When you pay for a litre of petrol or diesel, only a fraction of the price is the fuel itself. Most of it is tax. Here's exactly where your money goes — and why two nearby stations can charge very different prices.
What's in the price of a litre
The pump price of UK road fuel is made up of five main parts:
- The wholesale cost — the price of crude oil plus the cost of refining it into petrol or diesel and shipping it to the forecourt. This is the part that moves up and down with global markets.
- Fuel duty — a fixed tax charged per litre, set by the government. Crucially, it's a flat amount, not a percentage, so it doesn't rise when oil prices rise.
- VAT — charged at 20%, and applied on top of the fuel duty as well as the fuel itself, so you effectively pay a tax on a tax.
- The retailer's margin — what the station keeps to cover its costs and profit. This is usually only a few pence a litre.
Taxes (fuel duty plus VAT) typically make up well over half the price of a litre. That's why pump prices don't fall as fast as you might expect when the oil price drops — a large, fixed chunk of the cost is tax that doesn't change.
Why prices rise quickly but fall slowly
Drivers often complain that pump prices shoot up the moment oil gets more expensive but drift down only slowly when it gets cheaper — the so-called "rocket and feather" effect. This happens partly because retailers pass on cost increases quickly to protect thin margins, and partly because of the time lag between wholesale and retail markets. Competition regulators have repeatedly examined the issue.
Why two nearby stations charge different prices
Pump prices are set locally, station by station, based on:
- Local competition — a station with a cheaper rival across the road will price keenly; one with no competition nearby can charge more.
- Brand and overheads — supermarket forecourts use cheap fuel to attract shoppers and can run on tiny margins, so they're usually cheaper than branded oil-company stations.
- Location — motorway services and remote rural stations charge a premium because drivers have few alternatives.
That's why the price can differ by 10p a litre or more between two forecourts only a few miles apart — and why it always pays to compare before you fill up.
How you can see real prices
Under the Motor Fuel Price (Open Data) Regulations 2025, every UK retailer must publish its pump prices and update them within 30 minutes of any change. That open data is what powers PumpScout, so the prices you see reflect what drivers are actually paying right now.