§ Mr. Martin O'Neill (Ochil)
It is appropriate that the House should debate this issue on the first day that the public are being admitted to this year's London motor show. It was trade day yesterday, when the lads from the motor trade—they are mainly lads—had first sight of the new models. Doubtless they slapped each other on the back, talked about great deals and discussed their bonuses in the run-up to Christmas.
Bonuses for those in the motor trade may be fewer and a little thinner this year than in the past. Earlier this year, it was assumed—it was not estimated because the men from the motor industry know their business very well, and when they say that something will happen, they try to make it happen—that 425,000 models would be sold in September 1999. According to Hugo Andreae of the Daily Express on Monday of last week, the official figure is now about 387,000 registrations. That figure has apparently been inflated by the registration and pushing on to the market of tens of thousands of unwanted cars, which are described in the newspapers as pre-registered cars. It is estimated that 300,000 instead of 425,000 cars have been sold.
A spokesman for Mitsubishi said:After a bright start to September the market stopped dead.What has happened? Perhaps my hon. Friend the Minister, who has recently arrived in the Department of Trade and Industry from the Treasury, will be able to tell us whether there has been an economic crisis that we have not heard about, as a result of which interest rates for motor cars have risen independently. Or have the words of my right hon. Friend the Deputy Prime Minister at last been heeded and people have decided to stop using or acquiring motor cars?
It would seem that neither of those possibilities is of any relevance. Instead, the British public have said, "Enough is enough. We are waiting to see what will happen to prices. We have read about cheaper cars being available on the continent. We may not want to buy by post, through the internet or go abroad to purchase cars, but we shall certainly not be ripped off any longer."
Twelve months ago, almost to the day, I and my colleagues who sit on the Select Committee on Trade and Industry held a public hearing on vehicle pricing. We had all the usual suspects in the Box, including representatives from the Consumers Association, the National Franchised Dealers Association, the Society of Motor Manufacturers and Traders and the Office of Fair Trading. Committee members arrived with the usual arsenal of misinformation, prejudice and half-digested facts that comprise the main weapons of politicians. We received additional written evidence from a wide variety of other sources. It became clear before long that the British car buyer was not doing as well as his continental neighbours.
Figures provided by the Consumers Association showed sustained price differentials between the United Kingdom and certain other European states of 30, 40 and 50 per cent. European Union limits require that the differential be no higher than 18 per cent. in any one year, and no higher than 12 per cent. over a longer period. We found that the price discrepancies were due to selective and exclusive distribution arrangements, which allow 385 manufacturers to set standards and criteria and determine the territory in which dealers can operate. That can be done under the block exemption, which will have to be reconsidered in 2002.
Manufacturers can tell dealers what they may sell and at what price, and where they can source their vehicles. Dealers are not even allowed to vary invoice prices. Moreover, they are not offered discounts for large volumes of sales to individual members of the public. On the other hand, discounts are offered to fleet purchasers. They are able, through various arrangements, to put their heavily discounted vehicles back on to the market at the normal recommended resale price. Franchise dealers are in a position to offer a specialist after-sales service, which the purchaser of an expensive item would expect.
Under the block exemption, there is the sweetener that a member of the public may buy a car from a recognised dealer in the certain knowledge that he will receive a consistent maintenance service. Unfortunately, that service seems to be indifferent. At best it is not bad, but more often than not it is unsatisfactory. That is the conclusion to be drawn following research involving a wide variety of organisations, and not only campaigning groups such as the Consumers Association.
The House will be aware of a "Panorama" programme on the issue and an article in The Sunday Times. Many organisations are carefully considering the issue and arriving at the consistent conclusion that the present arrangements offer the motorist little protection. If our cars are being badly serviced, there is always the worry or anxiety that unsafe cars that are hazards to the public in general are going on to the roads.
There are other reasons why the price of cars might be higher in this country than elsewhere. Apparently we are a high-wage, strong-currency economy—although we can probably set aside the high-wage issue. Simple economics tell us that if we have a strong currency it is cheaper to import. Cars imported into the country should therefore be cheaper—although perhaps that does not apply to all cars.
For example, Saab has announced that it will cut the prices of its cars by 5 per cent. because of the slide in customer demand that I have already mentioned. If Saab can do that on the basis of one month's poor figures, perhaps others could do the same. I think of Volkswagen and BMW. After all, we have had an exchange rate of about DM2.70 to the pound, or even better, for the best part of three years. Organisations of such sophistication, size and skill could surely accommodate the minor arithmetical problems that are involved in currency exchange rates.
There is also a technical argument, which has been trumpeted over the years as being of far greater significance than other considerations. The argument is that we drive on the wrong side of the road. Of course, we all know that it is the others who drive on the wrong side. Regardless of who drives on the wrong side, we are in the minority. Perhaps it is fair, therefore, that we should be punished for being British and driving on the wrong side. However, if we are being punished, why should the Irish not be punished? I shall take the case of Fiat—which sells cars in Ireland—as an example, and use euros as a simple basis for comparison.
In 1998, according to figures produced by Directorate-General IV of the European Commission, a Punto in Eire, on the basis of an index, was 104.9 euros. In the UK, 386 it was 141.6. The Bravo was 100 euros in Eire and 149.9 in the UK. The Marea was 102.6 and 148.6 euros respectively. So much for driving on one side of the road as against the other.
§ Mr. Nigel Griffiths (Edinburgh, South)
I know that my hon. Friend will want to draw the attention of the House to the fact that motorists in Japan, which has one of the biggest car markets and some of the biggest manufacturers, drive on the same side of the road as us, yet the price of Japanese cars here appears to be extraordinarily higher than in Japan.
§ Mr. O'Neill
I do not want to go around the world, but I am grateful to my hon. Friend. I chose the simplest example and the nearest at hand. It is a wee bit awkward taking the boat to Tokyo to buy a car, but it is not that difficult to go to Dun Laoghaire and up to Dublin to pick up a motor, or to drive down from Belfast.
If higher prices are not the result of wages, our currency and the side of the road on which we drive, taxation could be the reason. I suppose that there is an assumption that because the British pay too much tax on everything, we pay too high a tax on motor cars, too. However, it is not quite like that. If there are demons and villains in this scenario, they must be the representatives of the Society of Motor Manufacturers and Traders. They are the guys with the black hats who do not ride white horses. They might drive white cars, but, in my book, in the parlance of the old westerns, they are the bad guys.
The SMMT stated that in a low-volume market where taxes are high, manufacturers set local prices to support sales and dealer viability in the short term. The National Franchised Dealers Association put the matter somewhat less elegantly, stating that consumers in countries with high car taxes are being subsidised by those in countries with low car taxes. We pay too much in the United Kingdom because in other countries the taxes are higher, so the prices are lower and the revenues are equalised across Europe.
Car manufacturers are helping our Chancellor by maintaining high prices, which enable him to take more tax, albeit at a lower rate. We hear much about whether we should cede the power to tax to the European Union. That may be an exaggeration, but the setting of car prices strongly influences the revenue that the Chancellor gets as a consequence of the taxation regime. It is up to Parliament, not some board of directors in Detroit, to determine the level of tax revenues for motor cars in this country.
I have mentioned the Consumers Association, which has ploughed a long and often lonely furrow in the campaign to highlight the differentials in car pricing. Another body involved, which is generally agreed to be the most cautious, was the Office of Fair Trading.
§ Mr. O'Neill
My hon. Friend the Member for Chorley (Mr. Hoyle) nods in agreement. He was perhaps a trifle severe on that organisation, but that eventually had the desired effect.
John Bridgeman, the director general of the OFT, said that he did not think that there was active collusion between car companies; that there was not a world 387 conspiracy whereby the guys in the SMMT got together in some international forum where they set prices. However, he did say that there was the possibility of a complex monopoly. Put simply, that occurs when a company acts in a monopolistic fashion in its dealings with its retailers in controlling pricing and supply. It does not require the perpetrator to work in concert with others, but simply to act in a particular way with regard to its own outlets and customers.
The early thinking of John Bridgeman was confirmed in March when the OFT referred the new car market to what is now called the Competition Commission, following evidence that practices employed by manufacturers' dealers were distorting competition. In announcing the inquiry, Mr. Bridgeman endorsed many of the Select Committee's conclusions: the market was not working, manufacturers had too much power, the 1992 Monopolies and Mergers Commission report recommendations had failed, and second-hand car prices did not represent the value of the car. Evidence suggests that recommended resale price fixing enables even the most inefficient car dealers to make adequate returns. The OFT backed us on volume discounts, and questioned bonuses as a way of recompensing dealers and discouraging parallel importing.
Having referred the matter to the Competition Commission, the OFT took on Volvo. With a robustness not usually associated with regulatory organisations, it accused Volvo of being involved in disgraceful practices and of fixing prices and penalising distributors who would not toe the line. The impression was that the OFT would have liked to go the distance with Volvo, but was unable to do so because of legal limitations on immediate action. All that it did, which was in some ways disappointing, although understandable, was to tell Volvo that it had been caught. Volvo said that it was sorry and would not do the same thing again.
By 1 March 2000, the OFT will have the power to levy penalties of up to 10 per cent. of turnover on any company caught doing what Volvo had done. Moreover, a company could be liable to prosecution if it tried to interfere with the inquiry.
The Competition Commission for its part will report in December, but, in an almost ground-breaking approach towards establishing a broader view, it has already indicated its first thoughts and sought opinions on various matters that coincide with the recommendations made by my colleagues and myself, which were broadly agreed with the OFT.
The Competition Commission is considering forcing manufacturers to supply cars to virtually any dealer, ending territorial allocations, abolishing recommended retail prices and other controls, allowing dealers to choose whether they wish to repair, abolishing preferential fleet discounts, and reducing manufacturers' power to end dealerships arbitrarily, within a redefined block exemption. That seems to be its thinking. We have not yet had its final report, but we have had a clear indication of the direction that it will probably take.
In response, the SMMT stated that the separation of sales and servicing is not in the customer's interest and probably will not reduce costs, and that the block exemption is not responsible for price variations in the 388 UK and throughout Europe. The SMMT did not go through the usual litany—tax, wrong side of the road, and the other aspects that have been mentioned this morning—but it suggested that the Competition Commission had not thought the matter through properly or understood the industry. Perhaps the truth is that the Competition Commission has understood it too well, and that the SMMT is running out of places to hide.
Ford, one of the leading members, responded by inviting people to buy its cars and promising to reimburse them if it later decided to cut prices. In effect, Ford was saying that it would have to cut prices, but did not propose to do so immediately and certainly would not get involved in a price war. Vauxhall, on the other hand, recognised that it is now possible to make purchases via the internet. The car companies are not slow. The erstwhile Mandelson message about e-commerce obviously got through to Luton. Vauxhall has offered a £1,000 price cut on a new car purchased through the net.
What about the dealers—the men who provided specialist advice and help, who allowed prospective customers to sit in the leather-upholstered car, even if they wanted only the one with felt-covered seats, and who were solicitous to a fault about customers' requirements? They will still be responsible for handing customers the keys. In the motor trade, dealers are akin to the nurse in the maternity ward handing the child in swaddling clothes to the mother. That link with the past will remain. The truth, however, is that Vauxhall could not give a toss about its dealers if it is obliged to cut prices, especially if the cheapest way of doing so is through the net, ignoring the dealers.
Suffice it to say that, by and large, the dealers are not impressed, and they are beginning to break ranks with the motor trade. They recognise that the manufacturers' stranglehold is almost a thing of the past. Dealers have been unanimous in their opposition to the Consumers Association for having the audacity to propose setting up a not-for-profit internet service that will enable people to obtain advice and assistance in purchasing cars from abroad.
That is a fairly modest attempt by the Consumers Association, but it is a logical step, providing a recognised means, using the net and taking advantage of the opportunities of e-commerce to allow the public to get in on the act. It is a helpful start, which will be followed by other purchasers and organisations. It is clear that few industries have responded to criticism with such characteristic arrogance and disdain.
For once, however, consumers are fighting back. They resent having to pay £12,870 for a British-built Rover 214 in Britain when in France, according to European Commission figures, the road price is £8,217. It costs £4,650 more to buy a British car in Britain than to buy one in France. We, the British public, resent having to pay more for 62 of the 74 main types of car. We resent the poor service and the shoddy maintenance, which the block exemption protects and sustains. Our car industry employs many thousands of honest and dedicated people. Their products stand comparison with any in the world, but they are depressed and embarrassed when the industry to which most of them have devoted their lives is selling their fellow citizens short.
The Competition Commission is to report soon; its warning shots have already been fired. The Government know the arguments; I know that my hon. Friend the 389 Minister has been listening. The Select Committee was unanimous and there was a clear view that rip-off Britain must stop. Let us start with the car industry: a car is the biggest single purchase that members of the public make, apart from taking out a mortgage to buy their home. People usually live in their home for a long time, but the pain, anxiety and suffering of buying a car is repeated every three or four years when they buy another.
The Government have said that they are prepared to take action on mortgages and to protect the home buyer. Let us see them show the same commitment and support for the consumer that they have shown in that area, and let us stop rip-off Britain in car showrooms and car factories.
§ Mr. Norman Baker (Lewes)
I welcome the presentation made by the hon. Member for Ochil (Mr. O'Neill), the Chairman of the Select Committee on Trade and Industry. It is almost impossible to disagree with much of what he said and I hope that that suggests that there will be unanimity across the House as we try to deal with what is a genuine problem.
Rip-off Britain must indeed stop. Let me make it clear that the Liberal Democrats fully support that concept. We believe that it is in the interests of society as a whole for the consumer to be looked after. That is done by achieving diversity of supply and ending artificial and inappropriate distortions in the marketplace. We want a fairer market and if we achieve that we will have proper competition, which will be to the benefit of all. The present pseudo-cartel arrangements benefit no one apart from those who operate them.
Having been reshuffled across from the environment brief, I should say that environmental benefits would flow from the course of action that the hon. Member for Ochil described. It cannot be good for the environment if people have to disappear abroad to buy cars and then drive them back again—extra transport movements that would otherwise not be required. It could be argued that discounting or bringing car prices back down to a realistic level in the European Union would artificially encourage people to buy cars. However, new cars are far less polluting than older vehicles and high car prices in this country act as a disincentive to people to buy cars, which will disbenefit both the economy and the environment because people will be encouraged to use more polluting cars for longer. The pollution caused by a 20-year-old car is of huge compared with that caused by a new car, so the hon. Gentleman was absolutely right to make that case.
The Consumers Association investigation found that Britons pay the highest price for 60 of the 74 best-selling cars in the EU. As the hon. Gentleman said, the estimates suggest that the average excess amount is more than £3,000. Overall, UK motorists are being overcharged by £6 billion a year. That huge sum, which is being kept by those in the motor trade, would not be available to them were the artificial cartel arrangements removed. The Chairman of the Select Committee referred to particular examples. My example is a Rover 414 built in Birmingham, which costs about £3,000 or £4,000 more here than in Portugal. The hon. Gentleman referred to France, but the same situation applies to other countries in the EU.
The whole basis of the EU is the securing of level playing fields across Europe—it has always been committed to free trade—and I cannot understand how on 390 earth that body, and the European Commission in particular, could grant the motor vehicle industry a block exemption from article 85(1) of the treaty of Rome and then extend it in 1995. How could it possibly conclude that that was in the interests of the consumer? It seems to be contrary to the very essence of the EU. I hope that that exemption, which is currently being reviewed, will end in 2002; in my view, it is indefensible in any terms.
The Competition Commission has condemned those arrangements, as well as appointed dealerships, which are an odd way of approaching the sale of any product. It would be very odd to go into a record shop only to be told, "This is an EMI record shop so you can buy the Beatles here, but not the Rolling Stones." I am sorry if I am not very up to date; perhaps I should have mentioned Blur and Pulp. When they send down their envelope, I expect that the Hansard reporters will want to know who Blur and Pulp are. No, they are shaking their heads.
As the hon. Member for Ochil said, the excuses have largely been dropped. The one about right-hand drive cars is nonsensical. How expensive is it to produce a right-hand drive car?
§ Mr. John Burnett (Torridge and West Devon)
I have done a little personal research on this matter, which was fairly easy to do. For a UK exporter of Mercedes-Benz cars, for example, the disparity in price between a left-hand and right-hand drive is approximately £400 or £500 at the very most.
§ Mr. Baker
I am grateful to my hon. Friend who, if anything, overstates the case, though he is no doubt being generous to the Society of Motor Manufacturers and Traders. Certainly the disparity is not £3,000 or £4,000, which is the disparity between UK prices and those found elsewhere in the EU.
We have also heard the nonsense about the strong pound and the impact of currency value. Presumably prices should go up and down when the value of currency goes up and down, but it does not seem to happen that way. That is a bit like supermarket prices for farm goods: we are told that supermarkets have to deal with a strong pound, which is why their prices have gone up when prices have gone down at the farm gate. That does not add up and some people are maximising their personal profits at the expense of the consumer. That is not something that any party in the House would seek to defend.
I want the arrangements to be changed. I want an end to the block exemption and an end to rip-off Britain, and I want a fair deal for those who want to buy cars or any other commodity in this country. The House must champion the consumer cause. The Liberal Democrats will certainly do so, and I hope that there will be unanimous support for the Select Committee report.
§ Mr. Lindsay Hoyle (Chorley)
I congratulate my hon. Friend the Member for Ochil (Mr. O'Neill), the Chairman of the Select Committee, who has ensured that we can have a fair and open debate, but I am sorry that the Conservative Benches are empty because we ought to discuss properly the important subject of the great British rip-off. There are no two ways about it: we in this country are totally ripped off from start to finish and people who 391 buy a new car are paying way over the odds. We are subsidising the rest of Europe and the rest of the world market.
The Ford Mondeo is supposed to be the car of the world—built to be bought anywhere throughout the world. What do we find? It is up to 53 per cent. cheaper in Spain than in the UK. The Mondeo does not seem to be the car of the world, after all. The Great British customer is subsidising the rest of the world and those car products so that Ford, Nissan or whoever may achieve a percentage market share throughout the world. That is what we are paying for, and it has to end: it is not acceptable and we should not put up with it.
I agree with the examples given by the hon. Member for Lewes (Mr. Baker). The car that we buy may have a compact disc player, and in some cases we pay twice as much for CDs. Spare parts are another example. People think that they will derive some benefit somewhere because they pay so much more for their car, then end up paying 30 or 40 per cent. more for spares as well. The car and everything on it are expensive commodities. A new car is probably the second most expensive purchase that people make—after the purchase of a property. It should therefore be pointed out that, if people buy new cars, it is better for the environment if they have lean-burn engines so that there is less pollution. The price of new cars should be brought down and the standard of MOTs lifted so that we get rid of polluting vehicles and everyone has the ability to upgrade to a better car. That would be more in keeping with our environmental aims.
There are many gains to be made from selling cars more cheaply. I cannot understand manufacturers' reluctance to reduce the price of cars. They seem to feel that it is all right for people in other European countries to have cheap cars, but not for people in this country. Although, if cars were cheaper, our factories would not make as much money per vehicle, they would sell many more vehicles, which would ensure that profits did not fall and more people were employed in the manufacture of cars in this country because the turnover would be greater. We should consider those benefits. It is naive to believe that simple gains can be made by inflating prices; that is not the way forward. It is not good for British business or jobs.
The time has come to put British workers first. We should create more jobs through better pricing. The price of cars is just one good example of the British rip-off—the price of CDs is another. I could list many products in respect of which people are ripped off, and the time has come to end it. Yet another example is the price of motorcycles—part of the motor industry. This country used to manufacture great motorcycles. Now, however, motorcycles—even a Triumph built in this country—can be exported to America, taken out of the crate, taken round the circuit a couple of times, put back in the crate, shipped back to this country, and it is still cheaper than buying it through an official dealer. A Nissan built in Sunderland and sent all the way to Japan, then shipped back, is still cheaper than if bought direct from the Nissan dealership in the UK. That just proves that a cartel is operating. The cartel must end—there are no two ways about it.
392 As the pound got stronger, did we see Volkswagens coming in more cheaply? No, the price actually went up. We cannot and should not tolerate that. We are always told about the benefits of Europe. Instead of always taking the disadvantages from Europe, it is time to take the benefits, one of which is better pricing across all products.
It is no use fining companies. Volkswagen did not mind paying £50 million when it was found to be in breach of EU law. Instead, we should impose mandatory prison sentences. Company directors might then think twice and realise that they cannot rip the British public off in that way. When the good consumers of Chorley go to their dealer, he cannot offer a higher discount because he will lose his franchise, so I do not blame the dealers. Dealerships could improve, but ultimately they operate in a straitjacket: if they do not accept the manufacturer's rules, they lose their dealership. Thus consumers in Chorley do not get a fair price for the product.
The only alternative is to buy in Europe and ship the car back to the UK, or buy on the internet. Vauxhall accepts the fact that people can save £1,000 by using the internet. Why do not Vauxhall, Ford and other manufacturers act as honest brokers by slashing prices tomorrow and ensuring that consumers in Chorley and the rest of the country can benefit from cheap prices, as consumers do in Europe?
§ Mr. Bob Blizzard (Waveney)
I shall say just a few words because the point has already been powerfully made by my hon. Friend the Member for Ochil (Mr. O'Neill). He covered all the necessary ground and I would find it hard to believe that anyone in the Chamber today would disagree with what he said.
One way to measure the degree of the rip-off in car pricing in this country is to look at the price of cars as a percentage of annual income. The price of a new car is more than the annual income of many people. If one wants to buy a new car—or even a nearly new car—one must devote a huge percentage of one's annual income to it. It is a much higher percentage than in Europe or north America.
In their efforts to persuade people to use their cars less, the Government have drawn analogies with Germany, where there is greater ownership but where people use their cars less. It is difficult to convince people in this country that they should not use their car to capacity when they have invested such a huge proportion of their annual income, or their income over many years, in buying it in the first place. The Government's transport policy would benefit from getting car pricing right.
My experience of one-make car dealers is that they are not wonderful salesmen. Most salespeople for different products target people and follow-through. When I have wandered around forecourts looking at cars—I have never bought a new car, but I go round to see what is on offer—I have found that there is very little follow-through. It strikes me that many dealers are happy to make their money each week or month by selling just a few cars rather than charging less to see whether they can sell more. A friend of mine sells in the secondhand car market and I have watched his progress over the years. By knocking down the prices, he can sell more cars and make a living as well as anybody else, and customers benefit. Most new car dealers sit in their showroom all week and make their money by selling just one vehicle.
393 My hon. Friend the Member for Chorley (Mr. Hoyle) mentioned the cost of spare parts, particularly parts of the bodywork and trim of a car. My hon. Friend the Member for Ochil said that the nightmare of buying a new car recurs every four or five years. Those of us who have never bought a new car do not go through that, but we experience a nightmare every time someone knocks into our car. I wonder how many other hon. Members have parked their car in a station car park, only to find on their return at the end of the week that the piece of plastic that covers the rear light has been smashed. One then goes to the dealer to see how much such a tiny item costs. Usually the price is colossal, outrageous and unfair.
§ Mr. Baker
I absolutely agree with the hon. Gentleman. Another example of a rip-off is when the consumer has to buy a huge replacement part such as a sealed unit or computer-operated unit. Whereas previously one could have bought a bulb, one now has to buy a sealed headlight and the cost is far higher. It is also much more wasteful in environmental terms.
§ Mr. Blizzard
I absolutely agree with the hon. Gentleman. Until a few years ago, I tried to carry out some repairs by myself, but the invention of all kinds of weird clips and specialist tools now prevents me from performing a simple repair. Various ways have been devised to continue to rip off the motorist.
Once when my car engine malfunctioned, I was told that it was caused by the leads—my car had leads, plugs and other conventional things. I took the car to my friend, whom I trust and who has a good garage—I shall not mention his name—who told me, "I have some leads for you, Bob, although the ones for your car would have cost £120. These are the same leads as those for the Vectra and they are half the price." The manufacturers obviously think that people with a slightly larger car will pay more. That kind of practice needs looking into. Will the Minister therefore say whether an investigation into the pricing of spare parts is part of the Competition Commission's remit? If it is not, could it be something else for the commission to consider? Plainly, not merely a new car but motoring itself has become far too expensive.
The cost is completely out of kilter with the rest of Europe and the world. We are being ripped off. It would be an important victory for the British consumer if, at the Government's instigation, the inquiry brought some justice and fairness into the prices of new cars.
§ Mr. Nick Gibb (Bognor Regis and Littlehampton)
I add my congratulations to the hon. Member for Ochil (Mr. O'Neill) on securing this important debate and I welcome the Minister of State, Department of Trade and Industry to her new position. It is nice to be opposite her once again so soon after leaving the shadow Treasury team.
Real concern exists about the higher prices paid for cars in this country compared with the rest of Europe and the Opposition share that concern. The European Commission's latest six-monthly price survey shows that the United Kingdom is the most expensive market for 61 of the 72 best-selling models in the European Union, followed closely by Ireland, which was referred to in the debate. Price differentials in excess of 20 per cent. have 394 been found for all manufacturers throughout the European Union and for 16 out of 72 models there are variances of about 40 per cent. in price.
The Opposition's approach is that the Government should deal firmly with any cartel or restrictive practice, if that is the conclusion of the Competition Commission. However, it is important for hon. Members to understand the reasons for the discrepancies before jumping in with remedies and regulations. Those reasons are many and varied.
The Select Committee on Trade and Industry, which the hon. Member for Ochil chairs, states in paragraph 38 of its report:A number of factors account for the high prices paid by the UK consumer for new cars. Exchange rates and taxation levels influence the validity of comparisons and affect manufacturers' pricing strategies. The unique elements of the UK market—particularly the power of the fleet operators and the size of the second-hand car market—account for some of the differentials from EU prices".It goes on to conclude something different, but I wanted to quote that section initially.
§ Mr. Burnett
I hope that the hon. Gentleman will agree that disparities due to taxation are grossly exaggerated. For example, compare a car that is manufactured and sold in Germany with the same car in the United Kingdom—the value added tax disparity is 1.5 per cent.
§ Mr. Gibb
My point is that the reasons for the price discrepancies are many and varied and I listed some. There are others and I will come to those.
The 1992 Monopolies and Mergers Commission report, which was also referred to in the debate, cited those factors as the principal causes of the price differentials. The Select Committee went on to conclude, differently from the 1992 MMC report, that the dealer network—the selective and exclusive distribution arrangement—was the "key factor" behind higher UK prices. That led the Committee to conclude that itcan see no justification for retention of the block exemption and recommend that it be not renewed.That same conclusion is reflected in the remedies letter that was issued by Competition Commission a couple of weeks ago, which states:The Commission has not reached final conclusions on any aspect of the inquiry. Its present view is that the selective and exclusive distribution system in its existing form has a number of disadvantages and that, as a result, prices of new cars in the UK are higher than they would be in a less restrictive environment.Interestingly, that letter goes on to state:the SED system may be contributing to a lack of arbitrage which is enabling the continuation of significant price differences between the UK and other EU member states.We need to ask ourselves why that arbitrage takes place in the European Union, but not between the continent of Europe and the UK, given that the block exemption applies throughout the EU and SEDs exist in Europe as well as the UK. The initial response of the Society of Motor Manufacturers and Traders to that remedies letter makes that very point. It states:It is disappointing to note that while the Competition Commission clearly fully understands that Block Exemption is an EU policy matter, it fails to grasp that Block Exemption cannot therefore itself be held responsible for price variations … across Europe and at work in the UK.395 That is a valid point. Surely, as the exemption applies to the whole of Europe, it cannot be the only factor that has led to the differential in prices.
On a cautionary note to the Government, when the Competition Commission reports in December, will they respond rapidly? There is much uncertainty in the industry and a rapid response would be helpful to put an end to it.
The answer to the dilemma of why the block exemption is causing price differentials in the UK but not in Europe might lie somewhere between the opposing views of the SMMT and the Select Committee. It revolves around arbitrage, which was highlighted in the letter from the Competition Commission. SED might have delivered higher prices in the UK but not in Europe simply because of the practical difficulties that a UK consumer faces in buying a car from a European supplier. It is difficult to shop around when that means crossing the channel rather than driving across a nearby border. The fact that the UK consumer needs a right-hand drive car, is not the overall reason, but it is a factor making it slightly more difficult for that consumer to go to a dealer in Belgium or France. Our company car fleets have an effect by raising expectations for higher specifications in cars.
As a result of the impact of all those factors on the ability of the UK consumer to shop across EU borders, there is a blockage in the arbitrage that should take place with such glaring price differentials. We are now seeing some arbitrage with the Consumers Association's moves to provide it.
It is worth noting that Britain has such a large company car fleet because company cars were used to avoid the strictures on pay rises during the 1970s—the era of prices and incomes policies. The company car was a way to deliver a pay rise without appearing to do so. It was a response to Government interference in the free market. In turn, it has had a lasting effect on the free market in new car sales, which ought to provide a salutary lesson to Ministers that when they respond to all the reports and investigations into this serious problem, they should not simply make matters worse for the consumer by adding further distortions to the market that will damage consumer interests in the long term. Competition and the free market are the consumers' friend. Ministers who reach for the statute book add to costs and generate unforeseen consequences, which invariably result in the consumer receiving a worse deal.
The Government need to look to themselves to find out whether and by how much they contribute to higher prices in the UK, not merely in the motor industry but in other areas, for example through higher taxes. The Minister is a great supporter of the climate change levy. What effect is it having and will it have on the manufacture of cars in this country? There are more and more regulations. The proposed new directive on end of vehicle life in its current retrospective form would add hugely to the costs of UK car manufacturers and thus to UK car prices.
Clearly, if the Competition Commission finds a cartel or restrictive practices, the Government must take firm action, but I counsel caution about precipitate regulatory measures, which would in the long term add costs and restrict and distort the market further, thus further damaging the interests of the consumer.
§ The Minister for Small Business and E-Commerce (Ms Patricia Hewitt)
First, I apologise to you Mr. Deputy Speaker and, through you, to the House for being fractionally late for this important and interesting debate. I join my hon. Friends and hon. Members in congratulating my hon. Friend the Member for Ochil (Mr. O'Neill) on securing this important debate and on doing so so early in our resumed Session.
Through you, Mr. Deputy Speaker, I also thank not only my hon. Friend the Member for Ochil, but other members of the Select Committee on Trade and Industry for the inquiry into an issue that has caused great public consternation and is a matter of such important public interest. We heard a thoughtful and wide-ranging speech from my hon. Friend, as we would expect, in which he considered each of the arguments advanced to explain or justify the higher car prices in the United Kingdom. In fact, we almost had a round-the-world tour, as my hon. Friend admitted. He comprehensively demolished each one of them.
We also heard a thoughtful and interesting speech from the hon. Member for Lewes (Mr. Baker), a forceful speech from my hon. Friend the Member for Chorley (Mr. Hoyle) and an interesting speech from my hon. Friend the Member for Waveney (Mr. Blizzard), who rightly drew attention to the importance of the Government's policy of promoting the ownership of cars, especially smaller and cleaner cars, while helping car owners to use their cars more sensitively and in a way that does less environmental damage. I am also rather pleased to say that he shares with me a deep and extensive technical knowledge of motor car maintenance.
We then heard a thoughtful speech, as ever, from the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb). I thought that I had left the hon. Gentleman safely in the confines of the Standing Committee on the Financial Services and Markets Bill, but it is a pleasure to see him here on the Opposition Front Bench.
My hon. Friend the Member for Ochil (Mr. O'Neill) called for action to protect consumers. The Government are already acting to protect consumers. We want to make sure that, for cars as for all other services and goods, consumers get a fair deal within open and competitive markets. That is why we have already introduced and secured the passage of the new Competition Act 1998. That is why we have created the new Competition Commission, with much tougher powers to fine companies for anti-competitive behaviour. I have to observe that, although the hon. Member for Bognor Regis and Littlehampton spoke, as one might expect, of his devotion to free markets, it was the Labour Government not the last Conservative Government, who introduced the Competition Act and have created the Competition Commission with the powers that it needs to do the job on behalf of the consumer.
There are other forces making for greater competition within the marketplace. I want to touch on one that was mentioned in passing. We are seeing the beginnings of electronic commerce and shopping for cars on the internet. I have a role as the new Minister for Competitiveness, Business and E-Commerce. As we see—already in the United Kingdom—more consumers shopping on the internet, so we will see a powerful competitive force bearing down on retailers and 397 manufacturers alike. The more transparent information consumers have, the easier it becomes for them to access car purchases in other parts of the European Union and the more manufacturers will have to respond. I welcome the fact that one or two have already seen the writing on the wall and are making their models available to internet shoppers.
§ Mr. O'Neill
Will my hon. Friend take account of the fact that within government there seems to be a varying response to the attractiveness of the internet? The internet does not seem to have reached Swansea yet. A firm in my constituency about which I am in correspondence with the Department of the Environment, Transport and the Regions is having considerable difficulty getting a rapid response from Swansea once it has obtained the car from abroad after purchasing it on the internet on behalf of a British customer. It seems that things get clogged up in Swansea. Will she look into whether Swansea is on line or, if not, on the ball? It does not seem to be at present.
§ Ms Hewitt
I am grateful to my hon. Friend for raising that extremely important point. The Prime Minister is determined that we should drive the benefits of digitilisation and electronic access right through government. He has set stretching targets for access to electronic government services, and that certainly includes Swansea. I know from my previous role in the Treasury that the Driver and Vehicle Licensing Agency is already engaged in an extensive upgrading of its information technology in order that it can—this is important to the point that my hon. Friend makes—achieve on-line, real-time connections with car manufacturers, dealers and importers and deal with the very blockage that he specifies. I certainly undertake to follow up the specific point that he raises, if he will let me have further details.
In addition, last May we announced plans to lift restrictions on the import of cars from outside the European marketplace. That, too, will result in increased competition and a better deal for consumers. As a result of that decision, many cars will cost thousands of pounds less than they do at the moment. Some 55,000 cut-price cars will be allowed into the United Kingdom between March and the end of next year. From January 2001, the limit on non-EU imports will be completely removed.
We welcome the expiry at the end of this year of the voluntary restrictions on imports of new Japanese vehicles that was provided for in the 1992 agreement between the EU and Japan. Once again, the transition to a truly free market in Japanese cars will give customers increased choice and competition. It will also encourage Japanese companies to expand their activities here and in other countries within the EU.
As has already been said, in March this year the Director General of Fair Trading, after an extensive inquiry, referred the supply of new motor cars in the United Kingdom by manufacturers and wholesalers to the Competition Commission. He expressed his view forcefully that the market was not working properly and in particular that there was an imbalance of power between manufacturers and dealers that was distorting and impeding competition. In July, the Director General of Fair Trading also concluded that some Volvo dealers, to which hon. Members have referred, had not been offering discounts beyond set levels. An agreement and an 398 admission was reached with Volvo which made it clear that such restrictive cartels would not be permitted in the future.
We now have the Competition Commission investigation. Earlier in October, it issued its remedies statement. It is a discussion document and the commission has invited comments from the industry, consumers and other stakeholders, but it has suggested a number of possible remedies, some of which have implications for the European regulations on the block exemption. I shall come back to that issue in a moment.
The Competition Commission has also suggested that, for instance, suppliers should be prohibited from recommending retail prices; that they should be required to offer franchised dealers who wish to buy cars on firm sale terms no less favourable than those offered to fleet customers—something that would make a real difference to the prices made available to individual consumers. It has suggested that suppliers should be prohibited from discriminating in the terms offered to contract hire companies and that dealers should be able to opt for an equivalent reduction in the wholesale price in place of the bundled financial and other benefits often offered by suppliers with their cars.
The report from the Competition Commission will be delivered to my right hon. Friend the Secretary of State in December and he will decide what action, if any, is appropriate if the commission makes adverse findings. We will publish the report as soon as we possibly can. I certainly take account of the comments made by the hon. Member for Bognor Regis and Littlehampton and other hon. Members about the need for action following the report, depending what it says, as rapidly as possible.
My hon. Friend the Member for Waveney asked whether the Competition Commission inquiry specifically covered spare parts or after-sales service. The investigation is into the supply of new cars so it does not, I understand, cover the issue that he raises. But the commission is certainly aware that the supply of parts is an important part of the dealer's business and so has some bearing on its investigation.
The Government's general approach was set out in our response to the Select Committee's report. As I have already said, the answer to the difficulties lies in the development of an effective, transparent, competitive market. We need distribution arrangements that promote competition. As I have already explained, the Competition Commission is specifically examining the selective and exclusive distribution system that is used by car manufacturers. Its findings will help to inform the Government's response and contribution to the European Commission's evaluation of the block exemption regulation which must be completed by the end of next year.
It is essential to have open and effective markets throughout Europe. We seek to ensure that any infringements of European Commission competition law that restrict imports into the United Kingdom are vigorously pursued by the Commission. It is also important that we have within this and other markets demanding and informed consumers. My hon. Friend the Member for Ochil was right to stress that, increasingly, we have demanding and informed consumers. Whatever the short-term pain to the manufacturers, demanding and well-informed consumers are an important part of ensuring that we have healthily competitive markets.
399 It is also essential that we have an efficient and innovative car manufacturing and distribution sector. My Department has worked for many years with the motor industry to improve efficiency and innovation in the supply chain, but also to consider how the distribution system can be modernised and improved.
As the hon. Member for Bognor Regis and Littlehampton said, the block exemption applies throughout Europe; it does not bear down solely upon British consumers. The European Commission is required to draw up a report evaluating that exemption by the end of next year, taking particular account of price differentials between member states and the quality of service to final consumers. The Commission has recently circulated a series of questionnaires to interested parties throughout the EU, seeking information and views on the workings of the system.
My officials recently met the Commission team undertaking the review and we have impressed upon it the importance that we in the United Kingdom attach to the issue. I want to ensure that the review is undertaken in as transparent a way as possible and gives the fullest possible opportunity for all interested parties in the United Kingdom to make their voices heard. I hope that the Commission, if it has not already done so, pays close attention to the Select Committee's report as well as to the Government's response. The Competition Commission's inquiry's findings will provide invaluable material for that review.
But we should recognise that restrictive practices are not confined to the United Kingdom. In January 1998, the European Commission fined Volkswagen 102 million euro for breaking rules on cross-border trade in motor vehicles. The matter allegedly involved the company trying to obstruct sales of its cars in Italy to non-Italian purchasers, mainly from Austria and Germany, who wanted to take advantage of lower pre-tax prices there. That ruling is subject to appeal. But similar cases have been brought against DaimlerChrysler and Opel's Dutch subsidiary by the Commission, again involving alleged improper restrictions on cross-border car sales. More recently, the Commission has begun investigations into Renault and Peugeot.
I assure the House that the Government are committed to a policy under which British car consumers will get good value for a good product. We have strengthened competition authorities which are already taking the necessary action to deal with any evidence of restrictive or anti-competitive behaviour. The Government are committed to strong competition and powerful, well-informed consumers. The European Commission is already taking action where restrictive practices are seen to operate in the EU, and we now have the review of the block exemption to which we and I hope other hon. Members will also contribute.
All that, as well as the technological changes to which I have already referred, means that we shall see an increasingly competitive car market not just within the United Kingdom but throughout the EU. That will be to the benefit of British consumers, but it will also be to the benefit of British and European car manufacturers alike.
§ 12.6 pm
§ Sitting suspended.