Report on Motoring 2016

The cost of motoring

1.1 The cost of motoring

Ongoing global economic uncertainty coupled with oversupply from oil producing nations has led to much lower oil prices and the cost of fuel in the UK fell accordingly, reaching low prices not seen for seven years.

At the start of 2016, the price of a barrel of crude dipped below $30 – its lowest level for 12 years and less than half of what it was just six months earlier – and pump prices in Britain followed3.

RAC Fuel Watch data shows that the average price of a litre of unleaded in January 2016 was just over 102p while diesel was down to 101p – and many forecourts were selling both for less than £1 a litre. By way of comparison, in June and July 2015, petrol averaged more than 115p a litre and diesel more than 120p4.

It is hardly surprising therefore that the price of fuel has become far less of a concern for UK road users this year: just 7% of those questioned say the price of filling up is their top motoring concern, down from 10% in 2015.

Less than a quarter – 24% – named expenditure on fuel as one of their four most pressing concerns in 2016, down slightly from the 26% 12 months ago.
By way of contrast, the equivalent figures for 2014 and 2013 – at a time when fuel was significantly more expensive – were 47% and 63% respectively.

In addition to cheaper petrol and diesel prices, increased economic prosperity has no doubt played a part in reducing concerns about vehicle running costs. The UK’s GDP grew by 2.2% over the course of 2015, and by a further 0.4% in the first three months of this year5.

At the same time, wage growth has remained positive: in April 2016, the Office for National Statistics reported an average weekly earnings growth rate of 2%, well ahead of inflation.

Following June’s EU referendum, the outlook for both the UK economy and fuel prices has become less clear. A recovery in the oil price in the spring of 2016 means that forecourt costs have started to creep back up again. But with OPEC – the Organisation of the Petroleum Exporting Countries – seemingly committed to exerting downward pressure on oil prices in order to retain market share through a policy of excess supply, wholesale prices – in dollar terms at least – are expected to remain relatively low.

For British motorists, however, the weaker value of sterling following the EU referendum could feed through into higher pump prices in the coming months.

That said, the process of renegotiating trade deals with our European partners and of actually leaving the EU is likely to take many months and involves a high degree of uncertainty making it extremely difficult to speculate about future economic conditions.

In the 2015 Report on Motoring, the RAC called for greater transparency over how retailers set prices for petrol and diesel. This was due in part to the fact that diesel vehicle owners had failed to see any benefit from the diesel wholesale price falling below that of petrol in the second quarter of 2015: during this period, average diesel pump prices remained stubbornly higher than petrol, in the RAC’s view, for no good reason.

Fuel has been plummeting for a year so it’s no surprise that pump prices have fallen down the list of priorities for British motorists.

But with the Chancellor claiming three-quarters of every pound spent on the forecourts, it won’t take much for that to change. I’d expect to see fuel prices rocket in motorists’ list of concerns next year if the impact of Brexit really bites.

- Graeme Paton, Transport Correspondent, The Times

Over the past 12 months, the situation has improved to some extent, with changes in the wholesale prices of each type of fuel being more consistently reflected on the UK’s forecourts: it should be of some consolation to drivers of diesel vehicles that they are no longer being charged the 5p-a-litre premium that was commonplace in the early months of last year. However, retailers do at times still appear to be particularly slow off the mark when it comes to passing on falls in diesel wholesale prices to their customers. This is no doubt at least partly due to the media’s tendency to focus on unleaded prices when reporting on changes in fuel costs.

Transparency over the prices charged for fuel at motorway services has also been an important issue facing drivers in recent years. Progress in tackling this problem has been frustratingly slow, despite firm commitments from both the previous coalition Government and the current Conservative administration to take action.

More than three years ago, the Office of Fair Trading recommended installing signs on the motorway network to show fuel prices at upcoming service stations: this proposal was intended to allow drivers to shop around more easily, thereby increasing competition between retailers and driving down what were thought to be excessively high prices.

The coalition originally promised that a trial of such signs on the M5 near Bristol would begin in early 2015. But a succession of delays meant the pilot scheme was not introduced until March this year.

Moreover, initial results from this trial have been disappointing, with little if any reduction in fuel prices reported across the motorway service stations involved.

Lower petrol and diesel prices have had little significant impact on how much motorists feel they are spending on fuel: just 31% of those surveyed say they are spending more on filling up than 12 months ago compared with 32% who say their expenditure is falling. The respective figures in 2015 were 31% and 33%. However, lower pump prices may simply result in some motorists using their cars more, thus offsetting any benefit of the price reduction.

31% of motorists surveyed say they are spending more on filling up than 12 months ago
34% of motorists say their expenditure on fuel is falling

The Conservatives' decision to extend the fuel-duty freeze introduced by the coalition in 2011 has clearly helped, though UK fuel tax rates re higher than much of the rest of Europe.

While most drivers say the cost of taxing their vehicles has not changed in the past year, 30% say it has risen – exactly the same proportion as in 2015.

A slightly smaller proportion than in 2015 (44% versus 41%) reported that their car maintenance bills had increased in the past 12 months. There was also a strong rise in the proportion of motorists who say their motor insurance premiums have risen: almost half (46%) say their car insurance costs have increased since last year compared with 34% who said the same in 2015.

This is borne out by industry data, which shows the average premium rose by 14% in the 12 months to March 2016, from £590 to £6716.

One factor that has helped to push costs up is the decision by the Government to increase the rate of Insurance Premium Tax to 9.5% from 6% last autumn, and then to 10% in the March 2016 Budget.

Insurance price rises were reflected in motorists’ general concerns: 8% say insurance bills are their top concern in 2016, compared with just 5% last year. In fact, the cost of cover ranks as the third most common top concern, behind the condition of local roads and drivers using handheld phones.

And more than a quarter of motorists (26%) say insurance prices are one of their four most serious concerns this year. Only 18% did so in 2015.

46% of motorists have felt a rise in insurance premiums over the last 12 months

The cost of insurance is one of our members’ biggest concerns because prices are going up, and the whole market is rising – but people are saying, ‘I haven’t had an accident so therefore with my track record, why are my premiums going up?

- Sarah Sillars, Chief Executive, IAM RoadSmart