Select Committee on Trade and Industry Minutes of Evidence


Memorandum submitted by the British Retail Consortium

THE IMPACT OF CURRENT LEVELS OF MOTOR FUEL TAXATION ON THE COMPETITIVENESS OF UK ENTERPRISES; A VIEW FROM THE RETAIL INDUSTRY

  BRC welcomes the opportunity to submit written evidence on this subject. BRC represents 90 per cent of the total retail trade in the UK, operating in excess of 320,000 shops and stores, occupying over 30 per cent of commercial property portfolio by floor space. Retailing is a significant part of the economy, accounting for 10 per cent (2.4 million employees) of all employment and 26 per cent of GDP by expenditure.

  Membership covers all forms of retailing, from the large multiples and department stores, through to the corner shop, from food and drink to furniture and DIY, from centre of town to rural, to mail order and electronic commerce.

  Retailing is a major engine of employment growth in the economy, creating 58,500 new jobs (41,400 of them being full-time positions) during 1999.

  UK retail is highly competitive as shown by the intense pressure on prices. Prices of retailed goods have fallen year-on-year in 16 of the last 17 months, according to BRC's Shop Price Index. The retailed goods element of the RPI showed prices in the shops fell by 0.2 per cent year-on-year to September. This has occurred within an environment of continual product and store improvements and innovation. Recent research conducted for BRC, again by London Economics, has put a value on the benefits flowing to consumers as a result of this investment. London Economics calculated that consumers benefited by around £18 billion over 10 years as a consequence of the resulting increased efficiency of retailing.

  The retail industry is almost totally dependent on the road infrastructure given the complexity of the retail supply chain, the time sensitive nature of many (especially food) products, and the absence of any plausible alternative to road transport, with very few exceptions.

  It is extremely difficult to isolate the direct impact of motor fuel taxation on the competitiveness of UK retailing as so many cost factors and operating criteria need to be taken into account. What is clear, however, is that road transportation costs are placing additional burdens on an industry which is already highly cost conscious and under pressure to keep prices low. Without an adequate margin, it is difficult to invest for the future.

  However, BRC has been concerned for some time at the range of operating costs, whether incurred as a result of legislation or market inertia, which differ significantly from those experienced in other European Union countries. Many of these costs are accentuated for the retail industry because of our dependence on road transport, high property occupancy and the labour intensive nature of retail. Data from ONS demonstrates the scale of the cost of bought in road transportation services for retailers, over £2 billion in 1998. In addition to this, many retailers maintain their own delivery fleets.

  These costs are principally fuel duty and Vehicle Excise Duty for HGVs, which at nearly £4,000, is nine times higher than in France and 13 times higher than in Spain. Again, to illustrate the scale of costs involved, one major retail company faced an additional £1 million resulting from the increase in fuel duty announced in the March 1999 Budget. In all, businesses have faced a near one-third increase in fuel duties over the past three years. Diesel duty in the UK is now over double the EU average. Figures as at 25 September this year show that 1,000 litres of diesel in the UK cost £820.14; compared with an EU average of £552.36.

  In the European countries under consideration in the second Department of Trade and Industry International Price comparisons study, the duty and selling prices were as shown in the table below. Retailers cannot be expected to charge similar prices for goods as other countries when their costs of getting goods to the stores is so much higher.

EU Member State
Duty on 1,000 litres of diesel in £
Total selling price (including VAT) per 1,000 litres
United Kingdom
488.20
820.14
Sweden
208.37
592.60
France
220.90
551.48
Germany
228.07
543.08
Spain
162.67
433.81


  Source: Freight Transport Association, 25 September 2000.

  Retailers are also major operators of car and light van fleets, so face increased costs from duty on petrol.

  BRC commissioned research from London Economics to assess the factors that underpin price differences between countries. Although this work was designed to accompany the first DTI International Price Comparisons exercise, the findings are useful in exploring some of the operational cost factors.

  London Economics found that UK post tax diesel prices were over three times those faced by US retailers. They also identified other costs, where the UK faced a disadvantage, such as in remote locations—the cost for freight of ferries to the Scottish islands, Vehicle Excise Duty and the costs associated with delays and inefficiencies resulting from congested transport links.

  Retailers are major operators of commercial vehicle fleets, or have contracted out these operations (fully or in part) to third party operators. According to the 1998 McKinsey report "Driving Productivity and Growth in the UK Economy", UK food retailers have "defined global best practices in logistics". Retailers have made this investment to gain efficiencies. Their cost advantage from such investment is eroded by the cost disadvantage they face in terms of higher fuel duty.

  Much of the added cost has resulted from the taxation of motor fuel on environmental grounds. However, duty increases on their own, without the provision of alternatives, represent a limited and blunt instrument with which to combat congestion and environmental pollution.

  BRC would like to see greater encouragement of innovation in vehicle design and efficiency. This might have a greater tangible impact on environmental standards over time. In fact, the overall number of vehicle movements is declining with the use of "just in time" deliveries and better logistics management. Business efficiency and better vehicle design and operation will yield some significant improvements. BRC considers that this should be an important direction of Government policy.

  In conclusion, UK retailing is already highly competitive, delivering choice and value for consumers. However, higher operating costs, particularly compared with EU competitors, and the use of fuel duties as an environmental measure are all causing damage. The scale of this damage is hard to quantify, but at the current level the cost of fuel and the duty payable can only be to the detriment of our industry and the customers who depend upon us.

October 2000


 
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