The government threatened petrol firms with legal action this week over concerns they were not passing on the recent fuel duty cut to motorists.
Business Secretary Kwasi Kwarteng wrote to petrol industry bosses - warning them that the competition watchdog will ‘closely monitor’ the situation. In the letter, Mr Kwarteng said he had been reassured the Competition and Markets Authority would ‘not hesitate to use their powers to act against petrol stations if there is evidence that they are infringing competition or consumer law’.
It comes after Chancellor Rishi Sunak implemented a 5p per litre cut in fuel duty in March with motorists struggling with record prices at the pump amid the on-going cost of living crisis . A duty rate is a government tax on imported goods.
Read more: Petrol prices are rising but here's how to save money on fuel costs
Before March, fuel duty - which makes up part of the price when you buy petrol or diesel - was at 58p per litre - and had been for 11 years. It was hoped the cut - which Mr Sunak described as the biggest to all fuel duty rates ever - would take £3.30 off the cost of filling a typical 55-litre family car.
But Mr Kwarteng said in his letter this week: “Forecourt data this week shows that fuel prices have continued to rise, with national average prices at 165.09 pence per litre for petrol and 179.67 pence per litre for diesel.
“The British people are rightly expressing concern about the pace of the increase in prices at the forecourt, and rightly frustrated that the Chancellor’s fuel duty cut does not appear to have been passed through to forecourt prices in any visible or meaningful way.”
Why is fuel still so expensive?
Mr Kwarteng’s letter was addressed to four petrol industry leaders - one of whom was Gordon Balmer, executive director of the Petrol Retailers Association, which represents independent forecourts.
He said retailers' margins are still ‘often not enough to cover operating costs’ - adding that, if the government wanted to see lower prices at the pump, a bigger cut than 5p per litre was needed.
He said: "5p per litre did not represent a substantial enough cut to ease the burden of rising prices on motorists.
"While the chancellor was announcing it, oil prices rose and effectively cancelled out the reduction. In addition to this, sales volumes of petrol and diesel are still not back to their pre-pandemic levels.
"Supermarkets and independent fuel retailers are competing vigorously with each other on the thinnest of margins."
What has caused fuel prices to increase?
The price of fuel has increased because of a rise in the price of crude oil, which is used to make petrol and diesel. At the start of the Covid pandemic demand for energy collapsed - pushing down prices.
But as life returned to normal, suppliers sometimes struggled to meet the growing demand for energy - leading to rises in price. And Russia’s invasion of Ukraine has worsened the situation.
As a result of the conflict, the US announced a ban on Russian oil imports. The UK is set to phase out Russian oil by the end of the year.
Russia is one of the world's largest exporters of oil. So demand for oil from other producers has risen, leading to higher prices.
Have supermarkets cut fuel prices?
The big supermarkets are responsible for around half of all fuel sales - so how they chose to set fuel prices has a big effect on what motorists end up paying. The RAC motoring group says the top four supermarkets - Asda, Morrisons, Sainsbury's and Tesco - are not doing enough to help drivers cut their fuel bills.
RAC fuel spokesman Simon Williams said: "When wholesale fuel prices fall dramatically it can be enormously frustrating for drivers when pump prices don't start coming down. It normally takes one retailer to effectively 'fire the starting gun' and cut its prices in order for others to follow.
"We know that the biggest retailers tend to be reluctant to reflect falling wholesale prices at the pumps day-to-day, yet they seem to pass on increases quickly when wholesale prices are rising. This can often be to the detriment of drivers."
