HL Deb 18 December 1974 vol 355 cc1255-62

7.17 p.m.

Lord LUCAS of CHILWORTH rose to ask Her Majesty's Government why they have permitted petrol supply companies to increase the wholesale price of petroleum spirit with effect from midnight, 17th December, while at the same time maintaining the Motor Fuel (Maximum Retail Price) Code 73 S.I. 1973/2119 until midnight, Thursday, 19th December, thereby forcing retailers of petroleum spirit to sell the product at a figure below their gross profit margin during that period. The noble Lord said: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In asking the Question, I feel obliged to declare to your Lordships that I am a National Petrol Forecourt Committee member of the Motorists Agents Association, who in turn represent about three-quarters of the people who sell petrol retail in this country. I should also like to remind your Lordships that I have a personal involvement in petrol retailing.

My Lords, this Question arises from a most extraordinary Written Answer given in the House of Commons yesterday at col. 365 of Hansard in which Mr. Varley. of the Department of Energy, announced the removal of certain price controls over petrol supplies. At the same time, he indicated that he would not expect to see prices rise by a certain figure, and yet at the same time he did not announce in that reply that that day the petrol companies had allowed the machinery of their price increase application to go through with the result that they were entitled to increase the wholesale price of petrol and the retailer was held back by two days.

It is quite surprising, my Lords, that the oil companies moved with an alacrity usually associated with sprint runners. Indeed within a very few hours of that announcement in the Written Answer being made a number of leading petrol companies put staff on standby, to work throughout the night if necessary, to re-bill at new prices deliveries of petrol I scheduled for this morning. This is an incontrovertible and undeniable fact, and as the afternoon wore on and the import of the Written Answer became known and understood, some petrol companies were faintly embarrassed by the position in which they had found themselves. Indeed, the Mobil Oil Company said to a number of their dealers, "Oh dear, it looks as if you will be selling petrol at a loss; you had best close your shop". I understand the Esso Petroleum Company said to some of their dealers, "Oh dear, this is an embarrassment. We shall have to have a talk to see what can be done". British Petroleum said to me on the telephone last night, "Oh well, yes—difficult—well, yes, you must make your own best judgment". What an extraordinary position !

Two days' notice were given to the general buying public that there was to be a relaxation in retail price controls, with the result that the queues lengthened at the petrol stations. At one petrol station in Southampton with which I am particularly familiar, we sold as much petrol in three hours on a Tuesday night as we would have sold on Monday and Tuesday of an ordinary week, with the consequence that by this morning I have no petrol to sell. Of six petrol stations over which I have some supervisory control—perhaps that is the best way of putting it; certainly some personal knowledge—only one had any substantial stocks of petrol by 10 o'clock this morning.

My Lords, from whom did the Department of Energy receive any advice? Did they, in fact, receive any advice? It is my understanding that they went to the petrol companies and said: "Can you tell us what might be the average stock of petrol in a retailer's tanks?" The reply was "48 hours'. "Forty eight hours is the time-scale between ordering petrol from a petrol company and having it delivered. A period of 48 hours may be a reasonable stock level in ordinary circumstances, but not when Her Majesty's Government give notice that the price control is to be lifted. It went in a matter of hours. What, then, did the retailer do? There were three things he could do: he could close the shop, break the law and sell the new stocks arriving this morning at the increased price; or he could sell it at a gross loss of some 2½p or, put another way, his old profit margin—inadequate as it was then—and the new differential which has forced many dealers out of business; or soldier on.

Of course, the reputable motor trade was not going to break the law, and so far as I know it has not. But these people cannot afford to sell at a loss. While they have had controlled prices for the last twelve months (controlled margins in fact) rates and electricity have gone up—in fact everything has gone up. They have been losing money, and thousands have gone out of business. Thousands more will shortly do what they have done; that is, close shop. As you drive out of London tonight, you will see stations closing. Reports have been coming in to me about this. There will be chaos just before Christmas, chaos because the Government have not made their intentions clear, and because retailers got half a reply to the crucial question. It is reported in a newspaper that the Government say: "Ah, by this method we will ensure that no dealer can get a few gallons of petrol from the petrol company, or sell his stock underground and make a l0p a gallon profit". Of course, he cannot make 10p a gallon profit because he has to pay the tax on his net sale of 5p or 7p a gallon. The Government say: "We will deny him this windfall profit." If one-fifth of the 30,000 dealers had any substantial stocks, it might in total amount to about £200 or £300 windfall profit per dealer—not a matter that concerns anybody very greatly.

My Lords, it is then said: "Ah, but I recognise that the retail trade must have an increased margin, so I do not expect the petrol companies to increase their price by more than about 7p". Most of the petrol companies have gone to 7.3 p, plus VAT, which leaves the retailer with the derisory sum of 0.635p per gallon. At the same time, the Department of Energy says: "We do not expect the overall price to move by more than 10p". If you hold a loaf of bread out to a starving man, do not be surprised if he snatches the lot and bites your hand at the same time. That could well happen, with the result that prices can escalate even further to save a great number of small businesses which provide a service from 7.30 in the morning to 11 o'clock or 12 o'clock at night, and some all through the day and night.

My Lords, dealers cannot stockpile any more. Bankers do not like petrol company retailers; there is no security of tenure, the profitability is too small, there is nothing they can get their hands on. Petrol leaks and evaporates; there is no asset or security there for a bank to lend money. I know, because on behalf of one of the companies with which I am associated, I went to ask for help with the increased VAT and potential increase in wholesale price. The people at the bank laughed and said, "No thank you, we do not like this kind of business. We do not want to lend money on this kind of thing". And quite a reputable bank it was, too!

Does it really suit Her Majesty's Government—and all the petrol companies for that matter—to see the retail petrol distribution of this country break down through lack of profit, through the kind of actions we have had over the last 18 months? An average load of petrol was worth about £1,600 or £1,700 cash 18 months ago. My last load was worth £3,838 cash on delivery including £700 worth of tax, which is probably going to take me six, seven or eight days to collect from the consumer. Is this the way we want this kind of business to go?

My Lords, perhaps I have strayed a little wide of my original Question. This moment in time was the only opportunity to draw the attention of your Lordships and, indeed, the attention of the Government, to the remarkable and ridiculous situation that has now occurred because of the completely ineffective, misleading Written Answer in the House of Commons yesterday. Were it not for the Recess, I should have delayed putting down a Question. I apologise now for having to do it today, at short notice and at this time of night.

Finally, with regard to the new price increase, with this increase of VAT, may I ask the Minister just how much saving in our total import bill for oil Her Majesty's Government hope to achieve? What advice can they give to the petrol companies, the retailers and the public at large regarding this matter? It is against this background that I raise the Question, and I now invite the reply of Her Majesty's Government.

7.30 p.m.


My Lords, my noble friend seems to have raised an important point. It suggests to me some miserably inept timing on the part of the Government, and all apparently to pre-empt some very modest once-for-all windfall profits by an industry which has been having a fairly thin time, at a time when sales have been falling and there has been pressure on the cash flow of garages, they having to finance increasingly expensive petrol without any additional margins. Perhaps the noble Lord can tell us how much stock, in total in the country, the Government thought there was in the tanks of the garages, because if he cannot answer that question I think we are bound to assume that this was a slip-shod operation done without adequate thought.

I am staggered to discover that the Government never consulted the Motor Agents Association on the question of timing. I checked this afternoon, and found that they did not consult the Association on this issue of timing. If they had, they would have been told the kind of situation my noble friend has explained to us. Of course we are bound to applaud any efforts to restrict untoward profits. We have had a good many discussions, and indeed some agreement, on the rather larger question of windfall profits to the oil companies. If the Government are very concerned about the effect of rising petrol prices on the cost of living, have they given any thought to the notion which has been floated more than once of having a basic ration of rebate coupons, something like luncheon vouchers which would be perfectly openly traded? This would enable there to be a basic ration of lower priced petrol and still achieve the saving of energy hoped for by pricing it higher.

Meantime, are we not in the situation where the public is being now, and probably will be tomorrow, extremely incovenienced? May I declare a personal interest in this matter. With my large family I intend to drive to Scotland during tomorrow night, and should I find myself on the motorway at 4 o'clock in the morning unable to buy any petrol I shall be calling down coals of fire upon the head of the noble Lord opposite. I am just sorry I shall not be able to be here to tell what I think.

7.32 p.m.


My Lords, in view of the very lengthy debate we have had, I hope your Lordships will allow me to be as short as I am usually long. I cannot equal the intimate knowledge which the noble Lord opposite has evinced. His expert contribution well illustrates the grave dilemma which faces all Governments in relation to petrol price increases. May I briefly outline the reasoning behind the Government's policy. T think he will see that in the circumstances what we have done strikes a fair balance between the interests of the consumer and the interests of the petrol retailers. However, I cannot answer some of the points which have been made by both noble Lords. They go far beyond any sort of interpretation of the Question originally put down. Obviously I am not omniscient, though perhaps at times Lord Strathcona thinks I am. My modesty is much greater than is apparent.

The 48 hours moratorium on price increases should affect only a limited proportion of garages who have to take petrol at new prices and sell it within the maximum retail price controls, and that is only for 48 hours. Noble Lords will appreciate that only a small addition to the price would be required over the next quarter in order to recover losses in the 48 hours moratorium period. It has been suggested, not here but elsewhere, that taking this course of action shows that we have no reliance on the efficiency of the Price Code. If I may say so, that is a complete misunderstanding of the position. The Price Code was never designed to deal with individual retail prices. I would remind the House that the purpose of the Code is to protect the consumer while at the same time allowing industry reasonable recovery of costs in profit margins. It will not be lost on the House that the Code specifically prohibits increases in the prices of goods displayed for sale, even though the price increase could be justified by other provisions of the Code: that is to say, you cannot increase the price of your stock.

Not to have taken action in the way we have would have led to allegations that the Government had allowed wholesale profiteering through the petrol retailing industry. I sympathise with the grave position of that industry, but it seems to me that alternative attacks, sometimes because we allow price increases and at other times because we do not allow the price to rise, is a somewhat biased approach to the treatment of what is certainly a very important and grave problem. Many garages are, of course, playing fair with the public. For example, one chain has just announced that it will not increase prices until Boxing Day. Other garages, I regret to say, have closed down in order to conserve their existing stocks until prices can be increased on Friday.


My Lords, will the Minister justify that statement? How can he say they have closed down to conserve stocks? Who are they? And what and how much stock is involved? That is an allegation which I for one, with a certain amount of detailed knowledge, could not possibly accept.


My Lords, if the noble Lord will send me a detailed statement, I shall be very glad to answer him. I hope those are in the minority. To conclude, therefore, the interest of consumers demands that there should not be automatic lifting of prices in relation to existing stocks of petrol, and general equity demands that those retailers who have had to accept and sell deliveries at increased wholesale prices should not be penalised. I believe that the action taken by the Government fulfils both these objectives. I sympathise with the temporary difficulties that have been so eloquently expressed by the noble Lord, Lord Lucas, and I hope that those garages who still have stocks of petrol left at the old prices on Friday will continue voluntarily to give the benefit of it to the consumer.