Enjoy low petrol prices, they may not last long

If you've filled up at the pumps recently you'll be pleased to note the cost of petrol falling – especially in the Midlands where one garage slashed prices to 99p a litre – but how long can this effective tax cut last?

A halving of the cost of a barrel of oil since the summer, driven by lower demand from China and increasing domestic production in the US, has led to a boost for consumer; they have benefitted from lower petrol prices and politicians are urging energy companies to pass on the savings too.

While we're all making hay while the sun shines and filling up our cars, there are concerns starting to arise about what the cost of this tax break will be for consumers.

Lower oil costs inevitably means lower tax take from oil companies. While North Sea oil producers get taxed hard, with Brent crude oil currently at $50 a barrel there is less to tax and therefore less to take.

This is bad for the government, and bad for oil companies – figures from energy consultants Wood Mackenzie showed North Sea projects worth £2 billion are currently at risk – which exacerbates the situation for the government.

So what is the government supposed to do? Tax oil producers more to increase the coffers now, or reduce the tax on oil producers to help them back on their feet so it can take more tax later?

With an election looming it isn't the best spot to be in and there is a worry that the post-election government will have to make some tough choices in regards to fuel.

Tough decisions

Accountants Baker Tilly has warned that low fuel prices may not last as long as motorists hope. The chancellor has frozen the fuel price escalator since 2011 so duty on unleaded petrol and diesel has remained frozen at 57.95p per litre but it may be time to thaw out the escalator.

The government can't tap the producers for money they don't have and in some cases can't make at the moment, so it looks like the consumer may have to pick up the slack.

Baker Tilly tax expert George Bull said: 'Even though the tax – fuel duty and VAT – per litre at the pump is likely to make up more than 60% of the total price, the government would dearly love to push fuel duties higher.'

If we see oil prices remain low until the election the pressure to tax will be almost uncontainable, so get your petrol in now.

Read more:

Petrol prices slump over last month

The areas suffering massive petrol price penalties

UK petrol prices at three-year low but still pricier than in Europe