Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 195 - 199)




  195. Mr Holloway, would you care to introduce your colleagues and then we shall get started?
  (Mr Holloway) My name is Ray Holloway. I am the Director of the Petrol Retailers Association. On my left is Mr Gilbert Jenkins. Gilbert is an oil industry analyst and therefore works as a consultant to the Petrol Retailers Association. On my far right is Mr Nick Brocklehurst. Nick is actually a petrol retailer, having a business based in Northampton. On my immediate right is Mr Peter Barlow. Peter is Health and Safety Adviser to the Retail Motor Industry Federation.

  196. We have already had the oil companies and we have been talking to them about the impact of taxation they perceive on their sales. What I should not like to do today is to stray into areas of the contractual arrangements which you have as petroleum retailers with the oil companies. We have had a kick at that ball before and the OFT are looking at it so I would rather not stray down that road this morning. Can you give us any indication whether you are selling less fuel than before, given the increases in taxation? How elastic is the demand for petrol?
  (Mr Holloway) Let us talk about the total market. We are not in an industry which has grown for a number of years. It has been a fairly static demand and in fact falling ever so slightly as engines become more efficient; that applies to both petrol and diesel. Of course we have had product switch from petrol to diesel as well. In the current year there is an increase in demand overall. The first seven months of this year saw an increase for petrol of broadly five per cent and diesel somewhere round about two per cent. The market this year has actually grown ever so slightly. The problem in our industry in terms of the average volumes is of course the way that the industry is structured. The industry is structured basically with three main players. One is obviously the major oil companies, followed by second tier oil companies, then the independents who own the filling stations but choose to brand with a particular fuel. The hypermarkets make up the last part of the retail market. In the commercial market then there are bulk buyers. They buy either from an oil company directly or indeed from one of the regional distributors to whom refiners in the UK supply. That is broadly the structure of the total market. How the individual players then conduct their business obviously creates the environment where taxation becomes a feature. Rising taxation and a competitive industry are having really rather a sandwich effect on a particular sector. Undoubtedly the fact is that in an industry where tax makes up something round about three quarters of the retail pump price and a competitive market where you have very large players then you can of course achieve the ultimate which is margin squeeze and therefore market restructuring, switch of business. That is the principal problem we have with taxation. Rising taxation for the independent retailer comes about because effectively petrol retailers act as unpaid tax collectors. When tax is a very small percentage of the price, it really has little effect. But taxation on motor fuel has actually doubled in just seven years, at a time when in fact margins in the industry have gone the other way and are less than half today what they were seven years ago. We do have a critical interest in taxation because it increases costs in terms of rising working capital costs, in the way that the industry works where broadly three quarters of the sales are through credit cards and credit card costs are based on a percentage of the retail price. In a diminishing margin environment there are rising costs which come from funding the business and indeed from trading through the credit card line.
  (Mr Brocklehurst) Certainly over the last three years it has been increasingly affecting petrol retailers where the cost of the product has risen and the margins have been fixed, in some cases contractually, but have generally fallen over the last few years. It has substantially affected the cash flows, insurance costs, cash handling costs, Securicor costs; all these have increased and the retailers' margin has fallen. A recipe for disaster.

  197. You sell petrol and diesel and perhaps now LPG but we will not discuss that because it is still early days. Let us take just petrol and diesel. Have you noticed any difference in the responsiveness of consumers of these two fuels to tax rises?
  (Mr Brocklehurst) Traditionally motorists have always driven looking for the cheapest fuel, never more so than now. Sometimes it amazes me. They will drive for one pence/litre or whatever. Yes, they are very keen to save on their own expenses whether it is a company vehicle or a private motorist. Is that what you mean?

  198. No, I was really talking about the impact of the increase in taxation on petrol as against diesel. Have the people who use either fuel behaved in different ways or has the response been the same?
  (Mr Brocklehurst) Diesel is often more expensive than 95 octane unleaded petrol now. It is basically the same. You do not want to talk about LPG but there is a trend obviously to look for cheaper fuel.

  199. At the moment the availability of LPG is fairly limited still.
  (Mr Brocklehurst) At the moment but it is increasing.

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