U.S. versus U.K. on Gasoline Prices

In the U.S., high gas prices tend to focus anger toward oil companies. In fact, as a reader recently pointed out, Shell’s CEO has even gotten death threats over the issue:

Oil CEO Receives Death Threats

But a letter I just read in a UK newspaper, Coventry Telegraph, shows that the ire here tends to be pointed at the tax man:

I WAS amazed to see the prices displayed at petrol stations – unleaded from 99.9p up to pounds 1.02 and diesel from pounds 1.01 up to pounds 1.09.

I am a self-employed plumber and my single biggest running cost is my van, most of which is down to tax – pounds 200 per year is in road tax, then you pay tax on your insurance, VAT on your MoT and repairs. I put about pounds 50 of diesel in my van everyweek, but pounds 37 of that is tax.

When petrol prices rise, the cost of delivering goods rises, the cost of running petrol-driven equipment on farms, building sites etc rises and, for me, the cost of getting to people’s homes rises.

After the last wave of petrol protests, it was evident that the government stuck two fingers up in our faces and we continued to accept paying the best part of just under pounds 1 for fuel. With these latest tax rises, along with the increase in oilprices, the government is pushing us all over the edge.

If the price of diesel has not fallen back below pounds 1 by the end of next weekend, I will be protesting at my local petrol station on the Monday morning and would urge everyone out there to make the same stance against the extortionate amount of tax we pay on our fuel.

Colin Goode, Courtland Avenue, Coundon.

I look at the U.K. as a sort of test case of what will happen in the U.S. as gas prices continue to escalate. As someone recently said to me, “Well, when gasoline gets to $5/gallon, biofuels will really start to come on.” I had to point out that we are paying $8/gallon in the U.K., and biofuels aren’t making a dent. I think you will find the same is true in the U.S. Even at $8/gallon, a lot of alternatives will struggle to compete because they have such high fossil fuel inputs. And what the man described above – higher gas prices rippling through the economy – will happen, and is starting to happen in the U.S. I think it is only going to get worse.

Of course there is a huge difference between the amount of gas tax paid in the U.S. and the U.K. Oil companies are not reaping nearly the windfall of governments here in the U.K. But, I also don’t think most people in the U.S. realize that the U.S. federal and state governments generally reap greater returns from fossil fuel sales than do oil companies. On gasoline alone, the average tax is $0.42/gallon, which amounts to about $60 billion in revenues each year. Now, I don’t favor lowering gas taxes – in fact I favor the opposite to spur conservation. But the different attitudes between the two countries on the issue of high gas prices is stark.

38 thoughts on “U.S. versus U.K. on Gasoline Prices”

  1. When you say…

    I had to point out that we are paying $8/gallon in the U.K., and biofuels aren’t making a dent. I think you will find the same is true in the U.S.

    You seem to be implying that biofuels are not subject to the same taxes as gasoline. Is this true?

    If it is not, your example makes no sense. The fact that on your side of the lake they pay more because of taxes has no relevance to whether biofuels would be profitable in the US at $8 a gallon.

    The price plus taxes does not matter if both products are taxed at the same rate. What matters is the underlying price of the product.

    Don’t get me wrong though. I am as skeptical of biofuels as you are. I just felt like nitpicking.

  2. So Robert, how many hybrid vehicles do you see driving around the UK?

    At $8 a gallon they must make a lot more sense in Europe. I’m betting they don’t sell well there.

  3. You seem to be implying that biofuels are not subject to the same taxes as gasoline. Is this true?

    That is correct. Not only are they not subject to the same taxes, but many countries subsidize them on top of that. Despite this, they aren’t taking off.

    I just went and filled up with gas. I paid £1.03/liter, which works out to be $7.75/gallon.

    King, no hybrids here, but small cars are king. Well, most places. There is so much money in Aberdeen, you do see a lot more SUVs than most places.

  4. Isn’t one of the significant issues with biofuels (at least Ethanol) the relatively high cost of transportation? I’d imagine it isn’t as simple as pumping the stuff into an oil tanker and sending it across the atlantic.
    And given both the population/acre in England and Europe’s resistance to the new biotechnology, I’d biofuels in England have fundamental disadvantages relative to biofuels in America. I’m not saying Ethanol’s going to replace gasoline, just that comparing the situations in England to America aren’t direct parallels.

  5. Gasoline tax in the UK is a percentage of the price, so when the price of the gasoline goes up, the taxes go up too. In the US, gasoline tax is a fixed amount per gallon, so when the price of gasoline goes up, the gas tax still stays at the average $0.42/gal. I expect this is why we get angry at the oil companies rather than the tax man. Though when prices go up quickly, as they did after hurricane Katrina, we sometimes beg for a tax holiday.

  6. “Oil companies are not reaping nearly the windfall of governments here in the U.K.”

    Odd use of the word “windfall” there; I don’t think a conscious policy decision to raise revenue through a given tax can produce a windfall (an unexpected boon).

  7. I didn’t see any hybrids in Italy either. Why not? If they are so great wouldn’t the Brits and Italians be driving them at $8.00 per gallon?

    Maybe the Europeans are better at math and economics than Americans. Hybrids are a marketing and political ploy.

  8. The Brits use half the BTUs per capita that we do. That means money in their economic system left over for other uses, after energy neeed are fulfilled.
    I am beginning to sense that Europe is obtaining higher living standards than we are in the USA, now. Certainly, their cities and towns look nicer, their public schools are better, and their health care systems better, And they are not wasting energy as much. Germany is leading the way in solar and wind. France in nukes. We are wallowing in quicksand.
    I hope for higher energy taxes in the USA, which I think can lead toa very long-term decline in our BTU per capita use, and especially our fossil oil use.
    But it remains true: Many voters hate any tax, and the R-Party stands ever ready to fan the anti-tax flames.
    Although usually the R-Party is acutely, exquisitely and exclusively sensitive to taxes which impact the top 5 percent, they might pander to middle-class folks on gasoline taxes.
    It makes one wonder if the United States can ever develop a rational energy policy. We refuse to tax consumption, and we try to pick winners such as corn-ethanol.
    I much agree with RR’s recommendations that we tax consumption, and let the market sort out winners. The only policy wrinkle I think worth effecting is to increase taxes on imported energy, so we are, in effect, largely picking “domestic” winners.
    This is because I believe Oil Thug nations are utterly unreliable trading partners, and not nice guys to boot. Long-run security dictates non-market measures to ensure energy access in turbulent times, which will be always in Oil Thug nations, due to their horribly repressive governments and cultures.
    I am still optimistic for the future of the Western world, and when I see the marvelous innovations coming down the pike, I see no energy crisis. In fact, I see a cleaner and more prosperous world.
    But on bad days, one can wonder whether that cleaner and better world will apply to Europe and Japan, but not the USA. These Bush years make me feel we are heading for Third World status. Huge budget deficits, imported oil, huge trade deficits, a coddled upper class, and a ferocious military — is this not the picture of an emerging Third World giant?
    The Bush dollar completes the picture. I hope you all have been investing internationally.

  9. Odd use of the word “windfall” there; I don’t think a conscious policy decision to raise revenue through a given tax can produce a windfall (an unexpected boon).

    Sure it can, when it’s a percentage of the sales price, and the sales price goes sky high. That’s happened in lots of place, UK included. It’s happened in California as well; the government has had a big, unexpected windfall due to gas prices going so high.

  10. ==At $8 a gallon hybrids must make a lot more sense in Europe. I’m betting they don’t sell well there.==

    This is actually true.

    But thats largely because smaller cars, and diesel cars are entrenched in the “fuel efficiency” market.

    Over half of all cars in France, Spain, and the UK are diesels.

  11. Yes, diesels sell much better in the EU than elsewhere. I like them because of the higher efficiencies also. No reason you couldn’t have a diesel/hybrid.

    I think we are headed toward some sort of energy storage/ICE combination. Could be electric hybrid, could be compressed air or a flywheel . . . something. One of the inefficiencies in vehicles is the large engines required for acceleration, and the energy losses in braking/deceleration.

  12. People are overlooking something here with respect to fuel taxes. That is where governments primarily get the money to build and maintain roads and related transportation infrastructure. As we know, infrastructure (not only roads) is falling apart in the US. To just repair and maintain the vast road networks we have built will be very expensive (note the collosal sums quoted to just repair bridges in the US). If fuel taxes are lowered, that will make it even harder to maintain roads.

    So we have a classic Catch-22 situation here: if you lower fuel taxes to keep cars on the road, you lose the badly needed revenues needed to keep roads in repair.

  13. Benjamin Cole writes:
    we refuse to tax consumption

    The average $0.42/gal excise tax on gasoline, $0.183/gal of which is federal tax, is US taxing consumption.

    I suppose you mean that we should have a higher consumption tax, not that we refuse to do it at all.

  14. clee;
    yes, there are some feeble taxes on gasoline consumption…I will say it again: we can tax ourselves, and send more money to our own Treasury, or have no gasoline taxes, and send money to Oil Thug nations (where it can be used to finance terrorists)…
    kngofkaty: Flywheels? My fave of all time, except the technology never seems to work. 20 years I ago I covered flywheels extensivly as a newsreporter. Loved ’em. The guys who started Compaq Computer put $60 million of their on dough into the concept. Lost it all.
    In theory, better than battiries. Vacuums, magnetic bearings, composite flywheels. I just wish they would prove commercial.

  15. “hybrids are a marketing ploy”

    Heh. I have been trolled, and I rise to the surface …

    Hybrids work, especially for our combination of US laws and US tastes. Remember that the Prius is a midsize car by EPA designation (based, I think, on passenger volume). Nonetheless it scores (when you adjust for US gallons) with much smaller European cars on MPG.

    The thing is, if you can do a smaller car, you can save the money, skip they hybrid, and get the MPG.

    So sure, if you get people into European sized cars, and small (clean?) diesel engines, the hybrid advantage is reduced.

    Of course, and I think this is important, I’m not sure that it is just tastes. As I said above, laws also matter. Things like our 15 mph bumpers, air bags, & etc. add bulk to a car.

    Personally I’d like to see some rule like “if a new car, < 1.5L, normally aspirated, is legal in Germany, then by definition it is legal in the US."

    But until then … it’s not hype. Hybrids allow us to make a “midsize car” that meets our tastes … better than any other US-legal contender.

  16. A classic triple post on my part, but I just found something that illustrates my point. The EPA has a “mileage by vehicle class” page:

    http://www.fueleconomy.gov/feg/byclass.htm

    The Prius is tops for “family car” of course, but what’s more interesting is that the projected fuel cost per year ($960) is significantly lower than smaller US-legal cars like the Toyota Yaris ($1413) or Honda Fit ($1458).

    How is that possible?

    It’s gotta be a combination of the hybrid benefit, but also something loading up the US sub-compact cars.

  17. I’ve often wondered why European models get better mileage than their American counterparts. It looks like they generally are heavier and that pollution control equipment reduces performance.

    Still think the Prius and hybrid synergy drive are too expensive and complicated. And at the subsidized price they are marketing ploys. I’ve heard estimates that Toyota losses $2,000 – $4,000 per Prius.

    It seems to me that there are easier ways of boosting mileage. We drove a 1987 Toyota Camry wagon that got around 32 mpg. It had a 1.8 L engine with a 5-speed manual. I really liked driving it. The newer Camry’s don’t do as well on mileage. Volkswagon made a 42-mpg Jetta TDI (diesel). Simple seems better to me. If you are doing hybrids, make it a plug in direct electric drive with a small IC engine/alternator to extend the range. (Wait, that is the Chevy Volt.)

  18. By current EPA class, the Jetta is a “small car” and the Prius is a “midsize.”

    For apples to apples, look at the real-world mileage for the VW Passat Diesel … 76.6 MPG?

    Not bad, but it isn’t really running with the Prius there. It must not have enough hype in the drivetrain 😉

  19. Not trying to annoy you. To call a Prius a “mid-size” I think is a stretch. It seems small to me. Somewhere between the Corolla and the Camry. I think that Toyota deliberately positioned the wheels (106.3″) to meet the minimum 105″ wheelbase to put it in the mid-size. I haven’t been able to find interior volumes, but from driving both, I can tell you the Prius is definately not the same as a Taurus.

    Which gets me back to the question. Why doesn’t the Prius sell better in Europe at $8/gallon? Why do Brits buy the Vauxhall Vectra at 36 mpg?

    And it makes me wonder why again the same model European cars get better mileage.

  20. Just switching to smaller cars and developing better driving habits can do wonders. Here in Japan there has been a massive switch to the subcompact “K cars” over the last few years. These seat four people with modest luggage space, and have a maximum engine displacement of 660 cc. Since they’re light, they get around well. We have turbocharged ours because we live in the mountains and drive a mountain road every day. Yet we get 16.1 km/l, which in US terms comes out to 38.48 mpg. People who don’t turbocharge or drive in the mountains can of course do better yet.

  21. Well, it’s not my designation. It comes from the EPA. As I said above, I think they judge by passenger volume, which pretty fair for sedans.

    For the cars we’ve been discussing:

    Jetta interior volume (cu ft): 91
    Passat interior volume (cu ft): 96.2
    Prius interior volume (cu ft): 96.2

    So the Prius is exactly there with the Passat, but gets 47.x MPG over the Passat’s 37.x

    Maybe we are really looking at diesel hype?

    (The Vauxhaull Vectra has apparently 94 cu ft of passenger volume. That puts it in line with the US Passat, and at similar mileage. So we’re back to 47 vs 37 mpg)

  22. So we’ve established that a Prius is a mid-sized family car – in Europe. And that 37 mpg vs 46 mpg isn’t enough to entice Brits to buy the Prius over the Vectra, even at $8 per gallon. Part of the difference may be miles driven per year. If the average Brit drives 10,000 miles, the Prius costs $1,739 in fuel. The Vectra $2,162. Saving $400 may not be a big selling point for the Prius.

    At 15,000 miles and $3 gas, a Prius costs $978 in gas compared to a Ford Taurus at $1,607, saving $628. That might explain why the Prius sells a little better in the US than in Europe.

    Well, that and Californians, for which there is no logical explanation.

  23. In general, US cars have normally aspirated gasoline engines and automatic transmissions. European cars are turbodiesels with gearboxes. A lot of the European market was driven by tax policies which historically favored diesel. The Prius, a normally aspirated, gas-powered automatic, is at a perceptual disadvantage in the European market. As such Toyota wisely targeted their hybrids on the Japanese and US markets.

    Of course you can design a hybrid turbodiesel with a gearbox, but the costs are additive while the benefits mostly overlap so there’s very little bang for the extra buck. And Europe’s lower annual vehicle miles (around 9k miles vs. 12k+ in the US) stretch out payback times.

    the same model European cars get better mileage.

    Euro versions usually have smaller engines tuned for efficiency with manual gearboxes. They sometimes save weight with less sound deadening material, lighter interior pieces, etc., and may not include A/C. Finally, the tests themselves are different. US EPA methodology was recently changed to produce lower MPG, after being previously revised downward by a blanket 15% many years ago. Note the Japanese test cycle produces the highest MPG numbers of all. Finally, there is sometimes confusion with UK MPG estimates because the Imperial gallon is 20% larger than the US gallon.

  24. FWIW, the EPA’s pdf on fuel economy lists their breakdown. It is apparently based on passenger + cargo volume:

    Sedans
    ======
    Minicompact: under 85 cu ft
    Subcompact: 85 – 99
    Compact: 100 to 109
    Midszie 110 to 119
    Large: 120 or more

    (Certainly that isn’t “large” by the standards of our youth, by the standards of my grandaddy’s 1972 Cadillac Eldorado … but times change. Significantly, I think, the “overhangs” that are not passenger volume have dropped away.)

  25. The Prius seems like a pretty big car to me. Plenty of room for two people and a mountain of luggage and musical instruments. Slightly wider and longer than the small SUVs, just not as tall, so as long as you don’t haul around big cubical objects (I don’t), lots of room.

    In the US market, it’s one of very few options for a somewhat expensive, nice car that gets good gas mileage. Something like a Yaris is not only smaller but a lot cheaper in both the good and bad senses of cheap.

    I just spent a few weeks in Germany and, seeing my friends park, I got the impression that a small car is a handy thing there. I joked that I couldn’t tell the difference between totally legal parking and “creative” parking. And that the typical American car would just get stuck if you tried to drive it into the places we went. Most places in the US, if you can park there legally, you could fit a Suburban in there. If only a Smart fortwo will fit, you’ll get towed anyway.

  26. The last data I saw put the median new car in the US at $26-27K. That number’s hard to find though. It’s not tracked real well.

    But if it’s true, the Prius spans the “median” price segment. My $22K base model took the low side.

    (It’s really amazing, looking at that EPA pdf, that the Prius not only beats the other midsize cars, but also all of the smaller ones, on fuel costs per year.)

  27. I found a very interesting article about new car prices and affordability:

    “That average price was about 1.6 percent higher than the average car price in the first quarter 2006, but the median family income increased 3.7 percent to $59,200 — meaning it would take 24.7 weeks of a family’s income to buy that $28,200 car. And that small improvement came only after a sharp increase in the fourth quarter of 2006, when the number of weeks of income needed to buy a car rose from 24 to 26.2 — the biggest jump in the index’s history.”

    I’ll have to blog that later, but in the meantime I’ll use this as my bookmark 😉

  28. Odo – I wasn’t refering to the US EPA. I would agree that a Prius in Europe is a mid-size. I think by US standards it barely makes it.

    Manual transmissions and retuning the engine can make a difference. Also I’ve noticed that European cars have better designed air intakes and low back-flow pressure exhausts. I plan to make these changes to my “King of Katy Hybrid” to boost mileage to over 30 mpg. Superchip Tuner

  29. Well, I guess the main thing is that the EPA’s midsize range is really pretty narrow:

    Midszie 110 to 119 cu ft.

    Beyond that, sure, I guess you can say that you want bigger (“large”) cars.

    Are there any stellar performers there on MPG?

  30. Not stellar, but I would compare the Prius to the Chevy Cobalt or Malibu for size. The Cobalt does 24/33 mpg, the Malibu 22/30. GM plans a hybrid version that will do 24/32. Not really much difference there. Chevy plans to go “mild hybrid” with a 36 volt integrated starter/generator. Neither of which does as well as my 1987 Toyota Camry wagon that I traded in 10 years ago.

  31. As much as I’m down on hybrids, my son (12) and I have talked about converting an IC car to full electric for my commuter vehicle. Not so much to save money but as a family project so my son can learn some mechanical skills. He wants to be an engineer, but I’m afraid schools don’t teach much in the way of practical hands-on stuff. I learned by working in a machine shop and in construction. I’m interested in converting a small SUV or truck.

    Just like a hybrid, I can’t really justify doing it – it would be for fun and experience. Maybe people who own hybrids do it for some other reason too.

  32. I think that some of the people who are hacking electric bicycles, scooters, and motorcycles are doing interesting things. You might want to check out their web pages.

    On the hybrid cost issue, remember that the median new car is up at $28K these days. The Prius is way below that with a $20K base MSRP. Of course things like the Corolla are even lower with a $14K base MSRP.

    Maybe the question is why people go so high? Because we are a rich society? Because we all want extras? Because we are buying for social signaling?

    (And to some degree because low interest rates have seduced too many into fiscal irresponsibility.)

  33. Everbody keeps talking about how we need these exagerated taxes to maintain our roads and repair bridges. you are MISSING the POINT…the people running the show are ABUSING that money on an astronomical scale, and until that stops, we are not going to fix anything!

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