Retail fuel market faces probe by UK competition watchdog as prices soar

The UK competition watchdog will open an investigation into competition in the retail fuel market amid soaring petrol prices.

The move by the Competition and Markets Authority comes after business secretary Kwasi Kwarteng called on the regulator to conduct an urgent review into whether a cut in fuel duty was being passed on to drivers and to examine variations in the cost of fuel across the country.

A pledge on Monday by the CMA to carry out a “short and focused review” of the market comes as consumers face a surge in petrol prices. Last week the average cost of filling a 55-litre family car with a tank of petrol or diesel hit £100 for the first time, up from £71 a year ago, according to breakdown assistance group RAC.

A financial squeeze for drivers at the forecourt is deepening a cost of living crisis that has already left consumers facing higher energy bills and is slowing the economy. Inflation hit a 40-year high of 9 per cent in April.

In a letter to the CMA, Kwarteng said there remained “widespread concern about the pace of the increase in prices at the forecourt”, and urged the regulator to see if there were steps that would increase the transparency for consumers over why prices were rising.

Chancellor Rishi Sunak cut fuel duty by 5p a litre in March, but that move made little dent as oil prices have continued to rise.

Forecourt operators set their own prices after buying petrol or diesel from suppliers, with smaller rural locations typically charging higher prices. Supermarkets tend to be cheaper as they use fuel as a means to entice consumers into their stores.

The sector is dominated by brands like BP and Shell, many operated by independent franchisees, as well as by large supermarkets such as Tesco and Asda.

Motoring campaign groups have long argued for more transparency in the way pump prices are set. About 45 per cent of petrol and diesel prices are a form of tax, whether fuel duty or VAT. Petrol forecourt owners are not obliged to pass on fuel duty cuts to consumers.

“We need more fuel price transparency, people don’t understand what the price should be,” said Edmund King, president of the AA.

However, the Petrol Retailers Association said forecourt owners “had been unfairly scapegoated”, adding that they expected the CMA probe to find that “competition between forecourts remains vigorous and that our members are operating on razor-thin margins” and that the fuel duty cut had been passed on.

The toll that higher inflation is having on the wider UK economy was underlined on Monday when official figures showed that gross domestic product fell between March and April.

King said Northern Ireland publishes local fuel prices, allowing consumers to shop around and has cheaper fuel than the rest of the UK. The price rise over the past year means the government at present collects about 9p per litre of VAT more than a year ago, he added.

In a letter to Kwarteng on Monday, CMA chief executive Andrea Coscelli said it would “provide advice to government on steps that might be taken to improve outcomes for consumers across the UK”.

Government ministers have previously asked the watchdog to intervene in markets including PCR travel tests during the coronavirus crisis.