Household budgets are being stretched further at the petrol pump, says financial expert Peter Sharkey. 

An increasing volume of anecdotal evidence suggests that drivers of diesel-powered vehicles are prepared to drive miles out of their way to buy cheaper fuel.

As price differential between diesel and unleaded fuel widens, motoring costs have become another area where household budgets are being stretched.

I consider myself lucky to drive past a relatively inexpensive Asda fuel station almost every day. This morning, I filled up with diesel costing 177.9p per litre. At the same pump, unleaded was being sold for 155.9p a litre. This meant my 62 litres cost a whopping £110.30 – £13.64 more expensive than the same volume of unleaded fuel. On average, I fill up twice a month, which means I’m spending £327.36 a year more than the driver of an unleaded petrol vehicle.

It was our good friends in the EU who promoted diesel as a more environmentally-friendly fuel in their response to the 1997 Kyoto Protocol to reduce greenhouse gas emissions. Diesel engines were deemed ‘lean-burn’, shown to use less fuel and more air to achieve the same performance as a petrol-driven engine.

Initially, Brussels’ stamp of approval triggered a steady increase in the sale of diesel-powered vehicles, but by 2016 momentum began to peter out. According to the Office For National Statistics (ONS), between 2016 and 2020 new diesel car registrations fell by 77pc.

“Research suggests that drivers of diesel-powered vehicles are prepared to drive between 2.5-3.5 miles to fill up with comparatively inexpensive fuel,” says Ken Carter of personal finance website Moneymapp.com. “Furthermore, we suspect that if the price of diesel at the pump remains high, motorists will undertake longer journeys in 2023, particularly as fuel duty is scheduled to increase by 23pc.”

The existing tax burden should not be overlooked. At present, a litre of fuel (diesel or unleaded) includes fuel duty of 52.95p plus VAT of 10.59p. In other words, a litre of diesel (priced at 177.9p) includes tax of 35.7pc. From March next year, the tax take is scheduled to increase to almost 44pc.

But why is diesel so much more expensive than unleaded petrol?

In short, the UK imports more than 50pc of the fuel from overseas, ostensibly because home-based refineries have struggled to meet demand. Importing diesel adds to its eventual cost, but it’s also worth noting that in some countries diesel is used as a heating fuel – a factor that increases competition for supplies which results in higher wholesale prices.

“The situation is made worse by Russia’s war in Ukraine,” notes Ken Carter. “Until earlier this year, a major proportion of our diesel came from Russia. Once we banned it, our next biggest supplier became the Netherlands. Historically, however, the Dutch have imported a significant proportion of their crude oil from Russia.”

The situation is likely to get worse from next February when the EU is expected to ban Russian diesel imports, effectively reducing European supplies further.

“We would not be surprised if the cost of diesel at the pump rose markedly in February 2023 should the EU ban the import of Russian diesel,” notes Mr Carter. “The ideal scenario would be a peaceful settlement in the Ukraine, but in the meantime drivers of diesel-powered vehicles can expect to shop around to unearth the most competitive prices.”

I mentioned to Mr Carter the calculation above, which suggests that I will spend more than £327 a year more for diesel than unleaded.

“At times like this, motorists must endeavour to save as much as they can on their total costs,” he replied. “You may spend more in one area but make a saving in another. For example, according to representative cost-saving data from earlier this year, 51pc of consumers could save £319.03 on their car insurance at Moneymapp.com – a sum which would just about cover your additional diesel costs.”

Diesel prices reached record highs in July when the cost of an average litre reached 199p. Though demand from countries that use diesel as a heating fuel is likely to rise during the winter, wholesale price trends suggest that pump prices may have plateaued for now.

However, few drivers will be holding their breath. As we wait for diesel costs to drop, trying to find savings to the annual motoring bill makes a lot of sense.

Correction
Following a query made by a reader, it was discovered that a calculation prepared by an outside party and published in September 2022 adjacent to the Week in Numbers column was incorrect. 

The calculation suggested that the estate of a widowed person valued at £900,000 would be liable to an Inheritance Tax liability of £230,000. This was incorrect as the calculation did not take into account the personal threshold of £325,000, or the residence nil rate band. In practice, the estate would need to be valued at £1,575,000 to incur the tax liability.

For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.

This column is for general information only and cannot be relied on as financial advice for individuals. Consult your professional adviser.