuel duty was frozen in cash terms from March 2011 onwards, through a run of more than a dozen consecutive Budgets under successive governments. Because the rate never rose with inflation during that period, the real-terms tax take per litre steadily eroded even as everything else — wages, retail prices, the general cost of living — moved upward.
In March 2022, as pump prices spiked following Russia's invasion of Ukraine, the government introduced a temporary 5p cut, bringing duty down to the current 52.95p. It was originally meant to last twelve months but has been extended repeatedly at successive Budgets since. OBR analysis has previously estimated that the freeze and the 5p cut combined cost the Treasury several billion pounds a year in revenue it would otherwise have collected had duty risen in line with RPI as originally legislated.
Why this matters for your wallet and the Treasury
Fuel duty receipts run at roughly £24-25 billion a year according to OBR and HMRC figures, making it one of the larger single revenue lines the Treasury collects from motoring, alongside VAT on fuel itself and vehicle excise duty. For an average 55-litre tank, duty alone works out at close to £29 before you have paid for a drop of the fuel itself or any VAT.
The bigger structural issue is that this revenue base is shrinking as more driving shifts to electric vehicles, which pay no fuel duty at all. That has fed into ongoing discussion, reflected in OBR long-term fiscal projections, about how future governments might replace lost duty revenue — potentially through road pricing or per-mile charging schemes. For now, though, the practical takeaway for drivers is that the tax portion of the pump price is fixed and predictable; it is the wholesale and margin portion that explains almost all of the volatility you actually see week to week.
The takeaway
Fuel duty is a flat 52.95p on every litre of petrol and diesel, unchanged since the March 2022 cut and frozen in cash terms for most of the period since 2011. Combined with VAT charged on top, tax typically makes up more than half of what you pay before wholesale costs and retailer margins are even counted. Understanding this split matters because it shows that pump price swings you see week to week come almost entirely from the market-driven portion, not from tax changes — useful context next time the board outside your local station moves overnight.