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A new live fuel price comparison scheme, backed by a new monitoring body, is needed to ensure fair prices at UK filling stations, according to a new report by the Competition and Markets Authority (CMA) to the UK Government.
The CMA has conducted an in-depth study into the market, and found that increased supermarket fuel margins had led to drivers paying an extra 6p per litre for fuel.
The government has said it will implement the report's recommendations.
The CMA explained that, at present, price information was only available at petrol stations, making it hard for drivers to compare prices and therefore weakening competition.
The proposed fuel finder open data scheme, which would require statutory backing, would require up-to-date pricing to be made available to drivers in an open and accessible format, either via third party apps such as mapping apps, or via a dedicated fuel finder app.
As for the new monitoring body, it would monitor prices and margins on an ongoing basis and recommend further action if competition continued to weaken in the market.
The CMA's report found that between 2019 and 2022, average margins at supermarkets - generally the cheapest place to buy fuel - had increased by 6p per litre, while increased margins on diesel across all retailers had meant prices were 13p per litre too high between January and May this year.
The report also noted that motorway service stations - where around 75% of the customers are business drivers using fuel cars - were charging around 20p per litre more for petrol and 15p per litre more for diesel compared with other locations.
CMA chief executive Sarah Cardell said that competition in the market was not working as well as it should be, and that something needed to change swiftly to address this.
She said: "Drivers buying fuel at supermarkets in 2022 have paid around 6p per litre more than they would have done otherwise, due to the four major supermarkets increasing their margins.
"We need to reignite competition among fuel retailers and that means two things. It needs to be easier for drivers to compare up to date prices so retailers have to compete harder for their business.
"This is why we are recommending the UK Government legislate for a new fuel finder scheme which would make it compulsory for retailers to make their prices available in real time. This would end the need to drive round and look at the prices displayed on the forecourt and would ideally enable live price data on sat-navs and map apps.
"Given the importance of this market to millions of people across the UK this needs to be backed by a new fuel monitor function that will hold the industry to account. As we transition to net zero, the case for ongoing monitoring of this critical market will grow even stronger, so we stand ready to work with the UK Government to implement these proposals as quickly as possible."
The government's Energy Security Secretary Grant Shapps said: "Some fuel retailers have been using motorists as cash cows - they jacked up their prices when fuel costs rocketed but failed to pass on savings now costs have fallen.
"Today I'm putting into action the CMA's recommendations and standing by consumers - we'll shine a light on rip-off retailers to drive down prices and make sure they're held to account by putting into law new powers to increase transparency."
RAC spokesman Simon Williams said: "This is a landmark day when it comes to fuel prices in the UK. The fact that drivers appear to have lost out to the tune of nearly £1bn as a result of increased retailer margins on fuel is nothing short of astounding in a cost-of-living crisis and confirms what we've been saying for many years that supermarkets haven't been treating drivers fairly at the pumps.
"It's all about action now and we're extremely pleased to see the government has agreed to follow through with both of the CMA's recommendations.
"While forcing retailers to publish pump prices is a positive step for drivers, what's of far more significance is the creation of a fuel monitor function within government which, we very much hope, actively monitors wholesale prices to ensure forecourts don't overcharge when the cost they pay to buy fuel drops. Without this, we fear drivers will continue to get a raw deal."
Williams said that data shared with the CMA by the RAC showed there had been several instances of 'rocket and feather pricing', with the cost of supermarket pump prices taking a long time to reflect falling wholesale prices, with supermarket prices on several occasions never falling far enough.
He continued: "This is even the case today with diesel prices as for more than three months the cost of buying diesel on the wholesale market has been less than petrol, yet it remains the case that drivers are still having to pay more for diesel than unleaded at the pumps.
"At one point the average margin charged on diesel was 25p a litre which is more than three times the long-term margin of 7p. This shouldn't be allowed to happen, particularly when the Treasury has reduced duty by 5p a litre."
Williams cited Northern Ireland as a good example of a competitive fuel market, with retailers more closely reflecting movements on the wholesale market.
He said: "While drivers can research the best price in their area via a useful online fuel checker, the main reason for lower prices is a greater number of forecourts there per driver and the fact that the big four supermarkets don't have the same hold on fuel retailing as they do on this side of the Irish Sea.
"The new fuel price monitor should look at price behaviour there to see if there are any lessons to be learned for the rest of the UK."
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