Drivers still paying too much for fuel as retailers continue to pocket higher margins, says competition watchdog

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Drivers are still paying more than they should for petrol and diesel because of 'stubbornly high' margins pocketed by retailers, the competition watchdog says.

The Competition and Markets Authority (CMA) released a fresh update on its ongoing investigation into the fuel sector, confirming that profit margins remain above historic levels.

It also reiterated its concerns about weakened competition in the sector - and how motorists are paying the price at the pumps.

Supermarket fuel margins increased from 7 per cent in April to 8.1 per cent in August, while non-supermarket profits jumped from 7.8 per cent to 10.2 per cent, the watchdog said.

In the decade leading up to the Covid pandemic, the average retailer margin on petrol was around just 8p. Currently, they are taking a profit of 13.5p from every litre of unleaded sold.

Dan Turnbull, senior director of markets at the CMA, said: 'While fuel prices have fallen since July, drivers are paying more for fuel than they should be as they continue to be squeezed by stubbornly high fuel margins.

'We therefore remain concerned about weak competition in the sector and the impact on pump prices.'

The AA described the update as 'depressing', saying news that retailers continue to take more profit despite the 'watchdog breathing down its neck' will 'stir anger' among drivers.

The CMA says retailers' fuel margins – the difference between what they pay wholesale for their fuel and the price they sell it at – remain 'stubbornly high' despite the watchdog's two-year investigation into the sector

The watchdog's interim November report said: 'Overall, retail spreads and margins remain high compared to historic levels, as has continued to be the case for most of the period since our market study. 

'As at the time of our market study, the CMA remains concerned about the intensity of retail competition between fuel retailers. 

'We estimate that the increase in retailers’ fuel margins compared to 2019 resulted in increased fuel costs for drivers in 2023 of over £1.6billion. 

'The persistence in elevated spreads and margins emphasises the importance of implementing our recommendations as soon as possible.'

Since the CMA opened its investigation into the road fuel sector in the summer of 2022, it has been calling for a 'Pumpwatch' scheme that forces retailers to publish live pricing to help drivers find the cheapest locations to fill up and ultimately increase competition for the market.

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The Chancellor, in her Autumn Budget confirming another year of frozen fuel duty and the extension of a 5p cut on road fuel tax, announced the Government will put this into action.

'The Government will facilitate competition in the road fuels market, improve transparency and empower drivers to find the cheapest fuel prices by accepting the Competition and Markets Authority's recommendations to implement Fuel Finder, an open data scheme for fuel prices and a market monitoring function by the end of 2025,' Rachel Reeves red box document stated.

By increasing transparency and encouraging competition between forecourts, ministers believe it could reduce pump prices by between 1p and 6p per litre.

'We are pleased the Government is progressing with our recommendations,' Turnbull said.

'These measures will empower drivers to find the cheapest fuel prices wherever they are in the UK, increase competition and support the economy - the more people save on fuel, the more they have to spend in other areas.'

Supermarket fuel margins increased from 7% in April to 8.1% in August, while non-supermarket profits jumped from 7.8% to 10.2%, the watchdog said

The CMA said fuel prices fell from June to October, driven by global factors including crude oil costs.

The average petrol and diesel prices at the end of October were 134.4p and 139.7p per litre - a decrease of 10.0p and 10.4p respectively.

The CMA also looked at the retail spread – the average price that drivers pay at the pump compared to the benchmarked price that retailers buy fuel at – over July to October.

It found retail spreads were above the long-term average of 5 to 10p per litre, with petrol averaging 14.9p and diesel averaging around 16.3p.

The CMA said retail spreads had remained above long-term averages since 2020, indicating an ongoing lack of competition in the sector.

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The AA responded on Thursday dubbing the CMA's update was 'depressing' to see retailers are still doing little to stem higher fuel prices despite the watchdog 'breathing down its neck'.

Luke Bosdet, the motoring organisation's spokesman on road fuel prices, told us: 'The CMA's report will stir anger once again – particularly when set against the background of the Government continuing the fuel duty freeze.

'Wholesale costs have gone back up to levels seen in late September yet petrol’s current average pump price has not only increased in line but risen further. 

'The fuel trade clearly faces overhead pressures from higher wages, national insurance contributions and increased electricity bills. 

'However, the key question is what is a reasonable addition to the pump price to cover that?'

The AA believes bloated margins are the result of the trade’s 'enduring habit of matching prices locally rather than competing to beat rivals and offer customers the best price'. 

Bosdet also played down the Government's intervention, saying it won't be put into action soon enough.

'We believe that the Government’s Fuel Finder pump price transparency scheme will eventually erode that as drivers locate and go to the cheaper forecourts, forcing rival fuel stations to lower their prices to compete. 

'Unfortunately, it will take a year for this to come to fruition.'