Taxation and the asymmetric adjustment of selected retail energy prices in the UK

This paper investigates the adjustment of the prices of four key petroleum products in the UK following changes in the price of crude oil. We find significant evidence that the pre-tax prices of diesel, kerosene, and gas oil adjust more rapidly in an upward than a downward direction, but that the pre-tax price of unleaded petrol adjusts symmetrically. However, these patterns are obscured at the pump once one accounts for fuel duty and value-added tax, raising the possibility that firms can use the tax system to conceal rent-seeking behaviour. •We study the price adjustment of four petroleum products in the UK following crude oil price changes.•We use the nonlinear ARDL model to capture both short-run and long-run asymmetries.•We find that pre-tax prices generally adjust more rapidly upwards than downwards.•Asymmetry is largely obscured at the pump where prices include both VAT and duty.•This raises the possibility that firms can use the tax system to conceal rent-seeking behaviour.