Petrol prices and a maths lesson :(

[philg]

This has been driving me crazy of late, so I just had to let off steam somewhere.... With all the current debate about petrol (and diesel for that matter) costs and whose "fault" it is, a couple of elementary maths facts keep being overlooked. Around 60p from every pound of petrol if either tax, duty or VAT. So, to keep the maths simple, let's asy it's a 60p:40p split. Now, fallacy #1 is that everyone says "60% of the petrol price is tax". Whilst that's true, that's not normally the way we talk about tax. To turn the 40p "no tax" petrol price into �1 (by adding the 60p tax) you have to increase it by 150% That's right - we're paying 150% (ONE HUNDRED AND FIFTY PERCENT!!!) tax on petrol & diesel - and you thought 17.5% VAT was robbery!!! Fallacy #2 is that everyone blames the profiteering garages and petrol companies for the high prices Well, still assuming that 60:40 split for tax vs petrol Every time petrol goes up by 1p/litre the TAX on that 1p is ANOTHER 1.5p/litre - the tax goes up 1-and-a-half times as fast as the petrol price. If the basic petrol price goes up 2p, the tax goes up ANOTHER 3p and we see a pump price increase of 5p in total Now who's in a position to do something about runaway pump prices Oh, and one final "thought for the day" - where is all this "bonus" tax going? It certainly wasn't in any chancellors forward plans.......... Phil G

[kempie]

I am not querying the underlying fact that UK taxation of fuel is exhorbitant but your elementary maths is wrong.

Fuel duty is a set figure and does not increase with each penny increase on the price of fuel; it is only the VAT element which increases along with each increment. Accordingly the 60:40 ratio (for unleaded petrol it is actually closer to 65:35 or 186% taxation) changes with each increment. In other words, each pre-tax penny adds 1.175p after tax and reduces your taxation ratio.

E.g. staying with unleaded where fuel duty is 50.35p:

If pump price = 61p
Duty + VAT = 59.43p
Pre-tax cost = 1.56p
Taxation of ~3800%

If pump price = 143p
Duty + VAT = 71.65p
Pre-tax cost = 71.35p
Taxation of ~100%

The limits of this series would be:

Pump price = 59.16p
Duty + VAT = 59.16p
Pre-tax cost = 0p
Taxation of ∞%

Pump price = �millions or �billions or �trillions etc.
Taxation approaches 17.5%

[philg]

OK, good point

I'm still smarting about the fact that VAT is levied on both the fuel AND the duty - taxing tax is a neat trick if you can get away with it (and regardless of terminology, "duty" is still a tax)

Phil G

[TWR]

It does not matter how much moaning you do, if you are prepaired to pay the price of fuel like the thousands of others, the Goverment will keep on taking the **** out of you.

[mushroom25]

in 1981, FT journalist Nico Colchester proposed that we use a stable "standard" to compare prices with former times, he proposed the mars bar as a stable currency.

so, if we do that now -

in 1981, petrol was �1-69 a gallon, and a mars bar cost 15p, so a gallon of fuel equated to 11.26 mars bars.

today's average cost of petrol is �1.10 a litre, or �5 a gallon (plus a few fractions of a penny), and a mars bar costs 45p, so today's gallon of petrol equates to 11.12 mars bars.

not really much difference.......... It could be that petrol has been artificially cheap during some periods of the last 20 years.

[kempie]

mushroom25 - the converse could also be true i.e. 1981 had 'artificially' high petrol prices which are comparable to today's price.

ONS figures for "real term" indeces of petrol prices 1970-2007 show the period 1981-5 to be around 30% higher than 1973, 1978 and the period 1988-92 and only fractionally lower than during the 1975 fuel crisis - here is the chart for illustration.

The ONS figures are available at the BERR web site...

http://www.berr.gov.uk/energy/statistics/publi cations/prices/tables/page18125.html