§ 10.0 p.m.
§ The President of the Board of Trade (Mr. Douglas Jay)
I beg to move,That the Solus Petrol (No. 2) Order 1966 (S.I., 1966, No. 1314), dated 20th October, 1966, a copy of which was laid before this House on 20th October, be approved.This Order carries out the recommendations of the Monopolies Commission on solus ties and solus sites in the oil and petrol distribution business. It is basically designed, following the Commission's Report, to give greater freedom of choice to the motorist at petrol stations in purchasing petrol, oil and other motor accessories.
Before introducing the previous Order, the Board of Trade, as the House knows, tried for a considerable period of months to get a voluntary undertaking from the relevant oil companies to carry out substantially the Commission's recommendations. We obtained that voluntary undertaking from 41 out of 42 of the companies concerned. We came to the conclusion—and I think the House agreed when the previous Order, which this replaces, was debated—that it would be unfair to the 41 companies who were voluntarily complying with this request if the one dissentient company were allowed to go its own way at the expense of the 41. It was for that reason that we introduced the previous Order. That Order was approved by the House on 6th August of this year. It is now being replaced by this No. 2 Order for a procedural reason which I will explain.
The first Order was adjudged in another place to be a hybrid Order because it affected one named company. For that reason a Petition was made against the Order and the Petitioners, who were, of course, the dissentient company, were, for whatever reason, technically late in putting their Petition forward. It would have been possible for us to take advantage of that and to go straight ahead and ask the House of Lords to approve the previous Order. We were anxious, however, to be scrupulously fair to the complainants. We therefore agreed to let the first Order lapse, in order to put them on the right 1680 side of the timetable. For that reason it is necessary to introduce this further Order.
That is the whole explanation of this Order. So that the House knows all the relevant facts I should add that the previous Order is at present being investigated by a Select Committee in another place on the Petition of Total, the company affected. I cannot, of course, at the moment say what the outcome of the Order may be.
§ 10.3 p.m.
§ Mr. Michael Alison (Barkston Ash)
In his brief reference to this Order the President of the Board of Trade made it all sound rather procedural, but there is a little more to it than that and we ought to probe it a little more. It seems to me that there are some substantial interests and matters underlying the question which we are being asked to consider.
On the purely procedural point, the President of the Board of Trade spoke about the Board of Trade not wishing to be unfair to this single company which is trying to take advantage of the hybrid Standing Orders in the House of Lords. But he will admit that there must have been, prima facie, some measure of merit in the appeal which the Total Company made to the Special Orders Committee in the House of Lords for this whole procedure to have been invoked. Although it is not unprecedented, it is very rare.
It is the merit in the Total case which has enabled them to be heard by the Special Orders Committee and subsequently to be heard by a Select Committee of the House of Lords, before which counsel are briefed and evidence called for and against the principles in this case. Surely it cannot be argued that we should be asked in the House to consider the merits of an Order, the whole substance of which is at present in dispute between counsel before a Select Committee of the House of Lords.
How can we evaluate the merits of the Order when the whole matter is in discussion in the House of Lords? It would be surely reasonable for the Government to consider postponing this second Order until the Select Committee had reached its conclusions, until 1681 the evidence which had been argued could be published and we were aware whether the Order would lapse and whether the House of Lords would accept the findings of the Select Committee.
I understood the President of the Board of Trade to say that the Order which is now being examined before the Select Committee in the House of Lords is the earlier Order. If that is correct, it means that Total must go through the whole petitioning procedure again if the Select Committee finds in its favour in the Order which is at present under review. Surely, therefore, it would have been better that tonight's Order should have been held back until the arguments advanced by counsel on both sides had been evaluated by the Select Committee in the House of Lords and its conclusions published so that we could consider them. We are asked to consider the merits of the case on a great deal of evidence which is not available to us. That is not in the interest of the House.
The President of the Board of Trade will agree that there is a lot more to this matter than just one company being a bit cussed and awkward. There is no doubt on the basis of its provisions that the effect of the Order will be very important on the Total company—and not only to that company but, in one way or another, to the economy of the country at large. Indeed, not only is it a question of the purely economic interest of the country, but, Total being a French company, the matter is not without its international repercussions. A large French-based company—and there are plenty of British petrol companies selling petrol in France—is trying to invade the British market in competition with British firms to sell petrol here. There are bound to be ramifications at another level if the Government clamp down on the possibilities of this company's sales and expansion in this country. There is more to it than the President of the Board of Trade has so far allowed.
I remind the right hon. Gentleman of the effect upon the company. Having looked at the case put up by Total—and I have been able to see a little of some of the evidence which has been talked about in the House of Lords—there seems to me to be no doubt that Total has in the past been encouraged 1682 to enter the United Kingdom market. The right hon. Gentleman's own Department undoubtedly gave the company encouragement particularly to establish a refinery here. This is of crucial importance.
We do not know what encouragement the Board of Trade used—the word could even be a euphemism—but there is no doubt that through the industrial development certificate procedure and in other ways the Board of Trade encouraged Total to establish refinery facilities in this country, which the Total company proceeded to do. In conjunction with another company, Total has spent nearly £20 million on building an oil refinery here, and has spent it, I would add, in foreign currency. This is, therefore, a net asset in terms of an investment in this country in foreign currency at the direct instigation and encouragement of the Board of Trade.
The refinery, which has been built here with the aid of hard-currency French new francs, has a throughput of petrol and light distillates of 180 million gallons. This capacity is crucial to the case that Total is putting forward. It has also as a sideline invested something like £5 million in company stations retailing its petrol.
The effect of this Order, if it is not disallowed by the Select Committee in the House of Lords, will be quite simple and quite catastrophic for Total. The effect of this will be that as soon as it has reached the limit of sales of 50 million gallons per annum, that is to say, about one-third of its refinery capacity, by this Order it will not be allowed to acquire any more company-owned stations for selling its refinery product of petrol, if the proportion of sales already exceeds 15 per cent. of the total gallons sold.
The facts about Total are quite simple. It is already at about the 50 million gallons level in its sales, and of those 50 million gallons already something like 60 per cent.—not 15 per cent., but 60 per cent.—is at present going through company-owned stations. The effect of this is therefore stark. It means that if Total wants to increase its sales of petrol in this country up to the limit of its established refinery capacity it will not be able to do so through company-owned 1683 stations. It will have to go out through other retail outlets.
This is a quite serious and, I believe, almost mortal blow to the trading prospects of an incoming foreign company so far as petrol sales in this country are concerned. It claims—I think it is reasonable—that for a company comparatively unknown in this country, a foreign firm, it is very difficult to get greater outlets for sales, unless it can retail through its own labelled company stations, in which it has put in modern equipment of the highest possible standards of cleanliness and so on. Furthermore, it is very difficult for it, even it has tried to get its own outlets, to break into the retail market through united petrol stations. They are relatively few, because other established companies have many tied stations.
The effect of the Order will be to turn off the tap of its retailing when it has reached only about one-third of its refinery capacity. I cannot believe that the Government really mean to do this. The fact is that Total sales are something like 50 million gallons out of a total of national throughput of petrol stations of 3,000 million gallons per annum; that 50 million is under 2 per cent. of the total. This cannot conceivably be considered a monopolistic tendency by this particular company.
I would remind the President of the Board of Trade that by a strange paradox the encouragement which he may give to Total to retail more of its refinery product through company-owned stations may have the very opposite effect of encouraging competition. It may by a paradox be in the interests of this country to ignore the Monopolies Commission's findings. I would read a very short paragraph from an interesting book called "Fuel Policy" published by P.E.P. as recently as 1966:By comparison with most other markets in Western Europe, Britain until recently remained a stable market dominated by major companies reluctant to push price competition further than they had to in order to retain market share; so the British consumer paid more for his oil than some others in Europe.The break in this whole stable price level has come from the invaders, from Total coming in, and the other foreign companies, which have effected a loosening up of the market in Britain. It 1684 is this sort of incursion we want in this country. Yet by a paradox the Government will by this Order effect the securing of the market for the established companies and reduce competition. I cannot see how this can conceivably be denied on the basis of the evidence we have before us.
I just want to remind the President of the Board of Trade of that compromise which Total put forward before. I think it reasonable to remind him of this because this seems an eminently reasonable case. The President of the Board of Trade will recall that Total suggested to him that there might be a modification in the provisions of the Order or of the voluntary agreement it had been asked to undertake, which would have the effect of that upon reaching the crucial 50 million gallons the company would be permitted to acquire in any subsequent year additional stations up to 15 per cent. of the number of its company-owned stations existing at the end of the previous year. In other words, the company would be allowed to increase its company-owned stations on a basis of 15 per cent. per annum until its total sales in the dealer market reached 5 per cent., which is a small enough figure.
I remember that the Minister of State, in the course of the short exchange we had on this matter in August, went on record as sayingAbout the economics … whether the Monopolies Commission … have the economics right and whether we have the economics right, I do not know. Total have their views … there is some substance to their arguments, but having got the undertakings from all 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.Not only has this been admitted here, but it has been admitted by the Government in another place, to the extent that they have allowed a Select Committee to receive evidence from counsel on the matter. There must be substance in it and I think I have produced sufficient facts to show that there is substance in it. The only fair thing to do would be to withdraw the Order until the Select Committee has made its findings known, and to see if the Government can reach a fair compromise with Total to enable the company to get a modest corner of 1685 the market. It would inject an element of competition in the retail petrol industry, it would prevent the souring of international relations, and it would do justice to an individual company. We hope that the President of the Board of Trade will seriously consider this argument.
§ 10.19 p.m.
§ Dr. Reginald Bennett (Gosport and Fareham)
I have followed with interest and mounting alarm the complexity of the goings on which have been taking place in another place. It seems to have amounted to a kind of hurrahs-nest of the sort that is usually experienced only at sea. Here we have an attempt by the Government to do the right thing by having withdrawn the Order that gave rise to such complications and such difficulties, and by not having depended on the procedural point in that a Petition was introduced out of time by various curious coincidences—in other words, not to stand on procedure but to deal with this matter on the merits of the case. I think this is wholly proper. I think it shows a spirit of fairness which I should like to see extended into a wider section of our political life.
Although I personally have anxiously awaited for a long time some implementation of the Report of the Monopolies Commission on petrol distribution, as the right hon. Gentleman the President of the Board of Trade well knows, I am now glad that this matter is being dealt with with suitable deliberation; and I think the Government are doing the right thing.
I have studied the evolution of this case with interest, and I was aware some time ago of the refusal of the Total Oil Company to sign undertakings in accordance with the recommendations of the Monopolies Commission. I have some sympathy for its attitude as, on the relative scale of operations, the company is, as my hon. Friend said, a small outfit seeking a corner of a very rich market and in considerable danger of being trampled down by the giants, who are by no means too particular where they put their big feet. We certainly do not want that. The objections that Total raises range far and wide and in many ways they challenge the findings of the Monopolies Commission. I do not welcome this.
1686 In the statement on the Solus Petrol (No. 2) Order by Total Oil, on the subject of the limitation of company-owned petrol stations, which is what the row is about, the company says this:the large older-established companies… are protected from encroachment by newcomers, such as Total.It goes on to say that it regards the undertaking which would bring this about asanti-competitive and contrary to the true purpose of monopolies legislation.How? Surely this argument rests on one point, and one point only—the limitation of company-owned stations. It takes no cognisance whatsoever of having to compete for privately-owned stations as outlets. Total wants to consider only the stations owned by the same company as finds, transports, refines and distributes the oil—this very large and, I suspect, indestructible structure, once it exists, which we already have had proved for us in this country as being an abuse. Total wants to consider only company-owned stations as the weapon it chooses for competition. My hon. Friend the Member for Barkston Ash (Mr. Alison) said that 60 per cent. of Total's retail output is sold through company-owned stations. This is a very high percentage. And this is what the Monopolies Commission has expressly refuted. If this is Total's view of competition, all I can say is that Total is as bad as the rest.
Total has proposed a scheme which it calls a "compromise" and which it has designed to suit itself. I can see that Total has a point. It would like to be inhibited in its attempts to compete. I am with Total on that. But this compromise, as they call it, is merely a licence to increase the aggregate of company-owned petrol stations—faster for Total than for the giants. A few calculations seem to indicate that in five or six years" time Total might have about 500 company-owned stations and meanwhile the giants would be galloping ahead with an extra 100 or 200 company-owned stations per annum.
This is wholly wrong. We do not want to increase company-owned stations. I therefore condemn these representations. If Total finds itself handicapped, as it says, under the Order, which enforces what it originally refused to sign, this is unfortunate for Total, but I believe 1687 that it has mainly itself to thank for this. It is a pity, but I am in no doubt that Total will have the opportunity to petition another place. It certainly cannot claim in this case that it has been given brusque or unfair treatment, as the first Order was withdrawn and another put in its place.
This implementation of the Report of the Monopolies Commission is necessary. It is so overdue that many people have been wondering if it would ever happen. I therefore welcome the bringing forward of the Order, while deploring the circumstances that make it necessary. I hope that the House will give the Order a fair wind.
§ 10.25 p.m.
§ Sir Douglas Glover (Ormskirk)
I hope that my hon. Friend the Member for Gosport and Fareham (Dr. Bennett) will not be offended if I speak in a sense quite contrary to his speech. I always have a healthy suspicion when the establishment links with an authoritarian Government and supports the Government in in action which they take to reduce competition.
§ Sir D. Glover
The established companies. What the established companies are doing—I do not blame them—is trying to make sure that the percentage of the market which they have is the percentage which they retain.
§ Sir D. Glover
I am obliged to the right hon. Gentleman for his intervention, but it remains the fact that they have agreed to them. Only Total was the maverick which stood out. I can readily understand why the established companies did not want to agree. They would much prefer to go on as they were, but they were faced with a Report of the Monopolies Commission. But in this instance, I suggest, the Monopolies Commission is standing on its head.
What is the purpose of distribution? I will cite the analogy which I cite to all national chambers of trade, that it is 1688 to get the wool from the sheep's back on to the human back at the lowest possible price. That is a good analogy. It is as simple as that. I have spent my life in retail distribution, and I deplore multiple chains making competition greater for me, but God did not give me a prescriptive right to make a living if I did not give a service to the consumer at a price which was of benefit to the consumer.
There are 41 companies—with Total 42—and a lot of the pricing policies of the oil companies are wrong. There is not nearly enough price competition in the trade. But this does not mean that the Monopolies Commission is right in saying that the present structure of the trade should remain virtually as it is and that there should be no newcomers coming in with solus stations. Only with the bitter wind of competition, with people like Total coming in, shall we break the present pattern in the distribution of petrol in this country.
It may be that some Government action is needed here, but it must not be assumed that we will necessarily produce a more efficient distribution of petrol by keeping 42 companies with, basically, a static number of solus stations, the idea being that they will then have to battle for sales to the independents. It by no means follows from that pattern that the fundamental purpose of distribution, to get the petrol into the owner-driver's motor car at the lowest competitive price will be met. It will not bring about more price competition. If anything, it will reduce price competition.
The petrol companies have not a particularly good record in this respect. They always offer specious arguments about giving value in service and so on, but the average motorist has great difficulty in finding what the service is for which he is paying. We shall not make the trade any more competitive by saying that the share of the market the companies now have should become the law of the Medes and Persians so that they are less likely than before to lose it. This will neither alter pricing policy nor make for more competition.
What this country needs more than anything else is the cold wind of competition, not a reduction of it. The Monopolies Commission is a body of very wise 1689 people, but they have not all the wisdom of the laws of the Medes and Persians in their minds. One is entitled to criticise a conclusion reached by the Monopolies Commission, and I believe that in this case, a very difficult case, the Commission has reached the wrong conclusion. It may have decided that something ought to be done by the Government to force more price competition in the sale of petrol, but no more petrol will be got more cheaply into the consumers' tanks by recommending that the present solus positions shall now become sacrosanct and that the newcomer will find it more difficult to make progress. This will limit competition, not increase it.
I make no apology for speaking as a layman on the subject of the distribution of petrol. Right hon. Gentlemen may say that what I have been saying makes that obvious, but I have the right to make my comments. What I am disturbed about—and I hope that the right hon. Gentleman will set my mind at rest about this—is that Total was encouraged to build a refinery in this country at a cost of £20 million. I do not accept that it necessarily was, but if it was, the Government have a responsibility. This is one of the troubles about the Government taking such a part in our affairs. They cannot encourage a company to build a refinery' at a cost of £20 million with a throughput of 180 million gallons and then impose a limit of 50 million gallons and make it very difficult for the company to sell the remainder.
If the Government have encouraged the firm to build the refinery, they have more than a minimal responsibility for the action now being taken. I do not own a share in Total or in connection with the distribution of petrol, but we have to be very careful not to give encouragement in this way and then take such action simply because a report is made by the Monopolies Commission which everyone assumes must mean asking for increasing competition even though the Order will reduce competition. The Order will not get petrol into the consumers' tanks any more cheaply and I view it with grave doubt and suspicion.
§ 10.32 p.m.
§ Mr. Graham Page (Crosby)
This is an unusual procedure for an Order. This is an Order made under Section 3 of the 1690 Monopolies and Mergers Act, 1965, which Section enables the Board of Tradefor the purpose of remedying or preventing any mischiefs which in their opinion result or may be expected to result from the conditions or things which, according to the report of the Commission as laid before Parliament, operate or may be expected to operate against the public interest …The Order is based not on a Report of the Monopolies Commission, but on the opinion of the Board of Trade on the facts disclosed by that Report.
We are, therefore, entitled to question that opinion. Whatever one may think about the Commission, right or wrong, this Order is not an Order carrying out some recommendations of the Commission. The Commission merely advises the President of the Board of Trade, who then decides whether to make an Order. If he chooses to make such an Order, that Order has to be laid before Parliament, and if it is not approved by resolution of each House within 28 days, beginning with that on which it is made, the Order ceases to have effect.
There is a further provision which needs to be considered because of the dates of this and the previous Order—that the 28 days do not run while the House is not sitting. So we have first an Order which was made on 19th July and laid before Parliament on 25th July and coming into operation on 6th August, 1966, and, working out the 28 days when Parliament was not sitting, that lapsed on 20th October. It was allowed to lapse, because in the course of that time a Petition was presented to another place and received such serious examination there that it was referred to a Select Committee.
This is the second occasion within 11 days on which this House has been called on to consider an Order which is subject to a Petition in another place. It is a most unsatisfactory procedure. I do not want to suggest in any way that we in this House should hold up our proceedings because something is happening in another place, but I say that we can benefit in this House if we await the result of those proceedings.
If this were a Bill, and it dealt with private interests, we have a procedure which must be observed in this House before we consider such a Bill. We allow those whose private interests are affected to petition the House, in fact 1691 to petition either House in which the Bill is being considered, or has been presented. Indeed, if a Petition were presented against a Bill in another place, we should not dream of dealing with that Bill in this House while that Petition was pending.
We have no such Petition procedure when we are considering a Statutory Instrument, but they have that procedure in another place, and it has been adopted in the case of this Order, to the extent not only of the Petition being presented, but of the whole matter being referred to a Select Committee.
I am sure that had the President of the Board of Trade awaited the Report of that Select Committee in another place, we should have had the benefit of the views expressed there, and would have been able to have second thoughts not only on this Order, but on the Monopolies Commission's Report on which the Order is based.
My hon. Friends have shown that there is some disagreement, to say the least, about the Report of the Monopolies Commission. It has been shown clearly that there should be second thoughts on what has been recommended by that Commission to the right hon. Gentleman. Therefore, what better second thoughts could we have before us than a Select Committee looking at this matter in detail now in another place for the benefit, after all, not of that other place alone, but for the benefit of Parliament? We are all part of it. There are two Houses of Parliament, and what is going on in the other one is of interest to us here, and we can benefit from their deliberations.
I think that the right hon. Gentleman would have been wise on this occasion, even if it meant allowing the Order to lapse again and making another one, to have awaited the results of the deliberations in another place. This procedure is unfortunate, and I have not known it occur for many years, but in a matter of 11 days this is the second occasion on which it has occurred, and now that it has been shown what difficulties can arise, I should have liked to have established some sort of tradition that where a Petition is presented in another place against an Order, we in 1692 this House wait with all decency for the Report of the Select Committee of another place.
§ 10.38 p.m.
§ Mr. Jay
Then I shall speak all the same.
I think that it would not be proper for me to comment on the proceedings which are now going on in another place, but the real issue which the hon. Member for Barkston Ash (Mr. Alison) raised was the merit of the substantial policy of this Order, and he was entitled to raise that, as were his hon. Friends to take different sides on it.
The only reason why I did not argue it at length was that on that issue this House had already given its decision on 6th August when it had all those essential issues before it, and when it had had the Report of the Monopolies Commission before it for many months. Nevertheless, I agree that this is a point on which there can be legitimate differences of opinion, as there were between the hon. Gentleman and his hon. Friend the Member for Gosport and Fareham (Dr. Bennett). I believe that this issue of policy, that is to say, whether we should achieve greater consumer benefit and greater competition by limiting the number of company-owned sites or by not limiting them, was one of the main issues on which the Monopolies Commission deliberated for approximately four years.
§ Dr. Bennett
I suggest that there may be a little confusion in the House about the differences between a company-owned site and a Solus site. It may not have been fully grasped that they were not one and the same thing.
§ Mr. Jay
That is quite correct. I was going to tell the hon. Member for Orms-kirk (Sir D. Glover) that I agree with him that the Monopolies Commission is not infallible; nor is the hon. Member; nor am I. However, the Commission did deliberate for four years, and gave a clear answer, and I have been constantly urged in this House that unless there is some strong reason to the contrary I 1693 should carry out the recommendations of the Commission, or something very close to them.
In this case, as hon. Members know, the Board of Trade, after considering the matter for some time, liberalised—from Total's point of view—the limit which the Commission had advised. That was accepted by the 41 companies. It was also accepted by this House. When that issue has been considered by the Commission for all that time and has been approved by my Department and then—for what hon. Members opposite think it is worth—on consideration, by the House, a pretty strong case must have been made out for it.
The hon. Member's argument was that the effect of these limits would lead to diminished rather than increased competition. I do not think that he fully understands exactly how this proposal will work. All that the Order does in the matter of company-owned sites is to limit the additional number which one firm may acquire. It does not limit the amount of petrol or oil which it may sell. In the first place, Total would be in exactly the same position as any other company—and there are quite a number—which had reached this limit. But having reached this limit it is quite possible to sell through non-company-owned sites—the ordinary private sites, as the hon. Member called them—of which there are a large number and of which the Commission thought there should be an even greater number.
A company could increase its sales in that way and also—which the hon. Member did not seem to observe—through the existing company-owned sites. There is no limit on the amount of increased sales which the company can achieve that way. Thirdly, it is open to it to sell oil products not through roadside sites but direct to business and industrial consumers. In all these three ways it is possible for the company, even when it has reached this limit, to increase its sales.
§ Mr. Alison
I appreciate the point the right hon. Gentleman is making, but he should admit that the sales industrially 1694 are perhaps somewhat limited, including sales of naphtha, following the discovery of natural gas. It was a little disingenuous of him to say that Total could increase its sales through non-company-owned sites just as existing companies can. Under this Order Total will not be allowed to do the one-for-one swap—giving up an existing station in return for one with a greater throughput, which is open to companies not subject to the Order.
§ Mr. Jay
That is due to the fact that Total did not accept the voluntary undertaking. It was forced upon us, not by our desire but by the attitude of Total. I do not suggest that there will be no limit, whether in respect of naphtha or natural gas. There is always some limit on sales in any business. It will, however, be possible for the company to increase its sales in all these three ways.
We are, therefore, emphatically not stopping the increase of sales. What we are doing is following the essential recommendation of the Monopolies Commission that it is desirable to limit the number of company-owned sites as a proportion of the total number of retail outlets. If we were to accept Total's arguments—they are not the same as those of the hon. Member, but there is a certain similarity—it would not be possible substantially to carry out the proposals of the Commission.
In my view, and that of the Commission and the House when we considered this matter, that would be detrimental to the consuming public. I am convinced that that is correct, but I am also certain that we were right to be scrupulously fair to Total and make sure that it would have the chance to put forward its Petition and have it properly considered in another place.
For all those reasons, I hope that the House will approve the Order.
§ Question put and agreed to.
That the Solus Petrol (No. 2) Order 1966 (S.I., 1966, No. 1314), dated 20th October 1966, a copy of which was laid before this House on 20th October, be approved.