Memorandum submitted by the Petrol Retailers
The Petrol Retailers Association (PRA) is a
major Trade Association within the Retail Motor Industry Federation
(RMIF). The Association represents the interests of 3,000 forecourt
retailers throughout the United Kingdom. The forecourt retailers
are independent of their motor fuels supplier.
The RMIF serves and represents businesses concerned
with all aspects of the retail motor industry products and services.
It aims to assist, support and promote members with the highest
standards of operation for the mutual benefit of themselves and
The RMIF is the lead body for the motor and
retail transport fuels industries whose combined total turnover
is in excess of £85 billion per annum, whose workforce numbers
700,000, and whose customers contribute £34 billion per annum
in motoring taxes, Excise Duty, and VAT.
The retail motor fuels industry in the UK is
conducted from approximately 12,500 service stations. Total litres
sold (petrol + diesel) from these outlets is circa 36 billion
litres per annum. The commercial fuels market adds a further 18
billion litres (petrol + diesel) to make the total road transport
fuels sector worth 54 billion litres per annum.
2. TAXATION (EG
Constant levels of taxation within a naturally
rising sequence of cost price, production cost and retail product
price present a minimal problem for any industrial sector. A sequence
that implies that profit margin also remains constant.
If any one of the cost elements rises without
the ability to recover equivalent amounts through the consumer
price, then the obvious implication for any industry is that it
is the margin that is reduced. In due course, the choice facing
the business is to either post a retail price that is not competitive
and lose units of sales or to reduce operational costs to lower
the retail price. Ultimately this may lead to both measures being
necessary, before a business fails and then closes, with all employees
being made redundant.
Within one market, or country, Small Medium
Enterprises (SMEs) are disadvantaged against larger competitors
in any scenario whereby industry margins are being squeezed by
constantly rising costs, as no economy of scale exists within
the business. In a pan European or worldwide business even large
corporations can be disadvantaged against equally sized foreign
competitors, when one element of their cost base is raised at
a rate ahead of companies located externally.
One such example of escalating cost increases
for UK based companies, is to be found in Excise Duty charged
on motor fuel purchases.
3. MOTOR FUEL
In 1990 the UK transport industry and motorists
paid Excise Duty at levels equal to, or below, most other countries
within the European Economic Community (EEC). In the Budget of
March 1993 the Fuel Escalator Clause was introduced and thereafter
Excise Duty was raised by 5 per cent in real terms until 1997.
In the years 1998 and 1999, duty rose by 6 per cent in real terms
(see annexe 1 & 2).
The effects are shown in the following tables:
|Pence per litre||1990
4. RETAIL PRICE
A comparison of retail prices of fuel within the UK (cost
price + Excise Duty + Value Added Tax + margins) during the same
10 year period, shows the following:
|Pence per litre||1990
See annexe 3 and 4 for comparisons in "real" terms.
5. EFFECT OF
The figures shown above demonstrate the fact that as a percentage
and therefore a constant figure for purposes of comparison, tax
has considerably outstripped the rise in retail price over the
10 year period. As the cost price of both petrol and diesel has
fallen in real terms during this time, it is therefore the margin
within the total industry that has fallen dramatically.
6. TAX AS
In order to compare the position of any UK registered companies
engaged in an industry with motor transport fuels as a business
cost, with other European based competitors, a graph (see annexe
5) has been produced.
This shows fuel tax, Excise Duty plus VAT, as a percentage
of the retail price over the same 10 year period. The UK, starting
from the lowest tax percentage of retail price, has overtaken
all other EEC Countries and today applies the highest retail price
and tax level.
With two adjoining countries sharing a land border, smuggling
of a single product group is likely to develop when price disparity
exists. Alternatively, cross border shopping develops as a practice
for suitably located residents of businesses. The only area of
the UK with another EEC Country joined is Northern Ireland, and
in that fuels market the practice of smuggling petrol and diesel
from the Republic of Ireland has eroded a significant part of
the legitimate industry.
The cause of the problem is due to the fact that the retail
price differentials are caused by considerably differing policies
to the application of Excise Duty. In the Republic of Ireland
duty levels have changed little over the 10 years 1990-2000. Currently
the equivalent pence per litre cost is (see annexe 6 and 7 for
In a five-year period from 1994 to 1999 annex 8 shows Department
of Trade and Industry produced figures, confirming that deliveries
of petrol and diesel have fallen by 52.79 per cent. Figures for
the second quarter will confirm that the loss has now risen to
over 55 per cent.
The smuggling of petroleum has many implications for the
economy of Northern Ireland, not least of which is the unchecked
development of a thriving illegal trade.
The Chancellor of the Exchequer loses a minimum
of £150 million per annum in lost revenue.
Operators of retail filling stations lose customers
and their business.
The consumer is unsure of product quality.
Residents in rural areas lose their retail facility
Fuel distribution businesses cease trading.
Transport companies buy their diesel in the Republic
Ultimately, the total logistical supply facility
for motor fuel provided by the major oil companies.
8. CLOSURE OF
It would not be true to say that forecourts in the UK have
closed at a rate of circa 1,000 per annum purely because of high
taxes on motor fuels. However, it is correct to state that it
has been a contributory factor of great significance.
A few major oil companies and the supermarkets dominate the
UK's retail fuels market. Rising taxation costs for those companies
is offset by the credit extended to the oil companies by HM Customs
and Excise before Excise Duty is payable on all litres delivered,
or by extended credit terms negotiated with the fuel suppliers
by the supermarkets. SMEs involved in purchasing motor fuels are
obliged to pay "cash on delivery".
Petrol retailers effectively perform as tax collectors for
the Exchequer, but receive neither a compensating salary nor indeed
any other financial payment. The cost to retailers of working
capital, bank charges and security systems has become a burden
too much to bear in many cases of enforced business closure. A
previous Government enquiry recommended an extension of the duty
credit period to the petrol retailer, as a way of offsetting unavoidable
costs, but this has not been implemented.
The permanent closure of a fuel forecourt gives rise to two
significant on-costs, staff redundancies and site clean-up costs
to meet environmental law requirements. The annual closure of
1,000 forecourts accounts for unemployment of between 7,000 and
10,000 individuals, and enforced land clean up can cost local
government many thousands of pounds per location if the failing
business is unable to discharge its responsibilities.
Annex 9 shows the decline in forecourt numbers in the UK.
Motorists in rural areas have suffered more than their urban peers
in the loss of a local forecourt. Recent effects of the September
fuel supply crisis shows that an acceleration of closures is beginning
9. SUMMARY AND
The PRA accepts that there is no simple way to address the
problems caused by rising motor fuel taxes over several years.
However, it is not just the retail fuels industry that has suffered
because of the UK levels of Excise Duty have risen sharply, doubling
in just seven years (1993-2000).
Industry across the UK has been disadvantaged when competing
in Europe, whenever road transport fuels have featured as a major
part of the cost. The UK consumer has paid more dearly for goods
and services than their European neighbours because of higher
retail fuel prices. And probably suffered greater effects of general
cost inflation than may have been necessary.
Rural motorists have paid the same high taxes to effect a
reduction in air pollution, despite being responsible for little
of current levels. More rural forecourts have closed because of
economic effects of a competitive industry and high costs of capital,
to fund purchase of fuel with circa 70 per cent tax contained
within the price. For rural motorists, the absence of an alternative
form of transport to the car has gone unnoticed by the Government.
The petrol retailers of Northern Ireland have suffered significant
financial loss, whilst unscrupulous individuals and organisations
involved in smuggling have been encouraged to prosper, by an inept
Government response to address the problems. The residents of
Northern Ireland have had to accept the loss of significant sums
from their local economy, for very similar reasons.
There is a compelling case for all UK residents and every
sector of industry to experience relief from forms of taxation
that have risen too high. Excise Duty, as a percentage of the
retail price of fuel must be reduced and urgent action taken by
Government, to address the means of achieving such changes in
the shortest time possible.
THE PRA PRESENTS
1. Cap Excise Duty and VAT collected from transportation
fuel retail sales within one tax year. By the introduction of
a variable link between retail fuel prices and actual collections.
2. Reduce VAT level for motorists or businesses located
in rural areas of the UK, or
3. Introduce Excise Duty rebate for all classes of transport
in rural areas.
4. Progressively, introduce Excise Duty rebate for hauliers,
based on a "basket" of four other countries.
5. Introduce Vignette for all trucks using UK highways,
with qualification rebate for UK registered vehicles.