Why are UK petrol prices so high? The cost of producing petrol varies very little throughout the world; the main difference in the final cost charged to consumers is the amount of taxation that is levied on it by the government. In the UK, the government-added VAT and fuel duty accounts for almost sixty percent of the cost of petrol. In addition, the UK is affected by poor exchange rates, so when the pound is weak, the real cost of buying the petrol increases.

Why are US petrol prices so much cheaper? The main reason petrol in the US is so much cheaper than in Europe is because the government does not tax it so heavily. They also do not need to worry about fluctuating exchange rates inflating the price of petrol as oil is priced in dollars. 

The effect of rising prices on petrol station owners Consumers often mistakenly think that petrol station owners make huge profits when in reality, the returns they make are relatively small, accounting for approximately two percent of the price. One of the biggest threats comes from large supermarket chains, which sell petrol at substantially cheaper prices. Supermarkets can afford to sell at lower prices because they are able to compensate for the difference with profits from the increased sales made in the store by the motorists. Independent petrol stations in particular find it almost impossible to compete with the lower priced supermarkets. However, a petrol station can still be a good investment: 

• While car owners may have to try and cut down on unnecessary journeys until the economic situation improves, the reality is that few people can realistically swap their car for public transport. In the major cities, there may be viable transport options to get to work on the bus or Tube, but the majority of the country does not have that luxury; businesses also have to continue to deliver goods to customers.

 • Petrol stations make a higher profit on products they sell in the shop, so their profit margins are not just determined by the petrol they sell. 

• Alternatives such as biodiesel are becoming more popular, as they are substantially cheaper than regular diesel. While petrol in the UK is unlikely to benefit from a significant drop in price in the foreseeable future, overall, the drop is petrol consumption is relatively small compared to the amount by which the price of petrol has increased – UK consumption only dropped 2.2% in the last quarter of 2010. Unprecedented price hikes have failed to cause a mass uptake of public transport, and as soon as the economic situation improves, motorists will once again start using their vehicles more for convenience and leisure trips.