Select Committee on Trade and Industry Minutes of Evidence

Memorandum submitted by the Petrol Retailers Association (PRA)


  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 their customers.

  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.


  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.


  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
Unleaded Petrol


  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
Unleaded Petrol

  See annexe 3 and 4 for comparisons in "real" terms.


  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.


  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 history):

Unleaded Petrol

  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 (forecourt/shop/bank/etc).

    —  Fuel distribution businesses cease trading.

    —  Transport companies buy their diesel in the Republic of Ireland.

    —  Ultimately, the total logistical supply facility for motor fuel provided by the major oil companies.


  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 once again.


  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.


  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. Example: Portugal.

  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.

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