14 November 2011
The Effect of Duties on Petrol and Diesel
on Household Disposable Income, 2011
Coverage: UK
Date: 14 November 2011
Geographical Area: UK
Theme: Economy
Theme: People and Places
Theme: Business and Energy
The effect of duties on petrol and diesel on household disposable income
The effect of duties on petrol and diesel on higher and lower income households.
Proportion of spending on petrol and diesel received by Government falls to 66
pence in the pound
Pence received by the Exchequer for each pound spent on petrol and diesel
Source: Office for National Statistics
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14 November 2011
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The Exchequer received approximately 80 pence for each £1 spent on petrol and diesel in the
period 2001/02 to 2003/04, although this reduced until 2008/09 when 62 pence in the pound was
paid in tax. In 2009/10 66 pence in each pound spent on petrol and diesel was received by the
Exchequer. The rise in 2009/10 can in part be attributed to changes to the rates of duties on fuel,
and in part to changes in oil prices.
In this analysis duties on fuel include both fuel duty and Value Added Tax (VAT) on petrol and diesel.
Fuel duty is levied at a fixed rate per litre, while VAT is levied as a percentage of the price of petrol
and diesel. For example, in March 2010 the average price of petrol per litre was 115 pence, 73
pence was paid in duties on fuel, and of this, 17 pence (17.5 per cent of the fuel price) was paid in
VAT and 56 pence (the per litre rate on unleaded petrol) was paid in fuel duty. For more information
on the effect of VAT on household disposable income see: Poorest households spending more on
VATable items than in 1986
Average monthly petrol prices and average duties on petrol and diesel
Source: Office for National Statistics, Energy and Climate Change
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14 November 2011
Looking at average monthly petrol prices and duties on fuel, we can consider what drove the
fall in tax revenue as a proportion of petrol spending. The chart shows that over the period the
increase in petrol prices outstripped the increases in duties on petrol. From April 2001 to March
2010 average petrol prices increased by 52 per cent while duties on petrol increased by only 26 per
cent. Therefore, the fall in the proportion of petrol spending received by the Exchequer was driven
by petrol prices increasing at a faster rate than fuel duties.
Poorest households pay more in duties on petrol and diesel as a proportion of
income than the richest households
Percentage of household disposable income paid on duties on petrol and diesel by
disposable income quintile groups
Source: Office for National Statistics
Notes:
1. Households are ranked throughout by their equivalised disposable incomes, using the modified OECD scale.
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Poorer households tend to spend more of their disposable income on duties on petrol and diesel
than richer households. On average the poorest fifth of households (as measured by equivalised
household disposable income) paid 3.4 per cent of their disposable income on duties on petrol
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and diesel over the period 2001/02 to 2009/10; this is compared to an average of 1.9 per cent for
the richest fifth of households. Households in the 2nd, 3rd, and 4th quintile groups paid a similar
proportion of their income on duties on petrol and diesel over the period, spending on average 2.8,
2.9 and 2.8 per cent respectively.
Richest households pay more on duties on petrol and diesel in cash terms
Average household payments on duties on petrol and diesel by quintile groups in 2009/10
prices
Source: Office for National Statistics
Notes:
1. Households are ranked throughout by their equivalised disposable incomes, using the modified OECD scale.
2. Deflated using implied household final consumption expenditure deflator.
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Although the poorest fifth of households paid more on duties on petrol and diesel as a proportion
of their income, they actually paid on average the least in cash terms. In 2009/10 the average
household in the poorest fifth group paid £365 in duties on petrol and diesel, this has been broadly
constant over the period. Meanwhile, the richest fifth of households paid £1,062 in duties on fuel
in 2009/10; this simply reflects higher spending on petrol and diesel. It is shown that although the
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14 November 2011
2nd, 3rd and 4th groups paid a similar amount as a proportion of their disposable income, in cash
terms there was a noticeable difference between these groups. This shows that in these middle
income groups, spending on petrol and diesel increases in a similar proportion to increases in their
incomes.
Background notes
1.
These estimates are not consistent with estimates of duty on hydrocarbon oil in The effects of
taxes and benefits on household income. The differences arise because the estimates in this
analysis are calculated using an improved methodology and because these estimates include
Value Added Tax (VAT) as well as fuel duty. The effects of taxes and benefits on household
income calculates duty on hydrocarbon oils, based on fuels other than petrol and diesel. The
improved methodology will be used in future publications of The effects of taxes and benefits on
household income.
2.
Previous analysis has shown how UK household indirect taxes can be both regressive and
progressive depending on whether the distribution of households were ranked according to
their disposable income, or their expenditure see: How indirect taxes can be regressive and
progressive. (87.5 Kb Pdf) For example households may be income poor but able to draw on
savings to fund expenditure. Furthermore, no allowance has been made for differences in the
assets held by households even though some households may have little income but significant
assets to draw on.
3.
Spending on petrol and diesel is collected in the Living Costs and Food survey. The quantity of
petrol and diesel purchased is calculated by dividing the spend reported by the average petrol
and diesel price at that time. This allows the VAT and fuel duty components of petrol and diesel
spending to be calculated.
4.
Average petrol prices are taken from data from the Department of Energy and Climate Change.
No differentiation is made for the price of different types of petrol and diesel. The methodology
used in this article differs from that used by the Department of Energy and Climate Change as
this article uses HMRC diesel and unleaded petrol duty rates throughout, while the Department
of Energy and Climate Change use ultra low sulphur rates at some points in their time series.
5.
Copyright and reproduction
© Crown copyright 2011
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14 November 2011
Email [email protected]
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Copyright
© Crown copyright 2011
You may use or re-use this information (not including logos) free of charge in any format
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This document is also available on our website at www.ons.gov.uk.
Supporting Information
Further information
The Effect of VAT on Household Disposable Income
The effect of VAT on average disposable income for both low income and high income households in
2011.
The Effects of Taxes and Benefits on Household Income
Examines how taxes and benefits redistribute income between various groups of households in
the UK. The study shows where different types of households and individuals are in the income
distribution and looks at the changing levels of income inequality over time.
Regressive and Progressive taxes 2001/02 - 2008/09
An analysis of how UK household indirect taxes can be both regressive and progressive depending
on whether the distribution of households were ranked according to their disposable income, or their
expenditure.
Glossary
Disposable income
Household disposable income is that which is available to households for consumption, and is equal
to earnings and investment income plus cash benefits (provided by the state) less direct taxes.
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Further details of the calculation of household disposable income can be found in The effects of
taxes and benefits on household income.
Income quintile groups
Income quintile groups are based on a ranking of households by equivalised disposable income.
Equivalised incomes are standardised to account for the fact that households of differing size or
composition will require different income to achieve the same standard of living. In this analysis the
modified-OECD equivalisation scale is used. Households referred to as the ‘poorest households’ are
those in the bottom quintile group and the ‘richest households’ are those in the top quintile group.
Appendices
Contact
Richard Tonkin
Household Income and Expenditure Analysis
[email protected]
Telephone: +44 (0)1633 456082
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