HC Deb 16 April 1981 vol 3 cc458-64 12.30 pm
Mr. Stephen Ross (Isle of Wight)

I apologise to the Minister of State for involving him in the affairs of the Isle of Wight on the second day in succession. I am grateful to him for what he did for us yesterday. I hope that he will have some words of hope for us today.

I dislike having to raise the subject of petrol and oil prices on the Isle of Wight as I realise that some of my remarks will seem to be unfair and probably hurtful to the small retailers on the island whose annual throughput of petrol sales is below 100,000 gallons—in many cases it is below 50,000 gallons—and who are finding making a living hard enough as it is.

In many ways, I regret the outlawing of resale price maintenance as I have always felt that it is fair to pay a reasonable margin for a good service, provided that it is kept under adequate supervision. However, we are not in that ball game today. I have an overriding responsibility to all my constituents. I know from my mail bag that the vast majority of them are now thoroughly frustrated and annoyed by the latest increases and the lack of any meaningful competition among retailers.

There are just over 50 petrol retailers on the island, all in private ownership or management. Therefore, no filling stations are operating under the direct control of any of the principal refiners, nor are there any run by the well-known national chains such as Heron. It is constantly claimed that there are too many retailers. That is no doubt true, but few, if any, have closed in recent years.

I have lived on the Isle of Wight for nearly 30 years, but it is only in the last five years or so that its prices have varied so greatly from those on the immediate mainland. Looking back through my files, I see that I first raised that subject with the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) in May 1977 when he was Minister for Prices and Consumer Protection. I asked for an inquiry. I did not get far. I tried again in May 1978, but I was once more fobbed off. The local consumers association was also turned down by the then Price Commission.

At Easter 1978, I was particularly incensed by the action of most of the Shell retailers on the island in failing to pass on to their customers a 2p refund over that holiday period. Only two or three garages at most took up the offer. Some time after that, there was a period when prices rose again on the mainland and matters evened out. However, that was only for a short period. Prices at some garages on the mainland were even slighly above those on the island.

However, over the last nine months, the situation has deteriorated to such an extent that it would appear that we now pay the highest prices in western Europe, with the exception of Italy. At the moment, four-star petrol on the island is priced at £1.66 or £1.67 per gallon. As far as I have been able to discover, no outlet's price is below those figures. One garage confirmed this morning that the price was £1.70 for four-star. Every time I go home at the weekend, the prices seem to be higher.

Last autumn there was some local press publicity. I pay credit to the Weekly Post which pursued the issue and which lost much advertising for so doing. There was a variation of up to 5p per gallon. It was curious that the small country stations with the low throughput were charging the least. The stations in main road positions, some with gallonages estimated at around 350,000 per annum or more, refused to budge until suddenly last November one of the larger stations cut its prices by about 10p. Unfortunately, that relief was short lived and the prices are now level with the rest.

Pressure has no doubt been applied by people in the trade to stand together. There is no question but that those who have made real reductions in recent years have received threats relating to other aspects of their business, such as the supply of spare parts, motor repairs and so on.

Last autumn I took up the matter again with the Director of Fair Trading, but he said that, under the Competition Act 1980, I had first to satisfy him that the firms to be investigated had an annual turnover of over £5 million, or a 25 per cent. share of the relevant market. That ruled me out straight away. When this year's Budget added another 20p to our misery, I decided to contact the chairmen of the four main companies which supply petrol to the Isle of Wight—BP, Shell, Esso and Texaco. All have now replied.

Being a good Liberal, I shall deal first with the reply from Sir David Steel, which is typical. He said: The retailer is entirely responsible for setting his own petrol prices. He does this by reference to his selling expenses, level of local competition and his income requirements. As there are quite a number of small volume sites on the island which service an important sector of the rural community, you will appreciate that the retailer requires a reasonable margin of profit to continue to operate as a viable business. I understand that. I have constantly defended the smaller retailers on the island. However, what is that margin of profit? According to my information, it is about 14p or 15p per gallon. The garage which is charging £1.70, must be getting more than that.

BP's wholesale price, expressed in gallonage, on the Isle of Wight is made up as follows: the petrol price is 69.3p, and Excise duty is 62.83p, making a total of 132.13p. When VAT is added at 15 per cent. it comes to 152p per gallon. That is the price which the retailer pays to the wholesaler for the petrol to be supplied.

It is said that the cost of bringing petrol to the island is less than 0.5p per gallon. I believe that in fact it is substantially less than that. There are variations between the main companies. Esso has recently been available at 2p per gallon less than BP or Shell, but that has not been reflected at the pumps.

In an interesting article on 27 March, in Now! magazine, the average price of four-star petrol in the United Kingdom was quoted as 152p. I reckon that it has risen by about 2p to 3p since then. Last Saturday the price in Northern Ireland was 155p. In the Isle of Man it was 146p. No wonder my constituents are incensed. Comparable prices in Europe are quoted as follows: Germany, 134p; Southern Ireland, 142p; France, 154p; Norway, 158p; Denmark, 161p; and Italy, 174p. The price in only one country is above ours and we are rapidly catching up with it.

The pump price of light fuel oil on the island is 171p, whereas the Freight Transport Association, in a press release dated 10 April, quotes an average throughout the United Kingdom of 161p. Even that is vastly higher than that in other neighbouring countries. Perhaps that figure relates to commercial prices and not to the pump price, but the price of light fuel oil on the island is at least 5p or 6p higher than it is elsewhere.

Our situation is also different from other rural parts of the country where higher prices for petrol are faced—I suspect that the Minister's constituency is one—because residents can generally drive about 20 miles down a motorway or a good road and fill up at a much lower rate. However, with our excessive car ferry charges, it costs us about £15 for that privilege, so that is not worth while.

Let me quote some typical letters and petitions that I have received recently. I had a letter yesterday from a Mr. Belton: I have just been over to the Island… I write to uphold your protest at the price of petrol there. On the average, it seems to be about 15p a gallon higher than the mainland; a great imposition, when the island is so hard hit by unemployment. Another gentleman wrote on 25 March: I have decided it would be a good idea to express my feelings regarding the price of petrol on our Island. I feel we, the motoring public, are being exploited. We are over a barrel as to what we pay. It is Tay our price or go without.'. We have not got the choice to go anywhere else, be it the next county or whatever. He then quotes figures from Preston and Manchester.

Another letter reads: I am a pensioner of 66 years old and came to live out the rest of my life on this beautiful island, having done very well for my country and, I hope, been a good example to some over the years. My wife and I have never asked for anything in our lives and have been thrifty enough to manage a bungalow together for our finale, but enough is enough. We are sick to death of the petrol prices in this island. I had a petition from the nurses: We the undersigned appreciate there are Whitley Council conditions regarding mileage allowances and while this may be adequate for the majority of Health Authority employees working on the mainland we here on the Isle of Wight feel it inadequate to cover the higher petrol prices i.e. 10p to 12p more a gallon. Therefore we would be most grateful if you could investigate the reason for such an anomaly. So it goes on. We are an island with above average living costs and a lower wage structure overall. We deserve better.

What can be done? I shall be voting against the increases—the latest imposition under the Budget—in the Finance Bill Committee, but that is not the object of my debate. Even if we are successful in reducing some of the increases, that will not alter the imbalance. First, I ask the bigger retailers in my constituency in top trading situations to cut their margins, as others have been doing in different parts of the country, if only by a few pence. Tourists, on whom we so much rely, will not bring their cars to the island if we continue down the present path, and we shall all suffer as a result. If the retailers refuse, the Government must help the consumer. The Price Commission is no more. It also appears that the Director of Fair Trading's role is very restricted. However, surely somewhere within the Fair Trading Act 1973, the Restrictive Trade Practices Act 1976 or the Competition Act 1980 there is a provision to enable us to deal with the situation. My constituents are anxious to know the answer.

12.42 pm
The Minister of State, Department of Energy (Mr. Hamish Gray)

I congratulate the hon. Member for the Isle of Wight (Mr. Ross) on his initiative in bringing the present subjects for debate before the House. Representing a rural constituency, I appreciate the anxiety that some of his constituents must be feeling about petrol prices. I also appreciate the importance of fuel oil prices and supplies to those of the hon. Gentleman's constituents who are dependent, directly or indirectly, on the horticulture industry. My understanding of the Isle of Wight's problems was valuably helped only yesterday when I paid an interesting and instructive visit to the island in the hon. Gentleman's company.

The hon. Gentleman has raised two topics—rural petrol prices and fuel oil prices. They are perhaps best considered separately.

First, dealing with petrol, I understand that the hon. Gentleman's concern is that the typical level of petrol prices on the Isle of Wight is far too high. He has clearly spelt out what he means. A current price of £1.67 per gallon has been mentioned, at a time when the national average is around £1.53 or £1.54. Again, I have sympathy with the hon. Gentleman. The price in my constituency is also substantially higher than the national average.

I know that hon. Members from other parts of the country, not least from Scotland, have also been worried about the disparity between rural and urban petrol prices. It might help their understanding, as well as the hon. Gentleman's, if I describe how petrol retail prices are determined.

At about 90 per cent. of all sites—more in rural areas—the petrol retail price is determined by the retailer and not by the supplying oil company. Although I do not have the precise figure, I believe that on the Isle if Wight an even higher proportion of petrol prices are set by the retailer than on average. High pump prices seen in rural areas mainly reflect high retail margins. Sir David Steel mentioned that in his letter to the hon. Gentleman. The high retail margins in turn reflect high unit costs, as well as the absence of the intense competition seen in urban areas.

The existence of high retail margins in rural areas is important, and I should like to elaborate on it. In particular, it does not automatically mean that rural garages get higher profits than urban garages. This is because the economics of petrol retailing are largely affected by the volume of sales achieved by a particular garage. The typical garage in a rural area will have a very much lower volume of sales per year than a large urban self-service site, and, at the same time, the small rural garage may in some respects have higher costs—for example, because it is an attended site and not a self-service. What this means is that the small rural and urban garage owner must compensate for his higher costs and smaller volume of sales by means of a higher retail margin per gallon sold. The main source of rural urban petrol retail price disparities is the difference in retail margin.

There are also differences in the wholesale prices charged by the oil companies to small rural and large urban sites. As I have implied, and contrary to popular belief, these differences are generally comparatively small and they arise in various ways. At the wholesale level, independent retailers are charged for their petrol supplies according to the supplying company's basic "schedule" price with certain adjustments. The adjustments are the standing rebate, the zonal premium and the small load premium.

The standing rebate is a discount that the particular garage may be able to negotiate off the schedule price for the duration of its supply contract. A high throughput garage in an urban area may be expected to secure a rather larger rebate than a small rural one. The zonal premium is payable where the garage is located outside the "inner zone" and makes a part recovery of the extra costs of deliveries to rural areas. The oil companies emphasise that they by no means cover their costs by what is currently charged. The small load premium is payable where the particular garage is unable to take delivery of a full tanker load. When I met the petroleum industry advisory committee on 26 March, I took the opportunity to ask about the zonal premium and the small load premium. The companies present confirmed that they by no means fully recover the costs to which I have referred. The zonal premium, in particular, I understand has been unchanged for many years.

A further source of price differences at the wholesale level is "selective price support", or temporary reductions in the wholesale price allowed by the supplying oil company to enable particular retail sites, often in urban areas, to meet intense competition at the retail level. Typically, however, these price differences at the wholesale level amount to only 3p to 4p per gallon, so they contribute only a minor part of the overall difference between rural and urban petrol prices.

The hon. Member, for example, has quoted Isle of Wight petrol prices as around 13p or 14p above the national average. I know that he is not satisfied that the petrol retail margins which are apparently achieved on the Isle of Wight generally reflect the economics of supply. There have been suggestions that a cartel may be operating on the island at the retail level, with the objective of keeping the price of petrol artificially high. I understand that the Office of Fair Trading has had complaints to this effect and would be prepared to investigate those complaints if appropriate evidence were brought before it.

Allegations of a cartel among petrol retailers on the Isle of Wight must be handled by the Office of Fair Trading, but no investigation can be made without documented evidence that specific violations, within the terms of reference of the relevant competition legislation—the Restrictive Trade Practices Act 1976, the Competition Act 1980 or the Fair Trading Act 1973—are taking place. The adequacy of legal powers available to the Office of Fair Trading is the responsibility of my right hon. Friend the Secretary of State for Trade.

Mr. Stephen Ross

I have, of course, pursued that line. The trouble seems to be that under the Competition Act 1980 only larger fish can be investigated—those with turnovers of £5 million or more, or where it can be shown that they have more than a quarter of the market. That is what I understand from the letter that I received from the Director General of Fair Trading last autumn when I took up the matter with him. That possibility is thefore ruled out. If there is a suggestion that he is prepared to look at other avenues, I should, of course, be very interested.

Mr. Gray

I think that the best thing that I can do is to seek further advice from my right hon. Friend on how the hon. Gentleman might pursue the matter. I am perfectly happy to do that if the hon. Gentleman would like me to.

I come now to another subject which I know is of great importance to the hon. Member's constituents, namely, fuel prices to horticulture. I understand that the hon. Member raised the matter of unfair competition from Dutch horticulturists during oral questions this morning, and I know that my right hon. Friend the Minister of Agriculture, Fisheries and Food has been taking every opportunity to press for EEC action on this to be completed urgently.

For much of last year we heard complaints from United Kingdom purchasers of heavy fuel oil that the price that they were paying was substantially more than the price paid for fuel oil by competitors across the Channel. An important reason for this disparity was the low fuel oil price last year on the Rotterdam spot market, which helped to bring down fuel oil prices in those EEC countries in which the inland prices are influenced in one way or another by the spot price. The United Kingdom, by contrast, as the NEDC energy pricing task force report pointed out, is relatively independent of the influence of Rotterdam.

This means that United Kingdom fuel oil prices do not necessarily match those in other EEC countries at any particular time, though over time the differences tend to balance out. Since last autumn, I am glad to say, the United Kingdom heavy fuel oil price has for most of the time been very much in line with, or indeed below, the price elsewhere in the EEC. This remains so now, when the United Kingdom duty-exclusive price, which is of particular relevance to horticulturists, is in fact very low, and substantially lower than the price that would have to be paid for imports from the spot market. My right hon. Friend the Secretary of State has nevertheless stressed to the oil companies that he expects their prices, over time, to be competitive by international standards.

A recent source of worry to Isle of Wight interests has been the lack of supplies of medium or heavy fuel oil, which are generally considerably cheaper than the gas oil and light fuel oil which are supplied to the island. This is a commercial matter for the oil companies and their customers. I understand that many of the customers' boiler installations are technically incapable of burning heavy fuel oil—which requires heated and lagged storage as well as special burners—and that the oil companies lack dedicated medium fuel oil or heavy fuel oil storage facilities on the island. But I also understand that some of the companies would be prepared to supply to the island by tanker and ferry if their customers judged it worth while to pay the extra delivery costs and to make the necessary investment in boilers and storage tanks in order to take advantage of the price differential compared with light fuel oil or gas oil. This is, I stress, a commercial matter for the oil companies and their customers.

As I conclude I should like to emphasise two points about the price which United Kingdom horticulturists pay for their fuel oil. The first is that they are already allowed a full rebate on that duty which they pay on fuel oil—the rate is 3.5p per gallon. Though this is strictly a matter for my colleagues at the Treasury, they will forgive me if I say that there is quite simply no scope for a larger duty rebate to be made to United Kingdom horticulturists than they receive already.

That brings me to the second point, for some might ask why fuel oil prices to horticulturists should not be subsidised. This is emphatically not the answer. In the long term we must pay economic prices for fuel. Indeed, as the hon. Member heard this morning, this is why the Government have been pressing the European Commission so hard to take steps to end the preferential gas tariff for Dutch horticulturists.

I have great sympathy with the problem that the hon. Gentleman has so clearly spelt out. A high price for petrol seems to be charged on the Isle of Wight. I regret that this does not come within the scope of my Department. Therefore, I cannot be more constructive in my reply to the hon. Gentleman. However, as I indicated earlier, in view of the representations that he has made, I shall be happy to undertake discussions with my right hon. Friend to see whether any other avenue is open to the hon. Gentleman to pursue this matter.