HC Deb 13 July 1960 vol 626 cc1554-66

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Brooman-White.]

11.25 p.m.

Mr. George Darling (Sheffield, Hillsborough)

I apologise for delaying the House at this time of night and to all who have to remain, particularly the Parliamentary Secretary who, I understand, has had a succession of late nights—of course, I mean in the House—attending to his duties.

The purpose of this Adjournment debate is to repeat and to reiterate the demand made several times that the distribution of petrol and oil in this country should be referred to the Monopolies Commission for examination without any further delay. As the Parliamentary Secretary knows, this request is supported by newspapers and magazines which are interested in the business and by some trade associations.

My own interest, which I had better declare, is, first, a negative one. I have no connection at all with any trade association which is supporting a campaign in this matter of referring to the Monopolies Commission. On the positive side, my interest is that of a motorist, and I think that I speak for the millions of motorists in the country when I say that we want to know a great deal more than we know now about the distribution of petrol and oil.

It has recently been suggested to me by prominent people in the motor trade that we motorists have no right to pry into the affairs of the petrol companies, that we ought to take what comes and ask no questions. I am sure that the Parliamentary Secretary would not subscribe to that point of view, and I propose, therefore, to ask a number of questions.

First, I wish to ask whether the Parliamentary Secretary is aware of the size of the interest that I am trying to represent. I have not been able to count all the motorists in the country, but I assume they would all like to know more about the petrol business. Last year, private motorists, or the drivers of private cars, bought about 1½ billion gallons of petrol. If my arithmetic is right they would pay about £350 million for it. Commercial users took another half-a-billion gallons and paid about £100 million.

It is true that out of those sums a rapacious Tory Chancellor grabbed about £250 million in tax, but still the motorists have paid to the garages, and through the garages to the petrol companies, about £200 million, which is a very large sum of money. I, for one, want to know whether we motorists are getting value for that money, or whether we are being robbed or cheated in any way. Quite frankly, I do not know, but I think that we have a right to know. The only body which can get any information is the Monopolies Commission and that is why this plea is made that the matter should be referred to the Commission.

There is a strong case for submitting the trade in petrol and oil to the Commission. In my view, it rests on three main arguments. There is the size of the firms which are operating and their influence on the market. As the Parliamentary Secretary will know, because I am sure that none of these facts will be new to him, there are three main groups engaged in petrol distribution in this country. First, there is a consortium of companies linked together in various ways and loosely called Shell-Mex and B.P. It is a group consisting of Shell-Mex, Shell Transport, the Royal Dutch Petroleum Company, British Petroleum and National Benzole. They have working arrangements of one kind and another, but one cannot say that they are separate companies from the point of view of reference to the Commission.

So far as I can make out, between them they have about 50 per cent. of the market for petrol distribution in this country. The figures are difficult to obtain. If we measure the petrol outlets, I think it true to say that about half of them, the garages and the petrol pumps, and so on, are controlled by this group. The 50 per cent. figure seems to be supported by their share of the refinery business of the country. At any rate, they control more than one-third of the petrol supplies and, therefore, come within the terms of reference of the Monopolies Commission.

I would also say, therefore, that according to the terms of the Monopolies and Trade Practices Act, 1948, and the subsequent Act of 1956, petrol distribution can be and should be referred to the Monopolies Commission if only on the size of the operations of this group of companies. But it is supported again if we look at the second group in the business, the Esso-Cleveland group. By the same calculations, this group probably has about 30 per cent. of the petrol trade and it might, therefore, be said that if we are to refer only groups of firms to the Monopolies Commission instead of the whole trade that it would be outside the scope of the Act.

I believe that we should look at this group again. Esso is a subsidiary of the Standard Oil Company of New Jersey. Cleveland is a wholly owned subsidiary of Esso, but there is a third body in this country the Mobil Company, which is a subsidiary of the Standard Oil Company of New York. I do not know whether the Standard Oil Company of New Jersey is, under the anti-trust laws of the United States, completely separated from the Standard Oil Company of New York. It is supposed to be. I want to know. These facts ought to be procurable. But if there is any association on this side of the Atlantic, then Esso, Cleveland and Mobil certainly have one-third of the market and they, too, would come within the scope of the Act.

The third group is Regent which, as far as I can estimate, has about 10 per cent. of the trade, and the others, excluding Mobil, have about 6 per cent. between them. We are not, of course, suggesting that the Shell group alone should be examined by the Monopolies Commission, but, for the reasons which I have very briefly given, that the whole of the petrol distribution of all the companies should be examined.

The second argument for referring the matter to the Monopolies Commission is that there is, in my view at least, a prima facie case, or evidence at least, of collusion between the companies for price-fixing purposes. A few weeks ago, as the House will remember, the petrol companies reduced the prices of similar grades of petrol by precisely the same amount on the same day. It has been suggested to me that this smart bit of keeping in step is not evidence of collusion, that it results from all the companies following an independent lead given by one of them in reducing its prices. Quite frankly, I find that explanation very difficult to accept.

I would go so far as to say that without any evidence in support I would not believe it. I will explain why. The Parliamentary Secretary will know that before the war, in the 1920s and 1930s, the major firms in the business formed a price-fixing cartel called the Petroleum Distributors' Committee. We all know—because the facts are now widely available—that that committee used its dominant position in the market to get exclusive sales of the products of one or other of the constituent parties in a large number of garages. Its aim, of course, was to keep the price-cutting pirates out of the business.

One of the pirates was Russian Oil Products, as may be remembered, and in the end the cartel was strong enough to force Russian Oil Products into the cartel so that it, too, became pant of the price-fixing organisation. Of course, the cartel disappeared during the war and was out of existence. It was not needed during the pool petrol period after the war, but when branded petrol came back on to the market in 1950 the oil companies were faced with a very different situation from that which obtained before the war.

There was a Labour Government in power and the Monopolies Commission was in existence. It was quite obvious that any form of price-fixing cartel would fall foul of the law. The oil companies had enough experience of working together formally before the war and I am sure that they have not found it difficult to work together informally since branded petrol returned in 1950.

Unless someone can produce convincing evidence that I am wrong in the allegation that there is price-fixing collusion, I shall go on saying that I suspect that there is price-fixing collusion.

Mr. T. H. H. Skeet (Willesden, East) rose—

Mr. Darling

This is an adjournment debate. The Parliamentary Secretary has to reply. I do not want to stop the hon. Gentleman speaking, but I have a great deal to say and I do not want to take up too much time.

The third argument that I put forward is probably the one that appeals most to the public, that nine-tenths of the retail outlets for petrol in this country are now tied to the petrol companies with exclusive sale agreements of one kind or another.

These sale agreements have been criticised in many quarters, and I think that some of the conditions are indefensible and contrary to the public interest. There is evidence—whether it is true I do not know, but it ought to be examined by the Monopolies Commission—that garage proprietors have been, shall I say, persuaded, in ways that would not commend themselves to the public if the facts were fully known, to sign agreements with the oil companies in a manner which is contrary to decent business practice and behaviour.

Many of the agreements began in quite a reasonable way. A petrol company representative would go to a garage owner and offer him services, free publicity, free signs and displays around the garage, and price rebates in return for a promise to sell only the firm's products. The owner could accept or refuse. There is no objection to that kind of business deal. It might have advantages. It might lead to a better organisation of petrol distribution. It might lead to better garages, I do not know; but some of today's agreements—if they can be called agreements—go far beyond those terms.

It now seems that the oil company's representative goes along to tell the garage owner that if he does not sign he will be faced with quite unfair competition; that the company will put up a garage nearby, or that it will make an arrangement with a nearby garage, that garage proprietor being given such favourable terms that the first garage proprietor will be driven out of business.

It has been suggested—although I know that the oil companies have denied this—that some representatives have told garage proprietors that if they do not sign on the dotted line they will not get petrol supplies from the firm concerned. I hope that is not true, but these are some of the facts we want the Monopolies Commission to find out.

These agreements—I have copies of them here—lay down onerous terms on the garage proprietor, not only with regard to the sale of petrol, but also the sale of other things. I am sure that the Parliamentary Secretary is well aware of the terms of some of these agreements, and I am sure that he would not rise to defend them. We cannot defend a situation where a garage owner finds that he has to accept these conditions—that he can sell only one brand of petrol and that he must sell only that firm's lubricating oil—this does not apply to the Esso companies, but it does to the others—or at least limit the sale of lubricating oils of other companies.

What is more, he cannot sell the garage, if he wishes to do so, without the consent of the petrol company with whom he has made the sale arrangement. Sometimes he cannot terminate agreements without considerable loss. These are some of the facts that we want the Monopolies Commission to investigate, to find out what is going on and to tell us what the facts are. We agree that there may be another side to this picture. It may be, as the oil companies argued, that tied garages reduce distribution costs. I have seen no evidence of this. I should like to know whether there is any evidence.

On the other hand, it is undoubtedly true that tied garages, particularly on this scale, limit competition. They prevent the motorist, in present circumstances, for instance, from having the benefits that come from the present favourable world oil situation. There is evidence, as I say, of price-fixing collusion. These are very serious matters for the public and they are serious, too, for the firms that supply garages with lubricating oils, and other things.

It may be that in the course of time, unless this business is stopped, the exclusive sales will apply to other things, like tyres and batteries. Therefore, we make this plea, which I am sure will be supported by everybody who believes that the motorist, the consumer in this case, ought to have a fair deal, and will be supported by everybody who believes that the facts of business operations ought to be made known to people who are affected by the business, whatever it may be, whether it is oil distribution or anything else.

But in this case, on the ground of size of operations, the evidence that there may be collusion in price fixing, and the tied garage business, which we think is possibly the greatest evil here, we think the matter ought to be referred to the Monopolies Commission. We cannot understand—and I hope that the Parliamentary Secretary can give us an explanation which will stand up to examination—why the matter has not been referred to the Monopolies Commission long before now.

11.43 p.m.

The Parliamentary Secretary to the Board of Trade (Mr. John Rodgers)

I am sure we are all grateful to the hon. Member for Sheffield, Hillsborough (Mr. Darling) for raising this question and allowing us to debate the distribution of petrol and oils. As he himself has said, the subject is certainly big business.

The volume of inland oil distribution in the United Kingdom this years is approaching 40 million tons a year, representing an annual turnover of about £600 million excluding tax. The trade has grown to this volume from a figure of under 9 million tons a year before the war. This had doubled by 1954 and has doubled again in the last six years.

Although the distribution of motor spirit attracts most attention, since it affects the entire motoring public, nevertheless this product accounts for less than a quarter of the whole trade. In fact, motor spirit and derv, in 1959, together accounted for less than 10 million tons out of total inland deliveries of over 33 million tons. I think it right to mention these figures so that the problem raised by the hon. Member is kept in its proper perspective.

The pattern of distribution has changed greatly since before the war, when nearly all our needs were met by importing refined products. Refining capacity in this country is now broadly sufficient to match inland consumption. The great part of the trade, as the hon. Gentleman said, is in the hands of a small number of distributing companies, each linked to one or more of the great international oil companies who operate as integrated units covering all stages from production to distribution.

No one could dispute that the distributing companies in the United Kingdom do their job efficiently, taking in their stride the rapid increase in consumption, and the big seasonal variations and holiday peaks that mark the motor spirit trade. These companies, as I am sure the hon. Gentleman will agree, provide a nation-wide coverage extending to the remotest parts of the United Kingdom and have an excellent record for reliability and continuity of supply.

During the war the distributing companies, at the request of Her Majesty's Government, merged into the Petroleum Board, which operated as a single entity until its dissolution in 1948. Since the resumption of individual trading, the companies have taken active measures to improve the efficiency of distribution. For example, they have greatly cut down the number of depots; one of the largest companies achieved a reduction from over 400 to about 100 during the 1950s, although their volume of trade was rapidly increasing throughout this period and they are handling this greatly increased volume with, broadly speaking, the same number of retail outlets, which is sometimes forgotten.

Another measure taken by some of the larger companies has been to delegate to "authorised distributors" the final stage of distribution in certain products, mainly in the domestic heating and agricultural markets, so that the large companies can concentrate on the bulk movement where the economy of large-scale operation shows the greatest return. A further measure to increase economy and efficiency in distribution has been to reduce the number of journeys by road tanker by increasing the size of the road tankers and by arranging for them to deliver a larger "drop", as it is called in the trade. To this end the oil companies have encouraged consumers to instal larger storage capacity. The achievement of a larger "drop" has also been one of the main objectives of the exclusive dealer or solus site arrangements.

Now I come to the question, so rightly raised by the hon. Gentleman, of competition. It is perfectly certain that the motorist should have a fair deal. The important thing is how is the consumer being looked after, and the motorist's interests being safeguarded. Our view is that competition is the best way in every field to safeguard the consumers' rights. It is true that the trade is dominated by a few large companies but these are actively competing for sales among themselves. It is the case, also, that any filling station owner who has not signed an exclusive dealing arrangement, may remain outside the system—an appreciable number have done so and the companies continue to supply them. It works pretty well; the motorist, for example, has been offered major improvements in the quality of petrol and oils over the last few years and an increasing freedom of choice to match his requirements.

After all, there are some 35,000 selling points, and no one of the groups mentioned by the hon. Gentleman has more than half of them. Moreover—2,000 of these—and they tend to be the larger units—buy their supplies from more than one company. That is 2,000 out of 35,000. Each of the major companies undertakes programmes of research and development to keep abreast of the changing needs of the consumer, for example, to develop the higher octane ratings and other quality requirements demanded by modern trends in motor engine manufacture.

Critics support their case that competition is lacking by pointing to the simultaneous changes in price which the companies announce for motor spirit. However, this is evidence of price leadership rather than of price fixing. If one company announces a price reduction the others are bound to follow in order not to lose sales. Conversely, when a company announces an increase in price, this is normally forced as a result of some factor affecting all the companies—e.g. a freight increase or a wage award to distribution workers—and a company does not move until it is convinced that the other companies, who have been subjected to the same influences, will take similar action. Price leadership of this type is a feature of many industries besides oil, and is not generally taken as evidence of lack of competition.

It may interest the hon. Gentleman to know that the higher-grade petrols have increased in price by 4.7 per cent. since 1953, while ordinary petrols have actually decreased by 1 per cent. But, to my mind, this should be contrasted with the retail prices of other commodities during this period—

Mr. Darling

No.

Mr. Rodgers

—which rose by 20.9 per cent. And, of course, wages themselves went up by as much as 37.5 per cent. in that time. Surely, this is some testimony to the efficiency of the oil industry—

Mr. Darling

No.

Mr. Rodgers

I would contend that it is.

New evidence of competition has appeared in the cut-price activities by a few small independent companies, which have attracted a good deal of publicity, and which were mentioned by the hon. Gentleman—

Mr. Douglas Jay (Battersea, North)

Can the hon. Gentleman assure us that the Government will not put any obstacles in the way of these so-called cut-price companies?

Mr. Rodgers

It is not up to us to raise obstacles. The entry of such smaller companies into the trade would be welcomed by any critics of monopoly and advocates of competition, including myself. I am a great believer in competition.

It may still be asked how these smaller companies can offer substantial reductions—the true extent of the reduction depends on a comparison of quality and may be open to some doubt—and it may be suggested that this demonstrates that the large companies are making an inordinate profit. The answer is that a newcomer to the trade can cut his costs by concentrating on the most profitable outlets; that part of the margin lies in the willingness of the garage owner to take a lower profit in the expectation of higher sales; and—most important—that in a period of surplus such as the present, the independent operator can pick up the odd cargo at a substantial discount.

I should like to say a word about the exclusive dealer arrangements. At the beginning of the 1950s, the major companies introduced exclusive dealer arrangements at garage sites to supersede the earlier system under which the larger garage stocked all the major companies' products. The new arrangements under which the garage owner enters into an agreement with a particular company to sell its motor spirit only, in exchange for a price concession and other advantages, spread rapidly and now cover about 90 per cent. of the garages in the United Kingdom.

That brings this country into line with the system that prevails in most other parts of the world. It became widespread in the United States before the war and has been adopted on the Continent, as here, since the war.

The main objects of the companies in introducing the exclusive dealer system were to obtain a secure outlet for their refinery investment, to rationalise their distribution and to reduce operating costs by delivering larger loads to a smaller number of sites. The agreements are entered into voluntarily between the garage owner and the supplying company; some are short term and others cover a period of several years. In addition to these arrangements, the companies themselves own a limited number of filling stations, but these are a relatively small proportion of the total.

There has been, I freely admit, criticism of these arrangements. However, lending money and tying sales for goods is not unique. This is the normal method of distribution in several retail fields. What about the Co-operative society and its sales methods? It adopts not dissimilar practices.

Mr. Darling

Of course, they are dissimilar.

Mr. Rodgers

They are not parallel. I agree.

The motorist is not effectively deprived of any freedom of choice, since if his nearest garage does not stock his favourite brand, he does not normally have far to go to find a garage which does.

Mr. Jay

The hon. Member is giving us the oil companies' case, most of which we have heard. Will he tell us—the time is getting on—whether the Government propose to refer this industry to the Monopolies Commission? Quite apart from the arguments about price competition, since Shell-Mex and B.P., one distributive company, certainly control more than one-third of the market—50 per cent.—would not the hon. Gentleman agree that there is ground for doing so for that reason alone?

Mr. Rodgers

There is certainly ground for considering referring this industry to the Monopolies Commission. This is the point about which the hon. Member for Hillsborough has said a great deal I assure him that his comments will be studied with the greatest care and that all the points he has made tonight will be borne in mind when these matters are being considered. I cannot, however, go further than that tonight. The question of which industries should or should not be referred to the Monopolies Commission is still under active consideration.

Mr. Jay

When will a decision be given? The question has been asked many times in the House.

Mr. Rodgers

I cannot go further than I have said tonight. The question whether the industry should be remitted to the Monopolies Commission is under active consideration.

We are grateful to the hon. Member for Hillsborough for raising the matter. He put his points clearly. As I say, they will be studied by us at the Board of Trade. We will consider this industry along with other industries in considering which industries might or might not be referred to the Monopolies Commission. Further than that, I cannot go.

11.54 p.m.

Dr. Reginald Bennett (Gosport and Fareham)

I do not feel that all of us in the House can take quite the sunny, optimistic view of the problem that my hon. Friend the Parliamentary Secretary takes. We are all agreed that there are monopoly conditions in this industry and I fear that my hon. Friend's rosy picture about the excellence of the distributive field is not justified by the closer investigation of some of the goings on that occur at the outlets.

I raised this matter on the Restrictive Trade Practices Bill, many years ago, and I had a flood of letters of complaints of inequity and that sort of thing. I will refer to just one at the moment. A man was asked by a friend to sell an acre of land opposite him. A few weeks later he found that the big Shell company was providing a station opposite—

The Question having been proposed after Ten o'clock and the debate having continued for half an hour, Mr. SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at five minutes to Twelve o'clock.