§ 11 am
§ Madam Deputy Speaker (Mrs. Gwyneth Dunwoody)
Is the hon. Member for Meriden (Mrs. Spelman) present for the next debate?
§ Mrs. Caroline Spelman (Meriden)
I apologise, Madam Deputy Speaker. I am not familiar with the procedure in the new Chamber.
§ Madam Deputy Speaker
Perhaps I should make it quite clear to hon. Members that if they are not present when the Adjournment debate is called they lose their debate. On this occasion, as I was able to see the hon. Lady, although she was not in the Chamber, I am prepared to accept her presence.
§ Mrs. Spelman
I was waiting in the wings.
First, I should like to thank Madam Speaker, through you, Madam Deputy Speaker, for selecting this subject for an Adjournment debate. It is a particularly good subject for such a debate because many hon. Members of all parties will have a case in their constituency of the type that I am about to outline, so they can all participate. That is the spirit in which Adjournment debates should be conducted when they are at their best. The Minister will be pleased to hear that I do not intend to turn this into a party political debate because the debate should as far as possible rise above narrow party political arguments. He will be relieved to see that I have resisted the temptation to divert into the question of fuel taxes, which would rapidly become a party political debate. I intend to focus exclusively on the plight of the independent retailers in the petrol market and to urge the Government to act.
I shall begin by setting the scene a little. My attention was drawn to these problems by the unfortunate experience of my constituent, Mr. Parekh. He first came to my surgery in 1998 and I have tried all the avenues at my disposal as a Member of Parliament to help him, but without success. It was only as I pursued his case that it became clear that many other people were in the same position and that this would be a good subject for debate. Mr. Parekh's experiences need to be seen in the context of what has happened in the petrol retail market during the past three years. The oil companies responded to the competition from cut-price petrol sold by supermarkets with a price-cutting campaign. Esso's price watch campaign is just one well-known example of how the companies have fought back and, of course, the other oil companies responded in similar ways.
In the Office of Fair Trading report entitled "Competition in the supply of petrol in the UK", published in May 1998, it was estimated that, following supermarket competition, there were 5,000 fewer traditional filling stations. The OFT made a fairly superficial assessment of the causes of decline among independent retailers, blaming bad sites and a lack of competitiveness. But that seems to contrast with the interpretation put on events by the Federation of Small Businesses, quoted in the OFT report, which said:Competition between the oil companies and the hypermarkets had directly resulted in closure of independent solus-tie sites.71WH I just leave those two contrasting views about what really happened after this pretty vicious cut-price petrol war. I hope that my explanation of my constituent's case will make it clear where I think the truth lies.
I should like to focus the Minister's attention on the fact that, as I see it, the pain of the petrol price war was displaced by the oil suppliers on to the backs of the independent retailers by changes in the terms and conditions of their contracts, and the oil companies' failure to honour the undertakings given to the OFT to protect those who entered into agreements to retail petrol for them. Against that backdrop, world oil prices have stayed fairly stable since 1986, but the price of crude oil is a relatively small part of the pump price. More than 80 per cent. of the price of fuel at the pump is excise duty and VAT.
I do not wish to take a sidetrack to a debate on the consequences of the fuel escalator, because a lot of parliamentary time has been devoted to that, but I am sure that other hon. Members would like to draw attention to it. One aspect that is worth mentioning is the distortion in the retail market caused by Britain's high fuel tax regime. That is causing difficulties with cross-border smuggling, particularly between Northern Ireland and the Republic of Ireland. I know that the hon. Member for Lagan Valley (Mr. Donaldson) will seek to catch your eye, Madam Deputy Speaker, to speak about that.
I wish to highlight those global market conditions and their interaction with our own domestic fuel tax arrangement to warn the Minister that, as crude prices have more than doubled in the last 12 months, oil companies may no longer be able to absorb the impact of fuel duty by cuts to profits. Consumers may feel that high tax regime more directly in future.
My constituent, Mr. Parekh, used to run a petrol station under what is known as a solus-tie agreement with Esso. Such agreements are common in the industry and mean that an independent retailer is exclusively tied to one wholesale supplier for a period. There have been concerns about agreements in the past, and as long ago as 1965 the Monopolies and Mergers Commission undertook a report on the supply of petrol to retailers in the UK which raised the issue of the degree of control exercised by the oil companies over the independent retailers. It concluded:Solus agreements seem to us to have some disadvantageous features as operated at present and to be potentially dangerous for the future unless certain safeguards are introduced.Consequently, in 1966 the oil companies gave the then Board of Trade a set of undertakings, although they were subsequently amended in 1968, 1976 and 1984. Responsibility passed from the Board of Trade to the OFT in 1973.
This is where my constituent's story begins. He borrowed thousands of pounds from relatives and a bank to run an Esso petrol station. He signed a three-year contract that appeared to be regulated by the Department of Trade and Industry and the OFT. Within a short time of issuing the contract, the amount of rent demanded became quite unreasonable in relation to the turnover of the business and he was faced with breaching the agreement or becoming insolvent. He appealed to the OFT to arbitrate the dispute but was rebuffed by a standard reply from Mr. Bridgeman, the 72WH director general, stating that the OFT could not involve itself in individual disputes, despite the fact that numerous similar complaints had been lodged. Indeed, it was reported to the House that 57 such complaints had been lodged to the OFT in 1998 alone.
Just to backtrack for a second, in 1980 the then competition Minister, Mrs. Sally Oppenheim, wrote to one of her colleagues, who was concerned about the lack of legal protection for independent retailers, to say that the oil company was bound by those undertakings, as amended in 1976, and that there would be an arbitration scheme to settle disputes. In 1996 the oil company informed a Select Committee inquiry that an arbitration scheme was in place to resolve disputes with licensees but, faced with a real dispute, Mr. Bridgeman refused to arbitrate because he accepted the oil company's view that there was no dispute.
On 17 July 1996, the Select Committee on Trade and Industry recommendedthat a code of practice be drawn up through negotiations between the OFT and the petrol retail industry, covering the contractual relationships between wholesalers and retailers and including provisions for speedy and binding arbitration disputes. We further recommend that the code of practice be the subject of undertakings given by wholesalers and retailers to the Secretary of State for Trade and Industry.It added:We recommend that the petrol retailing industry is continuously monitored by the Director General of Fair Trading, using the indicators suggested by the MMC.There is plenty of parliamentary evidence that the matter has been raised in various Select Committees on many occasions, but the problem remains. A large number of independent retailers cannot get disputes arbitrated adequately. Many feel let down by the Office of Fair Trading, which failed to ensure that undertakings given by the oil companies were honoured. The undertakings enshrined an automatic right to renew licences but, under the new licence agreement, that right was withdrawn from my constituent, Mr. Parekh.
The undertakings envisage that the right of renewal of a licence can be withdrawn only in special circumstances—where a petrol station is to be knocked down and rebuilt, where a site is to close, where a site is to be leased to a third party, or where an oil supplier chooses to run the site itself. Mr. Parekh was given the fourth reason for non-renewal but, in practice, the site is being run by an agent under licence. Where is the difference? The criterion for denying the right to renewal was not met by the oil company. Mr. Parekh is not alone in his experiences. There have been 1,200 forecourt closures each year since 1996, with rural closures creating virtual petrol deserts and high prices for people living in remote areas.
Another specific example was given to me by an hon. Member who cannot speak on the subject because he has a registered interest, but who was directly affected by exactly the same situation. Under a three-year agreement struck with an oil company in 1989, a very reasonable fee of £932 was to be paid by him to the company for his petrol filling station outlet. In 1992, the fee jumped dramatically to £21,150. With other charges thrown in on account of the sale of products on the filling station forecourt, the shop and so on, the charges came to £26,000 a year. On his £3 million turnover in 1992, the profit came down to just £13,000. That is a 73WH dismal return on anyone's investment: That independent retailer surrendered the lease in 1994 when he was told of a further increase in fees which would take effect from 1995. The filling station is now run by a manager for the oil company. That is one more example of the way in which independent retailers have suffered at the hands of oil companies.
What would I like the Government to do? The OFT reviewed the petrol undertakings, but thus far has failed to make significant changes. Following publication of the OFT's report "Competition in the supply of petrol in the UK" in May 1998, the then Under-Secretary ordered a review of petrol undertakings. In February last year, the present Under-Secretary answered a question on the Floor of the House, stating that he expected to receive advice from the Director General of Fair Trading "within the next month". Almost a year later there is still no announcement that a review has been undertaken. Will the Minister for Competition and Consumer Affairs tell us why the review is taking so long, when he expects it to be completed, whether it will be published and when? Perhaps the review will shed some light on the injustices suffered by independent retailers.
The OFT has been sadly lacking in its responsibility to monitor the outworking of those undertakings. The stock reply is that the matter is not the responsibility of the OFT; that it is concerned only about competition. Given the experiences of independent retailers, that is woefully inadequate. The OFT ruled that the terms of agreements offered by the major oil companies must be fair and reasonable. However, when the Total oil company advised the OFT that it intended to change the compensation given to retailers who went out of business, and announced that it would cut by nine tenths its payment to licensees whose licences would not be renewed, the OFT failed to respond.
The OFT dedicates only minimal resources to monitoring the forecourt industry and currently has less than one person on the job of acknowledging responsibility. I ask the Government to launch a fresh inquiry into why so many small and medium enterprises among petrol retailers have gone out of business since 1996. I want the inquiry to go beyond the trite assessment that there is a lack of competitiveness on the part of retailers and to examine whether there has been unfair practice by oil companies.
§ Mr. David Drew (Stroud)
Would the hon. Lady care to look at another issue that affects my constituency— what I would call the area setting of prices? I do not know whether she intends to come to that. The bizarre situation in my area is that my most rural garage, which is run by Mr. Roger Budgen in Bisley, near Cheltenham, has until recently been able to sell the cheapest petrol, which is almost the reverse of what we might expect. I cannot get to the bottom of why that was possible for him, whereas in Stroud, where one would expect to buy cheaper petrol, retailers have to sell their petrol at a higher price. Has the hon. Lady had a similar problem in her area?
§ Mrs. Spelman
It strikes me more as an isolated case. My own experience from driving around the country 74WH over the Christmas and new year period was of a predictable pattern. In urban areas, especially those with a supermarket outlet, there is a remarkable conformity in prices. I cannot recall how many times I have driven past petrol stations displaying prices of 75.9p or, if one was lucky, 74.9p, in which case there was a queue. That is remarkable uniformity in pricing. In the more remote—especially upland—areas, such as the Cumbrian hills, small filling stations have to pay a significant premium because of the distribution costs. I am nonplussed by the hon. Gentleman's example. As his filling station is still in business, I suggest that all of us try to get to the bottom of that market success.
I am disquieted by that remarkable uniformity in prices. It certainly leaves me sceptical of the OFT's findings after it looked into competition in petrol sales. Such uniformity in pricing leads me to believe that competition is not as strong as the OFT would have us think.
I invite the Minister to think about a change of direction in policy in the United States of America and Australia, where, faced with similar problems, the Governments of those countries have ruled that oil companies cannot be both retailers and suppliers of petrol, other than having a token presence for the purpose of keeping a finger on the pulse of what is happening in the marketplace. Hon. Members will understand what I mean by a token presence if I say that that is just one filling station per American state, as state Governments have decided to separate the supply and retail of petrol. That really is a token presence. In Australia, the token presence is slightly higher, with six filling stations allowed per state. None the less, that amounts to a sparse representation of oil companies as supplier and retailer, and could be described as merely testing the temperature of the waters.
It is significant and interesting that those two Governments went down that route, perhaps for precisely the reason that I mentioned—that others are disquieted by the remarkable uniformity in prices. At global level, three, possibly four, major players in oil supply are emerging, along with several minor players. With so few major players and increasing market concentration, vertical integration—in which the major suppliers both supply and retail their product—is unhealthy for consumers in the longer term. That applies in other countries as well as in the UK.
This is no time for complacency. The demise of independent retailers is likely to hasten market concentration to the point where it becomes monopolistic. In some rural areas, there is already a virtual monopoly. The issues are complex, and I have resisted the temptation to highlight several smaller injustices in order to focus debate on the major injustices from which independent retailers have suffered.
In the light of the history of the parliamentary proceedings leading up to today, I hope that we do not lose sight of the fact that several individuals have suffered personally as a consequence of the failure to act appropriately to address the problem. I shall finish by citing one more example, which drives the point home.
After a lifetime in the teaching profession, a retired headmistress invested her savings in a local petrol filling station. She was encouraged by the household name of 75WH the oil company to think that the investment offered a degree of security. Having been shown figures of the sort of business return that she could expect from her investment she was encouraged by the prospect of a decent return. However, the turnover had been inflated and she found that when her rent was taken into account, her business was simply not viable. She had to pull out, losing her investment. Her tenure was followed by that of yet another victim—victim is not the wrong word—who was attracted by inflated prospects, but five months later was no longer trading. I ask the Minister: how many more casualties will there be before the Government act?
§ Mrs. Ray Michie (Argyll and Bute)
I congratulate the hon. Member for Meriden (Mrs. Spelman) on raising this important matter in this morning's proceedings. She made many relevant points, but I should like to say a few words about Scotland because the cost of petrol and related issues remain within the purview of Westminster rather than the Scottish Parliament.
Petrol retailing has a significant effect, particularly in the highlands and islands of Scotland and in my constituency of Argyll and Bute. Petrol prices are prohibitively high in remote areas and on the islands. Last year, a petrol retailer on the island of Islay had to charge 85.9p per litre for four-star petrol, 79.9p per litre for unleaded petrol and 80p per litre for diesel. That compares with averages of 74p, 66p and 69p respectively.
The hon. Member for Meriden said that she did not wish to make party political points. I do not either on this occasion. However, it is important to understand the background to the debate on retailing. My constituent keeps going only because his retail business serves a particular part of the island. He and his wife keep going because they believe that they are providing a service—we spoke earlier about the importance of post office outlets, which provide another important service. However, because of a low turnover, my constituent told me that he did not qualify for the rebates that other petrol stations receive for large-volume sales. In addition, he provides approximately 60 per cent. of his petrol on credit because most of his customers are self-employed fishermen and farmers, so at any one time he could be owed as much as £18,000, which makes it difficult to survive.
We must remember that cars are a necessity, not a luxury, in remote rural areas. No matter how good public transport becomes, it will never be a substitute for cars in such areas. I hope, of course, that we will one day have a much better rural transport system in this country, but I cannot imagine buses ever going into little villages to pick up a few people.
The rise in the cost of diesel has increased overall costs, particularly in remote areas such as the highlands and islands of Scotland and Argyll and Bute. Many goods have to be hauled by road. We would like more goods to be transported by sea, but we cannot transfer goods to railways that do not exist: railways do not go to places such as Campbeltown, Dunoon and Lochgilphead. There have been constant hikes in petrol prices, and the escalator, without meaningful compensatory measures in rural areas, has been one of 76WH the most unpopular and deeply resented measures ever introduced by both Conservative and Labour Governments.
The Petrol Retail Association told me that 1,200 forecourt closures have taken place every year since 1996, and an average of 850 since 1969. At the end of 1997, Scotland had 1,299 petrol stations and by the end of the following year that number had shrunk to 1,200— a loss of nearly 100 primarily remote rural stations in vulnerable areas. It is lunacy for people to drive 40 miles to fill up their cars with petrol, consuming the fuel that they have just bought in getting home again, yet that is exactly what happens when so many retail forecourts close down.
We must know what is going on and why. The OFT has conducted investigations in the highlands and islands area, but its reports have not been enlightening. It claims that nothing is wrong, that companies do not operate cartels, and offers explanations such as higher delivery costs, higher fixed costs per litre, lack of favourable contract arrangements with major oil companies, the effects of VAT and limited competition. As the hon. Member for Meriden said, we need to know why the OFT has not completed its review of petrol undertakings, which it promised to do in June 1998.
Finally, what measures will the Government take to try to stop petrol retail stations closing in rural areas and particularly in the north and west of Scotland?
§ Mr. John Hume (Foyle)
The crisis is at its worst in Northern Ireland, particularly the border counties. I can fill my car with fuel in my constituency, but, if I drive a mile down the road and cross the border, I can save 22p a litre or £1 a gallon. That is crazy and it will destroy the petrol station industry. The problem will not be solved by talking or by reports that were written months ago and about which nothing has been done. Action is required. The problem is serious for the towns and villages of Northern Ireland's border counties because the industry will be wiped out. The Secretary of State should meet representatives of petrol stations in Northern Ireland to produce an immediate plan to resolve the problem.
§ Mr. Lindsay Hoyle (Chorley)
I congratulate the hon. Member for Meriden (Mrs. Spelman) on securing the debate because it is important to highlight the problems facing small petrol retailing firms.
I, too, support an inquiry into petrol retailing. Previous Governments and the Select Committee on Trade and Industry have investigated petrol retailing and produced reports, but somewhere along the way the issue has been swept under the carpet and recommendations have not been fulfilled. It should be brought out from under the carpet. There should be an inquiry and it should have teeth because many problems face many constituencies throughout the United Kingdom.
Every year there are 1,200 forecourt closures. The Government should support small and medium enterprises, but those closures have been allowed to happen since 1996. We must do something about the thousands of people who lose their jobs when those 77WH thousands of businesses close. We cannot continue to turn a blind eye. We must ensure that rural forecourts remain for the future because, like rural post offices, they are at the heart of the rural economy. We must ensure that something is done. Why have we allowed the creation of rural deserts? When a rural petrol station closes, it does not become something else overnight. Far from it. The site begins to wither and becomes overgrown, subject to tipping and, eventually, an eyesore.
The Government must focus on the future of small businesses in petrol retailing. They should get involved in the contract between small businesses and major oil companies. Oil companies were heavily squeezed by the previous Government and the present Government with the fuel escalator and they have not had an easy time, but they should play fairly and not squeeze small businesses. They do not want their profits to fall because they must consider their shareholders, but it is not acceptable to resolve the problem by closing small petrol stations. The petrol companies should embrace small petrol stations for their loyal service over many years.
There was an inquiry 35 years ago into agreements between oil companies and small petrol stations. Those agreements were thought to have a five-year future, but oil companies may give 30 days' notice of termination. Petrol forecourts often have a shop to make a little more money, but the products in the shop must be bought through the oil companies and the prices are decided by the oil companies. That is anti-competitive. Previously, if money was not being made from petrol, it could be made from the shop, but the oil companies recognised another opportunity to squeeze money out of petrol retailers.
Why did the European Commission allow the block exemption to be renewed? It exempts oil company agreements from examination until a single company exceeds 30 per cent. of the national share. But an oil company may have a regional monopoly. The country may have been nicely carved up between the oil companies, but it is even nicer for an oil company if it has a monopoly in one region because it can then dictate terms, prices and conditions throughout that region. That is what is happening. There is no point in having a national agreement if there are regional monopolies.
§ Mr. Michael Clapham (Barnsley, West and Penistone)
My hon. Friend will be aware of the matter raised by the hon. Member for Meriden (Mrs. Spelman) who referred to the earlier Select Committee report, which recommended that a code of practice be drawn up with the Office of Fair Trading through negotiation with retailers and wholesalers so that grievances between retailers and wholesalers could be considered. Does he believe that such a mechanism between retailers and suppliers would be advantageous to the retailers?
§ Mr. Hoyle
Of course. I respect that view, which should be encouraged. My hon. Friend was a member of Select Committee that has investigated fuel retailing. I hope that we shall have a response from the Government on that today.
There are only three national marketers of motor fuel and they have a combined market share of 85 per cent. We begin to see that the real muscle is in those big three 78WH companies. Petrol retailers in rural areas provide a service, which generation after generation may have provided, but such family connections have had to end because of the muscle power of major oil companies. I am lucky in having good rural petrol stations in my constituency of Chorley. They provide a loyal service, but I wonder how long that can continue. The petrol station in Ulnes Walton is lucky because it became wine retailer of the year. It is successful and provides a great service not only in petrol but in fine, quality wines. But not every petrol retailer has the ability to do that and not every oil company will allow that. That petrol station is a huge success, but it cannot be replicated up and down the country.
My local petrol station, Walkdens in Aglington—I use it regularly and my family has had an account there for 30 years—has had BP, ICI, Fina and now Shell petrol. Each time the oil company changes, the agreement changes. I do not want to lose that local filling station. I want it to continue because it provides a good service, but I am worried that it will be squeezed by the oil companies.
Our friends in Northern Ireland have experienced the squeeze and petrol filling stations have been closing daily. The problem is not only that small businesses are closing in Northern Ireland—a problem that is not being addressed—but that fuel smuggling represents a cost to the Chancellor of the Exchequer. People in Northern Ireland can make good money out of smuggling petrol. Not only does that cost the Exchequer millions of pounds, but it means a loss of employment and the closure of small businesses. Unfortunately, it is a sad fact that petrol smuggling is seen as an alternative. Petrol smuggling is happening in Northern Ireland and Scotland, and now in England as well. It will force even more small retailers out of the market as people look for alternative sources of fuel.
§ Mr. Ian Bruce (South Dorset)
One of my constituents, Mr. Peter Avery, who runs the Lanehouse Rocks road Esso garage and is also a motor retailer, alerted me to the fact that he had written to me at the beginning of 1999 and that I had made representations on his behalf to the Government. The Government told us not to worry because the Office of Fair Trading was looking at petrol retailing. I had to admit that I had lost sight of the fact that the OFT had done nothing about the issue. I ask the Government to explain their original policies.
§ The Minister for Competition and Consumer Affairs (Dr. Kim Howells)
It simply is not true that the OFT has done nothing. It has been attempting, as I hope it always will, to carry out an exhaustive investigation of the issue. The OFT has told me that it is due to report to us at the end of February or the beginning of March. I assure the hon. Gentleman that I shall make that information available to the House.
§ Mr. Bruce
I am most grateful to the Minister for that comment. I spoke to Mr. Avery on the telephone yesterday. He asked, "Is the debate worth while?" I replied, "Funnily enough, Governments tend to forget that they have made commitments." I predicted that the Minister would jump to his feet and say, "Ah, 79WH but we are about to get the report and take action." I do not accuse the Minister of making those comments in bad faith, but I am glad that this welcome debate, initiated by my hon. Friend the Member for Meriden (Mrs. Spelman), is having an effect.
Normally, when business men go into business and sign leases with landlords, they are covered by the Landlord and Tenant Acts and their rent cannot be jumped up immediately. They normally know that, as a retailer, they can buy from anyone. If they sell baked beans, they can buy many varieties or only one. They take the decisions. However, I understand that the Landlord and Tenant Acts do not apply to petrol retailing contracts.
In the past, the Government said that it would be difficult for petrol retailers to be covered by those Acts because they cannot easily change the petrol in their tanks, or the signs outside their stations. The fact that they were selling on a branded basis would make any change difficult. So the petrol companies agreed that they would give certain undertakings about how they would deal with their retailers. I understand that those undertakings have simply not been kept. Therefore, a mechanism is needed to protect those business people, like all other businesses, from unfair practices.
I served on the Committee that considered the Competition Act 1998, which is quite comprehensive. The Opposition spent time asking Ministers what they would use the Act for, but answer came there none. They would not give a single example of what they intended to do with that Act. It has been on the statute book for some time, so people are entitled to ask the Government, who came to power with many consumer and business-friendly policies, to do something about competition.
On Monday, travelling on the motorway, I passed a car transporter, which, like the Government, seemed in perfect order. The problem was that it was full of burnt-out cars. That is a metaphor for the Labour Government. They still look as though they know where they are going and as though they have wheels on their vehicle, but they are carrying burnt-out policies. If the Government believe that they will make a difference and that things can only get better, surely they should do something for petrol retailers.
§ Mr. Jeffrey Donaldson (Lagan Valley)
I add my congratulations to the hon. Member for Meriden (Mrs Spelman) and thank her for bringing this matter before Parliament. She referred to Northern Ireland, as have other hon. Members. I should like to echo the comments of the hon. Member for Foyle (Mr. Hume), who suggested that the Secretary of State for Northern Ireland should take urgent action to meet petrol retailers in the Province to discuss the serious crisis that has affected petrol retailers in that part of the United Kingdom.
I want to give an idea of the impact that fuel smuggling and the differentials in fuel prices between Northern Ireland and the Republic of Ireland are having on the petrol retail industry in Northern Ireland. Just before Christmas, petrol prices in the United Kingdom were the highest in the European Union, whereas in the Republic of Ireland they were the fourth lowest. In the 80WH United Kingdom, petrol cost 73.37p a litre, whereas in the Republic of Ireland it was 51.13p a litre. That is a significant difference. The cost of a litre of diesel in the United Kingdom was 75.27p, but in the Republic of Ireland it was 46.68p.
Those fuel differentials are causing significant problems for petrol retailers in Northern Ireland. First, they are having an impact on their customers. Many people travel across the border to purchase fuel. That means that business for retailers in Northern Ireland has slumped. For example, estimates suggest that petrol retailers in the border area have lost between 25 and 50 per cent. of their trade as a result of the fuel differentials. The Petrol Retailers Association estimates that about 50 petrol stations have closed in the border area. That is a significant number of petrol stations in a small area such as Northern Ireland, but it is even more significant given that the estimate is for the border region only.
The other cause of difficulty for petrol retailers in Northern Ireland is fuel smuggling. The differential in prices has unfortunately meant that smuggling has increased substantially. Fuel smuggling has several impacts. It has an impact on petrol retailers, as I have already mentioned. It also has an impact on the Government, who lose revenue. It has been estimated that in the past 12 months in Northern Ireland the loss of revenue due to smuggling amounts to more than £100 million—a substantial sum in terms of public expenditure in Northern Ireland. We, like other parts of the United Kingdom, are facing a crisis in the availability of hospital beds. How many beds could be provided in Northern Ireland with that £100 million?
What is the Government's response? Last year the Select Committee on Northern Ireland Affairs issued an excellent report on the impact of cross-border road fuel price differentials, which I commend to all hon. Members. During cross-examination on the Government's response to the report, the Economic Secretary said:£100 million in the context of £21 billion overall from fuel duties as a whole is really a very … small part of the overall picture.But in respect of Northern Ireland, it is a big part of the picture, and the Government should not take that attitude towards the loss of even £100 million in revenue. They must act, not only to help petrol retailers in Northern Ireland and elsewhere, but to stop that loss to the Exchequer.
The hon. Member for Chorley (Mr. Hoyle) said correctly that the problem of fuel smuggling was no longer unique to Northern Ireland but was spreading to other parts of the United Kingdom. There are reports of illegal fuel being offered for sale in Scotland and Wales. Indeed, even in London there have been reports of tanker loads of illegal fuel arriving and cut-price deals being offered to retailers. The cancer of fuel smuggling is spreading. It is not just a Northern Ireland issue which the Government can sweep under the carpet; it needs to be addressed on a UK-wide basis.
Petrol retailers in Northern Ireland continue to suffer from both fuel differentials and the smuggling of illegal fuel from the Republic of Ireland. I urge the Government to reconsider the recommendations of the 81WH Northern Ireland Affairs Committee because their response to its report was inadequate. They need to do more, because the issue does not impact only on petrol retailers. In its report, the Committee said:There is no doubt that the differential in fuel prices across the land boundary in the island of Ireland is a difficult issue and one that has serious consequences for fuel suppliers and road hauliers. It is also a wider problem in that, besides distorting trading patterns, it appears to have become a means of funding paramilitaries and racketeers. It is therefore damaging the social fabric of Northern Ireland.As we seek to make progress in Northern Ireland, we need to remove the opportunities for paramilitary organisations to continue with their illegal activities— smuggling illegal fuel is a major such opportunity. That is another reason why Government agencies need to co-ordinate their approach to the issue.
There is also the impact on the road haulage industry in Northern Ireland. Because we are part of an island, we are especially dependent on our road haulage industry, particularly for our export trade. At the moment, the Northern Ireland road haulage industry is suffering severely from the high fuel costs in Northern Ireland. It is estimated that fuel and excise duties account for between 25 and 40 per cent. of the operating costs of haulage operations. That is a huge amount. Their competitiveness is undermined if fuel costs are significantly higher in Northern Ireland than in the neighbouring state of the Republic of Ireland. I therefore agree with the hon. Member for Meriden that the problem in Northern Ireland is acute and spreading to other parts of the UK. It must be addressed by the Government, whose approach to date has been inadequate. More resources need to be made available to Customs and Excise to combat fuel smuggling. Something must also be done to address the issue of fuel price differentials.
I conclude by noting that the Northern Ireland Affairs Committee stated:We recommend that the Government investigates further the experience of other EU Member States in dealing with the problems of price and duty differentials across national boundaries in relation to road fuels.The Government could do more. I acknowledge that the scheme that was operating in Holland has run into difficulties with the EU, but that does not mean that a solution to the problems of illegal fuel smuggling and fuel price differentials between member states cannot be found. As we operate in a single market, perhaps the solution could be EU-wide. Petrol retailers, the road haulage industry and the community in Northern Ireland would welcome a much more proactive approach by the Government to these important issues.
§ Mr. William Thompson (West Tyrone)
I, too, thank the hon. Member for Meriden (Mrs. Spelman) for initiating this debate, which we welcome, particulary in respect of Northern Ireland.
I endorse what my hon. Friend the Member for Lagan Valley (Mr. Donaldson) said. I represent the border constituency of West Tyrone, where six major petrol stations have already closed and others are on the brink of closing because of the differential between petrol 82WH prices in the Republic of Ireland and those in the United Kingdom. Even miles away from the border, some large petrol stations have seen a reduction of up to 50 per cent. in sales.
Figures for consumption in Northern Ireland and the Republic of Ireland show that, of total petrol sales for the whole of Ireland in 1994, 35.9 per cent. were conducted in Northern Ireland. That figure has now decreased to 24.2 per cent. Likewise, in 1995 Northern Ireland had 27.7 per cent. of total diesel sales, but it now has 16.1 per cent. That illustrates the change in the balance of sales between Northern Ireland and the Republic of Ireland. As my hon. Friend said, that means that the Exchequer is losing up to £100 million per year.
There is a lot of smuggling. As one travels in Northern Ireland, one can see adverts for diesel at 56p per litre and an arrow pointing to where to go to get it. I rang the police and asked why they could not follow the arrow and do something about the problem, but they said that it was a matter for Customs and Excise. When I asked Customs and Excise to go along and find out how diesel was being sold at that price, it said, "It wouldn't be worth our while investigating such a small issue; we work in a different way in a larger field." When asked why they are not succeeding, they say that they do not have the personnel to do the job. We need more people on the ground to trace the illegal importers and we need co-operation and co-ordination between the police, Customs and Excise and other bodies to try to defeat the smugglers. I appeal to the Government to give this issue serious consideration and to co-ordinate the various agencies that are trying to stop smuggling. We must also examine more seriously the possibility of greater parity between fuel prices in the United Kingdom and the Republic of Ireland.
§ Mr. Norman Baker (Lewes)
I congratulate the hon. Member for Meriden (Mrs. Spelman) on introducing the debate and on her choice of subject. She made her case in a firm, measured way, thus helping to set the scene for ensuing speeches.
There has been a high degree of unanimity between speakers from different parties, which I intend to continue. I hope that that will be matched by the Minister's comments at the end of our debate. Clearly, Northern Ireland has a special problem, which hon. Members representing it have expressed more eloquently and in greater detail than I could. The hon. Member for West Tyrone (Mr. Thompson) said that sales are bleeding across the border. The Minister and the Secretary of State for Northern Ireland must give that matter serious consideration.
As a representative of the Liberal Democratics and as a local Member of Parliament contacted by independent retailers in one's constitutency I am worried. Like other hon. Members, in recent years I have witnessed independent petrol stations closing with monotonous regularity. There has been an horrific contraction of the independent sector. According to the Evening Standard, the number of filling stations has fallen from 40,000 to only 13,000 in the past 30 years. That is a drop of almost 70 per cent. Of the surviving stations, 10 per cent. closed last year. If that rate of decline were attributed to an animal, it would be regarded as an endangered species 83WH facing extinction. Contraction of the independent sector is not in the retailers' or public's interest, as it will lead to a concentration of power in a few oil companies, which will be detrimental to consumers and those employed in the industry.
§ Mr. Drew
Does the hon. Gentleman agree that, in a slightly different context, the planning process has a part to play? Obviously, the provision of petrol retailing has been key to out-of-town shopping, having a dramatic impact on retailers in the immediate vicinity and sometimes those up to 30 miles away. People drive to such outlets to do their shopping and buy petrol at the same time, which is blatantly unfair to independent retailers.
§ Mr. Baker
I agree, and I hope that the Minister will take account of the matter and refer it to his colleagues in the Department of the Environment, Transport and the Regions.
The hon. Member for Meriden avoided using the word "cartel", speaking instead about passive collusion, which is an interesting phrase. However, perhaps "cartel" is not too strong, as there is evidence that oil companies are working together—passively, if not actively—to drive independent businesses out of petrol retailing. I am not confident that the Department of Trade and Industry or the Office of Fair Trading understands that. I hope that the Minister will persuade me that they do.
§ Dr. Howells
If the hon. Gentleman has evidence of oil companies acting as cartels, he should give it to the Chamber.
§ Mr. Baker
I shall give the Minister evidence from Select Committee reports and representations from my constituents.
The Select Committee report already referred to shows that 50 per cent. of four-star petrol sold between April and August 1996 was sold at or below cost. In 1997, petrol price competition was so fierce that British Petroleum is alleged to have lost £130 million selling petrol to the public. That may be compared with predatory pricing arrangements in the newspaper market. The Times, for example, has been sold for some time at an artificially low price which, many believe, will drive The Independent and other newspapers out of the market. Those who are strong in the market can take losses over a period in order to drive those who cannot out of the market.
The price at which petrol is sold involves a curious arrangement. We have been told that it is more costly to deliver petrol to upland parts of Cumbria than other areas. No doubt that is true. In Asda's opinion, the additional cost of delivering petrol to rural areas is a maximum of 1.5p a litre. However, the difference in petrol prices is rather more than that. My hon. Friend the Member for Argyll and Bute (Mrs. Michie) referred to the position in Scotland. According to The Scotsman, the BP filling station at the entrance of the Grangemouth refinery charges more for petrol than the BP station in Edinburgh. Arrangements for petrol retailing are not as clean as the oil companies would have us believe.
§ Mr. Ian Bruce
I shall give some anecdotal evidence. For 13years, I have written regularly to petrol 84WH companies, asking why petrol prices in South Dorset are 3p a litre more than they are elsewhere. In the past three months, delivery problems have suddenly disappeared, and petrol is now sold at the standard price of 74.9p a litre throughout almost the whole of my constituency. Somehow, as if by magic, petrol companies reached a common position. Naturally, there was no collusion.
§ Mr. Baker
The hon. Member for Meriden spoke about vertical integration, which is another worrying issue. Again, a comparison may be drawn with other parts of industry. The previous Government rightly took action on the retail and supply of beer. They were worried that those who were producing beer were distorting the retail market. Action was taken to prevent beer suppliers from having too many public house outlets. No such action has been taken to deal with the problem of vertical integration in petrol retailing.
§ Mr. Baker
I am not sure that I agree with that. However, we must take action to change the balance of power between the independent sector and major oil companies supplying petrol and operating filling stations. That balance is currently heavily weighted in the oil companies' favour. If separating supply and retail is not the solution—even though that is perfectly sensible—we must find an alternative. We cannot carry on as we are because if we do there will be no independent sector when the House debates the matter in 10 years' time.
Oil companies have been accused of putting pressure on small retailers to tie them into contracts compelling them to buy a large amount of petrol at predetermined prices. An OFT review is, quite properly, taking place. Like other hon. Members, I am worried that the OFT is taking an inordinate period to report. I hope that that means that it is making a detailed examination of petrol retailing, which would help it to reach the conclusion that current arrangements must be changed to give more weight to the independent sector and less to oil companies. However, in the meantime, petrol stations are closing throughout Britain: they cannot all survive for months on end until the report is published.
Of petrol sold in Britain, 90 per cent. is suppled by four companies—Shell, Esso, BP and Texaco. Big petrol retailers—oil companies and supermarkets—account for 85 per cent. of sales. However, independent retailers sometimes act as a brake on prices—their own, although their margins are smaller, and those of oil companies and supermarkets. I am therefore pleased that there are independent retailers close to Lewes and elsewhere in my constituency. Indeed, I have noticed prices creeping up when independent retailers close down. Keeping independent retailers in business is important in offering choice to customers buying fuel.
85WH Those who have the opportunity to use muscle in a market are not unlikely to do so. That is how capitalism works. Part of Government's role is to implement controls and restraints to ensure that a fair market operates and prevent exploitation. I shall relate one anecdote from my constituency, which demonstrates how supermarkets can operate. It concerns an independent petrol retailer in my constituency, at Denton corner, Newhaven, who was struggling to survive, not least because of an unhelpful road realignment by the county council.
Shortly afterwards, opposite that retailer, a Sainsbury's supermarket opened. It offered artifically cheap fuel and put up a huge banner advertising that fact within the view of those who bought petrol from the independent petrol station. The independent retailer then moved to a 24-hour operation to try to survive, and the supermarket followed suit. The independent petrol retailer closed down, and the supermarket withdrew its 24-hour operation within seven days and hiked up the price of its petrol. Who benefits from that, apart from the supermarket and perhaps the oil company? Such predatory behaviour gives supermarkets a bad name.
What are the remedies? First, the Government should state that they value the role of the independent sector and the diversity that it provides. They should also recognise that diversity in the petrol retailing industry is an issue for consumers. If that is the Government's position—I have no reason to think otherwise—they should understand the present arrangements operating in this country. Independent retailers in my constituency have told me that, under those arrangements, they pay more per litre for their petrol than the supermarkets and the petrol-supplying oil companies. They are being overcharged in comparison with the big boys.
The Minister must recognise that the current situation is unsustainable. The Office of Fair Trading report must be delivered as soon as possible, and the Government must make a commitment to act on that report if, as I assume it will, it finds that the market is not structured fairly.
Secondly, the Government should implement the Select Committee recommendation to which the hon. Member for Lagan Valley (Mr. Donaldson) referred. A code of practice should be drawn up, through negotiation between the Office of Fair Trading and the petrol retail industry, which would cover the contractual relationships between wholesalers and retailers. It would include provisions for speeding and the binding arbitration of disputes. The code of practice would be the subject of undertakings given by the wholesalers and retailers to the Secretary of State for Trade and Industry. That was an absolutely sensible recommendation, which should be given due weight now.
Lastly, I refer the Minister to early-day motion 18 on independent petrol forecourt operators, which was tabled on 17 November by the hon. Member for Chorley (Mr. Hoyle). It has now been signed by more than 100 Members. This is not a party political matter—all parties have concerns about the issue—and I hope that the Government will act to remedy the damage that is being done to the independent retail sector.
86WH 12.13 pm
§ The Minister for Competition and Consumer Affairs (Dr. Kim Howells)
I congratulate the hon. Member for Meriden (Mrs. Spelman) on securing this debate. It has been a good debate, which the Government needed to hear, and I am glad that I have been present for it. The Whip was surprised when I walked in to speak on behalf of the Government in this debate—a colleague of mine, who is not of the same sex, had been expected to reply. However, I can assure hon. Members that I am very interested in the subject.
I assure the hon. Member for Meriden that the Government appreciate that many small businesses find it difficult to compete in modern markets, especially against larger companies. However, would more and tighter regulation be the best and most appropriate means of action? I ask that question because, whenever I speak on the Floor of the House, Conservative Members usually ask me about deregulating the economy, not increasing regulation. I shall try to explain why I am in favour not of adding to regulation but of trying other means to resolve the situation.
It has been argued that oil companies have too much control over petrol retailers. However, the key question is whether the consumer is benefiting. It is not the Government's role to second-guess markets or to try to determine who should and should not survive. I am a firm believer in competition. It brings the greatest benefits to consumers, who are at the heart of my brief.
The Office of Fair Trading works to ensure that, through strong competition in the petrol market, the consumer gets a good deal in the supply of road fuels. In 1998, the OFT's report on the supply of petrol found that competition was strong and that consumers were benefiting. Competitiveness has increased in recent years, especially since 1994, when price competition between supermarkets and the oil majors started to become more vigorous. That is when these problems began to manifest themselves. In real terms, petrol pump prices, net of VAT and duty, have fallen by a quarter since January 1990. The director general concluded that he did not need to intervene to improve the already vigorous competition in the market.
The report recognises that independent petrol retailers have been badly affected by competition between the oil companies and supermarkets. However, the director general concluded that overall competition was strong and working to the benefit of consumers. The director general must consider competition in the market as a whole; that is his job.
§ Mr. Baker
Does the director general think that, if the independent sector were removed altogether, competition would still act in the interests of the consumer and prices would still be decreasing? Alternatively, does he think, as I do, that that would provide an opportunity for a smaller number of suppliers to increase prices?
§ Dr. Howells
I am sure that the Director General of Fair Trading shares my view that the more independent retailers we have as real competitors to the big companies, the better. The barriers to entry must be as low as possible. However, if we have an independent competition regulator—the Director General of Fair 87WH Trading—we must pay attention to what he tells us. Allowing short-term political considerations to distort markets is ultimately to the detriment of consumers.
More recently, an OFT investigation after the 1999 Budget showed that increases in pump prices were accounted for—as certain hon. Members have said—by tax increases and sharp rises in the price of crude oil. This morning, I looked at the quoted crude oil price. It has increased by a dollar in a week. It is now more than $24 a barrel, whereas a year ago it was $11 a barrel. We must take that into account.
Recent figures show that increases in retail prices do not reflect the full increase in the crude oil price. Margins in the industry have become much tighter in recent years. That indicates weak competition or anti-competitive behaviour, but the opposite. It can be seen as a reaction to the increased competition provided by the entry of major supermarkets into petrol retailing. It is a competitive market with keen prices, which ultimately benefits consumers. That is a fact of life, and oil companies and their retailers have little choice but to deal with it.
This morning, we have been considering vertical agreements. The Government believe that vertical agreements are unlikely to be anti-competitive unless there is horizontal market power. In his thoughtful and extremely interesting contribution, the hon. Member for Lewes (Mr. Baker) alleged that cartels were working, which would imply horizontal collusion between companies. If he has the evidence to prove that—I did not hear it in his contribution—I would be glad to hear it. It is a serious allegation, and a serious criticism of the veracity of the reports by the Director General of Fair Trading.
We should remember that those undertakings have been in place since 1966. Mr. John Bridgeman and his predecessors are neither blind nor stupid. They would not fail to notice if major oil companies were operating a cartel, and I will not accept that they are so doing until I see evidence of it. Nor can I accept the characterisation of vertical controls as anti-competitive. No major European Union economy regards them as anti-competitive. Indeed, there are exemptions for vertical relationships between companies and between sectors throughout the EU.
Retailers have complained repeatedly about contractual abuse on the part of suppliers. A contractual issue is usually a matter for the parties concerned and, in the absence of serious competition concerns, does not constitute a competition issue. That is defined by the way in which this country's competition law works and has worked under previous Administrations since the second world war.
As I have said, competition in the petrol market is strong and is benefiting consumers. Over the years, the OFT has investigated a number of complaints about agreements between petrol retailers and suppliers. So far, it has concluded that such complaints were contractual matters that did not raise competition concerns. I appreciate that complainants may not agree with the OFT's verdict, but if it finds no evidence of anti-competitive behaviour that is detrimental to consumers, the OFT has no grounds for taking action under 88WH competition legislation. In that respect, this morning's debate has proved useful, because it may have highlighted an area that needs to be examined.
§ Mrs. Spelman
The Minister is right to emphasise the competition issue. He says that the Government cannot intervene in what is a contractual matter between an independent retailer and an oil supplier, but the truth is that there is limited competition for the supply of the raw material to the retailer. Such disputes involve small units that can hardly afford to go to the courts, and powerful players with huge resources at their disposal.
§ Dr. Howells
That is true, and I shall try to answer the hon. Lady's point. I appreciate the difficulties that small traders experience in such circumstances.
§ Mr. Ian Bruce
I pointed out in my speech that I wrote to the Government in the early part of last year about contractual issues that arose between a petrol company and a retailer in my constituency and was told not to worry because the matter had been referred to the OFT. If that is the wrong body to which to refer contractual issues, what will the Minister do about such problems?
§ Dr. Howells
The OFT is precisely the right place to refer such issues because it is the main competition regulator and the body with which such issues must ultimately be discussed on Parliament's behalf. The hon. Gentleman told us that he was a member of the Competition Bill Committee. If he was not asleep during its proceedings, he will know that the Act will not come into effect until March 2000, because the Confederation of British Industry, the Institute of Directors and others told us that there must be a period of grace in which preparations can be made for the onslaught of the new legislative regime. To the shame of previous Administrations, when the Competition Act comes into effect in March 2000, it will be the first time that the competition regulator will have the teeth with which to attack market abuses.
The Director General of Fair Trading has tried to foster constructive discussion in the industry on the handling of disputes between wholesalers and retailers. In October 1997, he hosted a meeting between representatives of petrol retailers, supermarkets and petrol wholesalers, to assess the scope for improving relations between retailers and wholesalers. That meeting fulfilled a commitment made to the Select Committee on Trade and Industry in December 1996, but it was not a success. As the hon. Member for Lewes properly noted, those retailers and wholesalers who were present seemed unwilling to agree, even in principle, to any acceptable code of practice. Nor were they prepared to take other action that might improve relations between the two sides. That is extremely regrettable. I make an undertaking to the Chamber today that, if the two sides wish to meet again to discuss seriously the possibility of signing up to a code of practice and are prepared to compromise where necessary, my Department will do everything possible to broker such a meeting.
Clearly, tensions between retailers and their suppliers are always likely to arise. Each side will always strive to gain more concessions than the other is prepared to make. That is particularly true of an industry in which 89WH margins are tight and competition is strong at all levels. It is not always possible quickly to induce a more constructive approach. We must remember that these undertakings have been in place since 1966. Since the mid-1970s, when price watch was introduced and supermarkets began to compete strongly, people have complained about the undertakings. Perhaps that was a coincidence, or perhaps the complaint is that competition has intensified and margins have reduced.
In conclusion, I shall address the extremely important issue of fuel in Northern Ireland, which is of great concern to those hon. Members who have spoken so eloquently on it. Treasury Ministers and Customs and Excise are aware of the illegal importation of fuel for resale into Northern Ireland, and recognise the associated problems. Since the beginning of 1998, Customs and Excise has seized 93 vehicles and 1.27 million litres of fuel, and has secured admissions of the smuggling of a further 30 million litres. Fifty-three people have been arrested, of whom 41 have been charged. Of those cases that have been completed, seven have led to prosecution and four to custodial sentences. I shall point out to my right hon. Friend the Secretary of State that hon. Members who have spoken today have asked that he meet representatives of petrol retailers in Northern Ireland. I undertake that, if he is unable to do so, I will meet those representatives. I shall travel to Northern Ireland soon to discuss carbon monoxide poisoning, and could meet them then.
Many hon. Members have spoken, but insufficient time prevents me from dealing with all the issues that have been raised. The hon. Member for Lagan Valley (Mr. Donaldson) made an important point when he said that there must be a way in which to combat the problem of significant price differentials across frontiers, and I agree that it should be regarded as a European Union-wide issue. Reference was made to a problem at the Dutch-German border, where the Dutch were subsidising petrol stations within 20 km of the border. They were taken to court by the European Commission on the grounds that such subsidies constituted unfair state aid. These are difficult problems, but I hope that we can discuss them with representatives of petrol retailers in Northern Ireland.
I sympathise with the hon. Member for Meriden, who put her case in an articulate and, as was noted, measured way. I am sure that we all share her concern for small petrol retailers. The same problem has arisen in my own constituency. However, we must look at the big picture—