HL Deb 09 October 1990 vol 522 cc148-51

3.4 p.m.

Lord Stoddart of Swindon

My Lords, on behalf of my noble friend Lord Dean of Beswick and at his request. I beg leave to ask the Government the following Question:

Whether they have established the basis on which oil companies calculate the prices they charge the consumer for petrol; and, if so, what it is.

The Parliamentary Under-Secretary of State, Department of Employment (Viscount Ullswater)

My Lords, the UK oil companies, along with those of most other European countries, use the price of petrol on the Rotterdam spot market for gasoline as a reference price. The Director General of Fair Trading has recently examined the way in which oil companies base their prices on international prices and concluded that there was no reason to revise the Monopolies and Mergers Commission's judgment earlier this year that the industry was competitive.

The most recent evidence that petrol prices follow the falls as well as the rises on the Rotterdam spot market was the fall in UK pump prices last week by almost 1p a litre.

Lord Stoddart of Swindon

My Lords, I thank the Minister for that most unsatisfactory Answer. Is he aware that prices in neighbouring European countries and indeed in the United States have not gone up as far as they have in this country? As oil prices are based on the Rotterdam spot market, why have the British people suffered larger increases than their counterparts in Europe and the United States?

Will he also agree that the examination by the Office of Fair Trading was really a bamboozling exercise by the oil companies which led to the production of a report that was a whitewash?

Finally, will he agree that the Chancellor of the Exchequer has done absolutely nothing, that he has sat on his hands, because it suits his purposes and indeed helps to bamboozle people about the estimates he made earlier in the year?

Viscount Ullswater

My Lords, UK pump prices compare favourably with those in most EC countries. French price controls, which resulted in prices increasing faster than in some other EC countries, were abandoned after one month. Therefore, I do not believe that the noble Lord is right in considering that our prices rose faster. The Government have a great deal of faith in the Director General of Fair Trading.

Lord Williams of Elvel

My Lords, are the Government satisfied that basing product price at the pump on the Rotterdam market—which is after all a spot market dealing in marginal tonnage in products among professionals—is the right method because petrol prices at the pump seem to go up and down like a yo-yo as does the Rotterdam market? As far as I know, no other country has prices set on that basis. Oil companies certainly do not do that in Europe.

Viscount Ullswater

My Lords, it is something which the Monopolies and Mergers Commission looked at when it conducted its extremely thorough investigation into the workings of the market. Its report published in February of this year concluded that the present state of the industry is competitive and that none of the facts found operates against the public interest.

Lord Williams of Elvel

My Lords, I was not asking whether the Government agreed with the Monopolies and Mergers Commission as to whether the industry is competitive. I was asking the noble Viscount whether the Government believe that basing a petrol pump price on the Rotterdam market is the right way to go about it?

Viscount Ullswater

Yes, my Lords. That reflects the supply and demand in the world situation. I agree with the noble Lord that it is a restricted market but, as I sought to say in my first Answer, that was investigated by the Monopolies and Mergers Commission and its report was quite clear on that.

Lord Ezra

My Lords, is there not a more fundamental issue involved here? We are now living through the third oil shock in 20 years and we are suffering as much this time as we did from the first such shock. Would it not be desirable for ourselves and other developed countries, through the IEA or in other ways, to work out measures which would modify the impact of those disturbances?

Viscount Ullswater

My Lords, the oil shock—if it is such—from which we are now suffering is not an induced oil shock, as were the first two where there was a restriction on supply. This has not been a concerted effort to restrict supply. Therefore, it is different from the first two situations. Certainly, we need to look at every other way, including energy efficiency, to cut down on demand.

Lord Hylton

My Lords, is the pricing of British oil in dollars a relevant matter? Do the Government consider that practice either necessary or desirable?

Viscount Ullswater

My Lords, that is the way in which it is traded, and as the pound has strengthened it has reduced the prices at the pump and has acted in our favour.

Lord Parry

My Lords, does the noble Lord accept that those who are simple and naive, such as I am, find it difficult to understand why petrol bought at barrel prices which were considerably lower before the crisis began should be sold at prices that have been set after the crisis began? Those people are unable to understand why they are now paying prices for oil that may be down at barrel price when it is eventually delivered to the public.

Viscount Ullswater

My Lords, that is a concept that many people have. The oil companies retain a certain reserve of oil. If it was bought at cheaper prices then they would profit from it if they ran their stocks down. If they retain the same amount of stock they are not profiteering.

Lord Parry

My Lords, perhaps the Minister will explain to the House why prices do not go down as quickly as they go up.

Viscount Ullswater

My Lords, I sought to say that in fact they do. The Department of Energy very carefully monitors the difference between the spot price and the pump price. That difference falls within a range of around 5½ to 6p. Since July the margin has narrowed rather than widened, which indicates that major companies are keen that they should not lose market share by increasing their prices too rapidly.

Lord Hailsham of Saint Marylebone

My Lords, in view of the uncertainty of the Gulf crisis, is it not reasonably obvious even to the naïve that it is right for oil companies to keep their stocks up and that in order for them to keep their stocks up, they have to consider the replacement price?

Viscount Ullswater

My Lords, as usual my noble and learned friend puts it so much better than I.

Lord Cledwyn of Penrhos

My Lords, does the noble Viscount not agree that there has been a great deal of public disquiet regarding what people believe to be an unreasonable increase in price? Does he further agree that many authorities, including President Bush, say that the increase in prices is not justifiable? Can he say what representations were made by his right honourable friend, or some representative of the Government, to the oil companies about this matter? Finally, can he say what extra revenue has come to the Government since 2nd August as a result of this increase?

Viscount Ullswater

My Lords, the noble Lord is quite right. Petrol prices have risen substantially. That reflects the decrease in supply rather than any increase in demand. Nevertheless, the Government have looked at the situation. They asked the United Kingdom oil companies to exercise restraint—the Government consider that to be the best way forward —and not to increase prices more than necessary in the circumstances. I sought to indicate that the companies delayed passing on price increases, which today are less than the increases they are experiencing on the Rotterdam gasoline spot market.

In answer to the second part of the noble Lord's question, I cannot give a precise figure. However, the petroleum revenue tax will increase as the product price increases.

Lord Cledwyn of Penrhos

My Lords, I am obliged to the noble Viscount. It has come to my notice that the increased revenue amounts to more than £500 million. Is that near the mark?

Viscount Ullswater

My Lords, I cannot give the noble Lord an answer at this time. I shall inquire and write to him.

Lord Taylor of Gryfe

My Lords, while I am not against the consumer paying the market price for petroleum, do the Government consider that it may be useful to have greater investment in public transport in order to minimise the impact of increased petrol prices?

Viscount Ullswater

My Lords, I find myself in a difficult position. In many instances noble Lords from all sides of the House have asked me to introduce a carbon tax on petrol, which would increase the price of petrol. For some reason or other they are now complaining that the price of petrol has gone up. The noble Lord is right, but that is not the Question before the House.