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Tony Levene is a renowned financial journalist, who has previously been a columnist for Guardian Money. He has written several books, including 'Investing for Dummies' and won the ABI Lifetime Achievement award and the Headline Money award.


The rising cost of fuel

The Automobile Association reports fuel at the pumps has hit an all time high averaging 143p per litre for unleaded – that's £6.50 a gallon. In central London you can pay over £1.70 a litre.

But you don't need to be a motoring organisation to know petrol and diesel have shot up in price. In 2005 (according to the "speedlimit" website) unleaded was 79p a litre. Now no one is surprised at a £100 forecourt bill.

Legislation on the size of signs outside petrol stations ensures fuel has a more prominent price label than other goods. High petrol and diesel prices
make headlines.

Can you save?

Less pressure on the accelerator pedal helps. Someone driving 10,000 miles a year at 33 miles to the gallon pays a £2,000 unleaded petrol bill. Sticking in the slow lane rather than racing could save up to £200 a year.

Accelerating fast from centre-city traffic lights only to spend more time at the next stop is also wasteful – as is keeping the engine running while waiting to pick someone up or running on tyres that are not correctly inflated.

Getting children to walk to school, or more car sharing between near neighbours for the school run if that's impractical, also saves on fuel.

Fuel is not the only cost

But while drivers notice fuel prices all day long, they are just one of the costs of car ownership, often quite a small component compared with the combination of finance, depreciation, servicing, MOT tests, road tax and insurance.

Depreciation – the fall in the vehicle's value as it ages – can easily exceed the yearly fuel cost. A new £15,000 car will probably be worth half that in three years' time – perhaps less. That's £2,500 a year.

Quotation MarksDepreciation – the fall in the vehicle's value as it ages –
can easily exceed the yearly
fuel cost.Quotation Marks

Borrowing to buy that car over three years can cost from £1,000 a year in finance. Allow a further £1,000 a year for servicing, spare parts and MOT tests, £100 for a road rescue service, and £200 for road tax on a typical mid-range car. Total this and the annual costs of the £15,000 car approach £5,000 a year over its first few years. Insurance, where premiums depend so much on individual circumstances, is almost impossible to quantify but it is can be pricey. Parking charges, fines, and London congestion charges push the bill even higher.

Most non-fuel costs, other than wear and tear, are fixed so you pay them whether you drive 4,000 or 40,000 miles a year. Fuel is the major variable.

The 33mph driver in a new £15,000 car is looking at 80p a mile taking all into consideration. Fuel is a quarter of that; driving more economically can save around 2p per mile but anyone wanting substantial economies needs to look elsewhere.

Sacrificing the car for greater savings

Buying a three to five year old car is the easiest way to cut costs. You save on depreciation, finance and insurance and while the car may be out of warranty, vehicles this age tend to be reliable.

But for bigger savings, get rid of the car. That's drastic and probably not practical for many, especially in rural areas. But inner city drivers have the highest costs in parking and insurance – and the lowest mileage across which to spread all those fixed costs.

Taking public transport, taxis or joining a car sharing club can be cheaper and perhaps less stressful. Supermarkets deliver as do many other retailers. My local Waitrose lends bike trailers.

Other families might have more cars than they really need - a legacy of when car ownership was comparatively cheaper.

Petrol to stay pricey

Will pump prices fall? Perhaps a few pennies a litre over the next few months but long term, they will continue to rise as the Treasury ratchets up fuel duties whenever it thinks it can. With so many lifestyles wedded to cars, it has so far always won out over the moans and groans.

For further tips and advice, please see our quick guide (PDF).

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