HC Deb 05 August 1966 vol 733 cc906-17

12.15 p.m.

The Minister of State, Board of Trade (Mr. George Darling)

I beg to move, That the Solus Petrol Order 1966 (S.I., 1966, No. 894), dated 19th July 1966, a copy of which was laid before this House on 25th July, be approved. I wish to ask the House to approve this Order and the Solus Petrol (Amendment) Order, both of which are in my right hon. Friend's name.

Mr. Speaker

The right hon. Gentleman must formally ask the House to approve only the first. If he wants to discuss the other Order with it, he may do so if the Opposition have no objection.

Mr. Michael Alison (Barkston Ash)

We have no objection.

Mr. Darling

That is convenient, Mr. Speaker, because I was going on to say that the second Order corrects a slight error in the first one. On page 5 of the first Order there are four words which ought not to appear.—"after the relevant date". The purpose of the second Order is to remove those words.

The Order is being made with some reluctance, because its purpose is to close a gap in a series of voluntary arrangements which have been made with the petrol companies to carry out the recommendations of the Monopolies Commission which inquired into the Solus sites agreement which the petrol companies have with retailers of petrol, with garages, and so on.

The Commission spent some considerable time examining these arrangements, and came to the conclusion that they were restrictive, that they were in a sense contrary to the public interest, and brought forward eight recommendations which it urged the Board of Trade to bring into operation. The Commission's Report has been available for some time. I am sure that all hon. Members have read it with a great deal of interest, and therefore I need not go through the recommendations in detail.

When the Commission's Report was published, my right hon. Friend the President of the Board of Trade said that he accepted in principle the Commission's recommendations, and then the Board of Trade had discussions with the petrol companies to see whether the Commission's recommendations could be put into operation through voluntary agreements, rather than that the Board of Trade should come along and ask for Orders to impose the recommendations on the petrol companies.

After considerable discussion, in the course of which one alteration was made in the recommendations, the petrol companies agreed that the recommendations should be implemented by voluntary agreement. There was one exception to this agreement. The Total company disagreed, and this has created difficulty.

Total is small compared with the giants in this business, and is a relative newcomer to selling petrol, lubricating oils, and so on, in this country. Total's view is that at least one of the recommendations, which appears both in the Commission's Report, with some alterations, and in the voluntary agreement, would harm the possible development of its trade in this country. As the voluntary agreement depends on all the petrol companies working together, on them accepting the agreement together, it is impossible to give a dispensation to Total in connection with the voluntary agreement.

The other petrol companies have made it quite clear that the full agreement must be carired out by all the petrol companies, otherwise individual petrol companies will themselves contract out of the voluntary agreement.

As the voluntary agreements represent a substantial victory in this kind of arrangement, naturally we do not want the voluntary agreements to be upset. Therefore, as far as it is possible to do so, we are compelled to put the voluntary agreements into an Order which wil apply to Total.

There are two alternatives. We could either adopt the course of bringing in an Order which in legalistic language carries out the voluntary agreement and applies to one company only, or we could say that the Order which is now before the House should apply to all the petrol companies. In view of the fact that we have had this agreement with the petrol companies—in a voluntary agreement of this type we can give the companies a little latitude as compared with what is bound to be rather tightly drawn in a legalistic order—we think that it would be quite unfair to impose this Order on the petrol companies which have agreed to the voluntary arrangements.

We have taken the latter course, and I think that we are perfectly right and justified in so doing.

I do not want to spell out the recommendations of the Commission in detail or explain how they are carried over into the voluntary agreements. The agreement deals with the time limit on Solus agreements for the sale of petrol, with arrangements that can be made and will be made for the repayment of loans which are provided for under Solus agreements by the petrol companies to the retailers. It deals with hire-purchase arrangements that are made for the purchase of equipment and how the hire-purchase agreements can be ended. It deals with the problem of ending the restriction that certain companies have imposed in the past on the sale of other companies' lubricants. It deals with Solus agreements that in the past have applied to such things as the sale of tyres and batteries in a restrictive way. It deals with loans to cover building for the reconstruction and extension of garages and petrol station sites. It deals with the restriction of the number of company-owned stations which can be operated by any company and with the time limit which can be imposed on the letting of company stations.

All those matters recommended by the Commission are carried over into the agreements. There is one difference, and this is where Total complains about the arrangements which are being made. The Commission recommended that no petrol supplier whose deliveries of petrol in any year to company-owned stations exceeded 15 per cent. of his total deliveries to petrol stations in that year should build or acquire any further stations or acquire any such interest in any further stations while such excess continued, and it went on to provide that this prohibition should not apply in any year in which the total deliveries by the supplier were less than 10 million gallons.

In discussions with the petrol companies, we decided that the 10 million gallon limit was too low, and that has been increased. In spite of that, Total argues that under the restrictions in this section carried over from the Commission's recommendations into the agreement, it will not be allowed to open any more company stations, and, because it is a newcomer, it argues that it can only develop through its company-owned stations for some considerable time, because it will be some time before it comes up to the level of gallonage which is now provided for in the voluntary agreements.

Therefore, Total will not accept the voluntary agreements, and, in order that they can be properly carried out under the terms and conditions which we discussed with the petrol companies and which they have accepted, we are compelled to bring forward this Order which applies only to the Total Company. The effect of it means that, for all the other petrol suppliers, the voluntary agreements will be carried out and, in the case of Total, by this Order we impose, as it were, voluntary agreements upon the company.

12.25 p.m.

Mr. Michael Alison (Barkston Ash)

Perhaps I might start by reassuring the Minister of State that we welcome at least the Amendment which he has tabled this morning in that it removes an element of retrospective legislation which was implied in the original Order.

As for the Order proper, we must admit to feeling something of the same reluctance in accepting it, although we would not seek to block it, that the Minister himself suggested. It raises some curious and unusual precedents. It is an Order against one specific company to bring it into line with a whole group of companies whose commitments, as the President of the Board of Trade himself has said, are limited merely to undertakings.

I notice from his Written Answer of 19th July, with which the Minister of State will be familiar, that we have introduced a new concept of something parallel to a statutory obligation, which is the concept of the undertaking. These undertakings which will come into effect on 6th August, 1966, are the parallel commitments to the obligations being placed upon Total in this Order.

We want to know exactly what the binding commitments of an undertaking really are. It seems to us to raise some difficulties. I know that the President of the Board of Trade has said that he will look at the position in 18 months to see how it has gone. If there is a breach of an undertaking, do those who are in breach then become the subject of a new Order? Has that been thought out? If they become the subject of a new Order, how do they stand in relation to paragraph 2(b) of the existing Solus Petrol Order, 1966, which specified a period of five years commencing with the date of the operation of that Order? After 18 months, if a firm is in breach of its undertaking, the five-year period which will then become appropriate to it under a new Order thereby made necessary would presumably be an Order dating from whatever it may be—August, 1967—and therefore they have had a clear 12 months advantage because their five-year conditions will outlast the Total commitments by 12 months or possibly more.

That is a problem which is likely to arise if there is a breach of the so-called undertakings. It may be possible to bring them in under the existing Order by adding a new schedule, but that would be undesirable, because it would be retrospective in itself. Perhaps the Minister could indicate to us what action the Government propose if there is a breach of these undertakings? With regard to breaches, can he indicate to us what the penalties involved are, because presumably there are penalties under the Order for a breach. It may arise in the parent Act, the Monopolies and Mergers Act. If there are penalties, it seems unfair that those who are merely committed by an undertaking are clearly not involved in any penalty at all.

On a point of clarification, what would be the position if petrol companies proposed, in any agreements that they made with their retail outlets, that although a particular solus tie should only run for five years, nevertheless there should be written into such an agreement an undertaking by the retailer to renew for successive periods of five years? Is this a way in which it is possible under the Order for the limitation to be dodged?

We should like reassurance that, if this Order were a Public Bill, it would not be a hybrid. It is probably not a hybrid under Section 3 of the Monopolies and Mergers Act, 1965, but if by any chance it were, it would be liable to delay in the House of Lords, and that would alter the date on which it would become operative.

I turn now to a a rather wider topic, on which the Minister himself commented in some detail. It is dealt with in Part V, page 5, under the heading Limitation on supply through new Company stations. As the right hon. Gentleman suggested, the original Monopolies Commission Report suggested 10 million gallons as the limiting figure at which the 15 per cent. rule should bite. That limitation has been raised by this Order to 50 million gallons. But the total supply of petrol through retail outlets in 1964 was, according to the Monopolies Commission Report, in excess of 2,600 million gallons per annum. The limit in the Order of 50 million gallons represents about 2 per cent. of the present sale of petrol through retail outlets. It seems a little hard on the innovators seeking to break in, possibly introducing an element of competition, and, perhaps, in that way bringing down the price to the consumer, that his limit should be such a small fraction of the total sales.

This view is reinforced by what Professor Barna says in a dissenting opinion in the Monopolies Commission Report. He says that the main body of existing suppliers of petrol already have between 25 per cent. and 30 per cent. of retail outlet through their own stations. We therefore have a situation in which the existing giants can get away, as it were, with having between 25 per cent. and 30 per cent. of their sales through their own retail outlets, while anybody coming in gets only 15 per cent. That seems unfair.

To supply petrol to one's own stations is not necessarily undesirable, and there is no doubt that, as Professor Barna said, the important element of efficiency in petrol distribution is the throughput of individual petrol stations. In the United States, the throughput of petrol from individual retail outlets is some 2½ times as high as that in Britain. It is evident that there should be some encouragement to raise the throughput of petrol at individual retail stations. I suspect that once this Order is operative, and the undertakings, if observed, applied to the whole range of suppliers, there will be an incentive for them to concentrate a lot of effort on raising throughput in their own stations.

The paradox is that if one succeeds in raising throughput in one's own stations, one can normally increase the percentage of sales without increasing the number of stations. Yet it is precisely this higher percentage the Commission wished to prevent. Fortunately it is quite possible to double the throughput in one's own stations and perhaps thus to double the percentage sold in company stations without being in breach of the Order. All that one is not allowed to do is to increase sales by acquiring new stations.

There seems to be an undesirable economic principle here, because the effect of the Order will be to discourage petrol companies from acquiring new retail outlets and certainly not to encourage them to increase the throughput in those they already have. I have raised a number of diverse points on this Order, and I would be glad if the Minister would comment on some of them.

12.35 p.m.

Mr. Charles Fletcher-Cooke (Darwen)

I have no interest in Total, but I have a good deal of sympathy for that company. First, it is very invidious to be the only named firm in the Order. Secondly, it is particularly invidious if the company is based in France rather than in England. I hope that that consideration was borne very much in mind when the Board of Trade decided to take this action, because it would be very unfortunate if it got about that what was one treatment for British-based companies was, somehow, not the same for companies based abroad. There is an element in which the treatment is not the same, and it has been mentioned by my hon. Friend the Member for Barkston Ash (Mr. Alison).

My hon. Friend pointed out that, according to Professor Barna's dissenting opinion in page 180 of the Report, the existing giants, most of which are British based already, have between 25 per cent. and 30 per cent. going through company stations which they own or rent, but that the newcomer, the innovator, is to be allowed only 15 per cent. That requires a little more justification than we have had from the Minister because, on the face of it, it is a discrimination against the newcomer.

It is true that this is, in some measure, due to the passage of time. The Commission, no doubt for good reasons, took a long time to examine these affairs, and by the time the Report was printed the existing companies had already increased the percentage they put through company stations. Nevertheless, that is a good enough reason for this apparent consideration against the newcomer—15 per cent. for him and 25 per cent. or 30 per cent. for the existing, established—one might almost say entrenched—companies.

While I am on the point of entrenchment, I should like to know what has happened to the Commission's recommendation relating to motorways. The Commission recommended that in view of the fact that Solus agreements were particularly tight—indeed, noxious—in the case of the motorway franchise, the Commission said in page 157 of the Report: We think that the Ministry should so extend the steps they already take … as to ensure that any lower-priced brands which are sold on a substantial scale elsewhere shall be fairly represented on the motorways and shall be sold at no higher retail price there than elsewhere. In other words, in the view of the Commission this extremely valuable and profitable franchise of selling petrol on the motorways ought to be widened to the more popular brands which provide admirable competition for the entrenched companies. In my experience of driving up and down motorways I do not see much sign of that, and I wondered what had happened to that recommendation; because there, again, I am sure the Board of Trade does not wish to be thought, and indeed it is not thought, to favour the entrenched interests. Therefore, it behoves the Board of Trade to stimulate the Ministry of Transport to carry out this recommendation of the Monopolies Commission, because the purposes of the Monopolies Commission, that of greater competition, the lowering of prices and increased efficiency are those which all parties have very dearly at heart.

12.41 p.m.

Mr. Darling

Quite a number of very pertinent questions have been raised by the hon. Member for Barkston Ash (Mr. Alison), as one would expect from him. I will try to answer them, and also those questions put to me by the hon. and learned Member for Darwen (Mr. Fletcher-Cooke). On the question of breach of the undertakings, the sanction to deal with them would be the extension of this Order, as the hon. Member has suggested; but I do not believe there will be any breaches. I am sure that the undertakings that have been given by the petrol companies will be carried out. If there are breaches I am sure they will be accidental, and in view of the very friendly way in which all this has been done the arrangement that my right hon. Friend has made to look at the undertakings again in a year or eighteen months' time will enable us to see whether this innovation—and the hon. Member is quite right, it is an innovation—is the right way of doing things.

If anything arises out of the operation of the undertakings which suggests that we have not done this in the right way, we will, of course, make the necessary alteration. To that extent the undertakings are elastic, but I believe the House would agree that if one can get voluntary agreements on the basis of the recommendations of the Monopolies Commission one should try to do so. I myself would feel that that is a better way of doing things than having to come to the House to get Orders of this description imposed on companies. I hope the innovation will succeed, but, of course, if there are deliberate breaches of the Order then, as the hon. Member has said, and as I repeat, the sanction to ensure that the undertakings are carried out would be the extension of the Order to those companies who fail. As to the penalties for breaching the Order, there are no criminal penalties laid down in the Monopolies legislation for this kind of offence, and we should have to seek injunctions to prevent an offence being committed.

The hon. Member raised the question of whether this is a hybrid Order. I understand that under our procedure it is not, but that under the procedure in another place it is. We have therefore to consider what might happen if there are any Petitions against the Order. I think we had better leave it there at the moment and see what happens; but as far as the procedure in another place is concerned, by their rules this is a hybrid. The 2 per cent. element to which the hon. Member referred is one which, as I am sure he will understand, caused us quite a lot of—I will not say trouble—but quite a lot of discussion as to whether the right figure had been chosen in view of this recommendation. Even though there was a dissenting voice from the Monopolies Commission, we had to decide what was the proper figure to work to.

Obviously, by the hon. Member's arguments 10 million gallons would be far too low, and I feel that having had the proposition from the Monopolies Commission recommending 10 million gallons any figure we might go to that was in the range of 2, 3, 4 or 5 per cent. of the total petrol sales of the country would give rise to the kind of argument put forward by hon. Members. After much discussion we felt that 50 million gallons was just about the right figure, one which would not prevent newcomers coming into the business but would allow for newcomers. Total may complain about it on the grounds that their present rate of sales are unlikely to reach 50 million gallons for a little while; but it would not in our view be hard on the newcomers to operate on this 2 per cent. of the total sales of petrol in the country as the limit for the purpose of the Monopolies Commission's recommendation. We may be wrong. This is another matter which we might well look at in the course of the review of the undertaking.

I was much intrigued by the hon. Member's arguments about the economics of company-owned stations. He is perfectly correct. If the company doubled its sales in company-owned stations, then of course it doubles its sales within the terms of the undertakings in spite of the fact that the purpose here—and this is the main recommenation of the Monopolies Commission—is to cut down the sales of petrol through company-owned stations. That is another matter at which we must look. Having had this recommendation from the Monopolies Commission—and as the hon. Member knows they stress their criticism of growing sales to company-owned stations—whether the Monopolies Commission in their recommendations have the economics right and whether we have the economics right in accepting the recommendation, I do not know; but I would agree with Professor Barna to the extent that I believe we should look at the situation again during the review of the undertakings.

I am sure the House would not wish me to go into a great deal of detail about the points that have been raised. If I have failed to answer any of the questions raised by the hon. Member, I will write to him about them and we can have a discussion later. With regard to the question raised by the hon. and learned Member for Darwen, we, too, were rather worried about the fact that we were applying this Order to a non-British company, although it is a company registered in this country—Total (Great Britain). We know that it is the British branch of a French company and we want to make clear that there is no invidious distinction here. Of course, it applies also to Esso and Mobil who, although registered in this country and being very much British companies are, so to speak, branches of United States concerns. Total have their views and, as the hon. Member for Barkston Ash has said, there is some substance in their arguments. But having got the Undertakings from all the other companies it was impossible, despite the strength of Total's arguments, to leave them out of account; otherwise all the other undertakings would have been destroyed.

As the hon. Member himself has said, motorways are a matter related to the contracts made between the Ministry of Transport and the companies getting the franchise. I will certainly carry out the suggestion of the hon. and learned Gentleman and draw the attention of the Ministry of Transport—although I am sure it has already been done, anyway—to the recommendations of the Monopolies Commission and "stimulate" that Ministry—I believe that was the word used by the hon. Member—to do what is required in this respect. If there are any other points I have not touched upon I will reply to hon. Members in writing.

Question put and agreed to.

Resolved, That the Solus Petrol Order 1966 (S.I., 1966, No. 894), dated 19th July 1966, a copy of which was laid before this House on 25th July, be approved.

The Solus Petrol (Amendment) Order 1966 (S.I., 1966, No. 931), dated 26th July, 1966, [copy laid before the House on 27th July] approved.—[Mr. Darling.]