Select Committee on Trade and Industry Minutes of Evidence

Memorandum submitted by BP Oil UK


  1.  BP is the United Kingdom's second largest retailer of petrol and lubricants in the United Kingdom. Our market share is some 18 per cent, and there are around 1,528 branded sites within the United Kingdom. Some 800 of these are company owned. We have two main refineries—Grangemouth in Scotland and Coryton in Essex—and 13 terminals.

  2.  The levels of Motor Fuel Taxation decided upon by Her Majesty's Government obviously have an immediate and direct effect upon our customers. But with some exceptions relating to our own use of fuel (para 7), the location of duty points (para 8) and the illegal sale of fuel oils in Northern Ireland (para 9), these levels do not directly affect the competitive position of retailers such as ourselves. Neither do they appear to have much effect on the total quantity of fuel purchased and consumed by our customers.


  3.  As has been often remarked, prices of motor fuel in the United Kingdom are amongst the lowest in Europe before tax. In addition, the competitiveness of the fuel market has regularly been confirmed by inquiries undertaken by the Office of Fair Trading. However, excise Duty and VAT account for some three quarters of the pump price and it is understandable that consumer attention has increasingly focused on this aspect.

  4.  BP has never commented upon the level of duties within the UK—although we have referred to some of the general characteristics of motor fuel taxation when addressing the broad principle of environmental or "green" taxes. We have observed, for example, that governments are apparently driven more by revenue than environmental objectives when setting the level of fuel duties. We have also questioned the environmental efficacy of motor fuel taxes, mainly because they have so little effect on consumer behaviour. They may have helped to encourage more efficient vehicles or smaller cars—but otherwise, the lack of real alternatives and the importance of the motorcar in modern life has left consumers with little option but to pay whatever tax is levied by government.

  5.  We have never challenged the right of governments to tax our products, and would not seek to do so. We have, however, argued how easy it is for "green" taxes to be badly constructed and wrongly targeted: and taxes on petrol and diesel are liable to fall into this error. On the other hand, tax incentives can have a useful role in encouraging the early introduction and use of "Cleaner Fuels". We are already committed—in alliance with the motor industry—to helping our consumers reduce their fuel consumption, through greater energy efficiency and better engine design. We see a competitive advantage in doing so.


  6.  Notwithstanding the above, there are three specific instances where the existence and level of fuel taxes has a limited impact on our business.

  7.  The first concerns the amount of fuel consumed by our own vehicles, upon which we too pay duty. The BP UK delivery fleet (including our contractors) uses 15 million litres per annum which costs us in duty terms £7.5 million plus VAT (which we are able to recover). Additionally, we pay duty on product which is either "lost" (eg through evaporation), stolen (the number of illegal "drive-aways" increase as prices rise), or through measurement-variations.

  8.  The second area where the level of duty affects our business is related to the geographic point at which duty is levied. Since the mid eighties, duty has been levied in the United Kingdom at the refinery gate as opposed to the terminal gantry. The original purpose for this change was to reduce the administrative costs incurred by Her Majesty's Customs & Excise. It is questionable whether this is any longer valid—indeed, the new system causes numerous bureaucratic issues with Customs and Excise which other EU countries do not face. Equally, the current arrangement places the UK downstream industry at a competitive disadvantage compared to the rest of the EU since all the fuel held at UK terminals is duty paid (whereas elsewhere the duty is paid only when the fuel is loaded into the tanker and as it leaves the terminal). The logic of this tax distortion—which causes a fourfold increase in tied-up working capital—is to discourage stockholding in UK terminals, and maximise stockholding in refineries. Apart from the competitive implications, this can also have a negative environmental effect, because it leads to longer journeys, and more road use. Competition within the UK is also distorted, since importers do not pay duty on product held in coastal terminals. The UK is unusual in restricting duty-suspension movement between tax warehouses within its own territory.

  9.  The third main area of concern related to duty concerns the illegal sale of fuel oils in Northern Ireland. Because of the differing rates of duty, there is a very large price differential between Northern Ireland and the Republic of Ireland. Large amounts of pirate loads of fuel are frequently transported over the border from Southern Ireland, and can be sold at some dealerships at lower prices than regular product. Differentials have been as high as 29 pence per litre for diesel and 21 pence per litre for unleaded fuel. The smuggling which is taking place is a serious source of unfair competition to our BP branded sites, and they have lost significant amounts of business. Our company is losing revenue, as is the Government from lost duties. Any increase in duty obviously increases the attraction of this illegal activity, and the problem has been exacerbated in recent years as the duty differential has increased.


  10.  Many practical lessons have been learnt from the recent fuel dispute, and new vulnerabilities have been discovered, the full extent of which was probably not fully appreciated before.

  11.  It is important, however, to distinguish between the fundamental realities and these new realisations. During the last dispute, BP had—even at the height of the blockade—25 per cent of our drivers on the road. We had no instance of a driver refusing a request to drive, given adequate police protection. There were plenty of examples of terminals remaining open throughout the blockade. But the fact remains that under the Health and Safety Act 1974—and given the basic requirements of Employment legislation—it was (and continues to be) impossible to oblige any member of our staff to undertake an activity which could reasonably be judged as unsafe. Government would have had to have suspended existing legislation for such a course to have been "legal"—and even then, it would have been unthinkable under our own policies. The provision of police protection was absolutely critical in providing assurance on safety. From this, it should be apparent that the level of motor fuel taxation had no bearing whatever upon our drivers' willingness to drive, or upon our management's resolve to make as many deliveries as possible.

  12.  The additional measures which have since been agreed under the auspices of the Government's Fuel Supply Task Force would under future similar circumstances improve co-ordination between the police, government, unions and industry; it would be easier to supply essential needs; but safety considerations remain paramount. So far as the level of motor fuel taxation is concerned, it looks as if its crucial effect could be upon the resolve of the protesters to maintain any future blockade, and upon whether or not the general public would be prepared to lend its support to such action.


  13.  The level of duty is clearly a major consideration for many of our customers. But our own experience is that—while higher rates of duty cause some minor and specific disadvantages to BP's refining and marketing business—there is no evidence to date that our overall level of sales is affected by the amount of duty imposed.

25 October 2000

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