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Mr. Charles Kennedy: The Minister did not get the Tory nomination in any of those places.
Mr. Taylor: No, I did not, to my lasting shame. It is hard to repair my frailty and inadequacy in that regard, and it is extremely uncomfortable to be reminded of my failures in such a public forum.
The grandeur of Scotland is matchless, and remoteness is a part of it, but it is also also part of the problem of petrol and petrol pricing. If I fail to answer any of the points that the hon. Member for Argyll and Bute raised so gracefully in her eloquent speech, I invite her to meet me, and perhaps she would write to me to let me know the key points on which she would like further comment.
The hon. Member spoke about the need for an MMC investigation into petrol supplies in the highlands and islands. As she knows, the commission reported on the supply of petrol by wholesale in the United Kingdom in February 1990. It examined petrol prices in the highlands and islands in detail, as an example of the problem of
petrol prices in rural areas. The MMC found that average prices in the highlands and islands were higher than in the rest of the United Kingdom, and higher than in the rest of Scotland.
It has been argued that customers are paying high prices for petrol because of lack of competition. It is true that petrol stations are not thick on the ground in the highlands and islands, and the nearest competitor to every station may be some distance away. However, a number of factors may contribute to the higher prices for petrol in the highlands and islands than elsewhere in Britain.
The MMC concluded that the higher prices charged in the highlands and islands were primarily the result of loss of economies of scale, which resulted from low turnover at individual petrol stations, which itself resulted from low population density. The average site volume in the highlands and islands was about one fifth of the United Kingdom-wide average.
Fixed costs spread across low volumes of sales tend to mean that higher prices for individual sales must be achieved if outlets are to make a profit or break even. Therefore, their profits may be the same as, or even lower than, outlets in other areas, despite the fact that their prices may be higher. Higher costs of transport to remote locations and less intense competition at both wholesale and retail level are additional factors. The Monopolies and Mergers Commission found no evidence that wholesalers were making excessive profits from sales.
The hon. Lady will be aware that, under the competition legislation, responsibility for considering and, if appropriate, investigating allegations of anti-competitive behaviour or abuse of monopoly power lies with the Director General of Fair Trading, John Bridgeman. It is for the director general to consider whether the situation warrants a reference to the Monopolies and Mergers Commission. The independence of the director general is a fundamental part of our competition framework.
The Office of Fair Trading has been keeping the supply and pricing of petrol under review, and has been investigating individual complaints about petrol pricing in the highlands and islands. It has found no evidence that the conclusions reached by the Monopolies and Mergers Commission in 1990 no longer hold good.
Madam Deputy Speaker, you may be aware that the Director General of Fair Trading gave written evidence to the Trade and Industry Select Committee hearing on petrol pricing on 26 June. He reported that he had looked into recent developments in petrol retailing, including Esso's "Price Watch" campaign, and had found that price competition was strong but not predatory. Furthermore, he considered that consumers were benefiting from cheaper petrol prices as a result of this competition between the oil majors and the supermarkets. However, if the hon. Lady or any other hon. Member has evidence of anti-competitive practices by petrol retailers or wholesalers in the highlands and islands, I urge them to bring it to the attention of the Office of Fair Trading.
In recent years, there has been a widening of the retail price differential. It has been suggested that this is because the MMC was given misleading information about the price of petrol in the highlands and islands during its investigation, and that this should be investigated. I have
not seen sufficient evidence to justify any such review. Rather, the widening of the retail price differential reflects the fact that prices have been falling in urban areas as a result of increased competition between the large oil companies and the supermarkets.
It is undeniable that price competition in petrol retailing is very keen at the moment. This is particularly true in areas of high outlet concentration, where the major oil companies and the supermarket-owned petrol stations are competing for market share--this is particularly true in the suburban part of the west midlands that I represent. This has resulted in the bottom of the price range being pushed down, rather than the top of the price range being pushed up.
Oil suppliers already give support to retailers through solus-tie agreements. This is an exclusive contract between the retailer and petrol supplier, usually for five years, which gives the retailer various advantages--ranging from help with infrastructure costs, guaranteed supplies of petrol, advantages from marketing under a brand name, and financial incentives. There are other incentives, including the retailer receiving advice on environmental issues and improvements to the retail outlet.
Other types of contract are available to the retailer, such as licenses and franchises, each giving different advantages and flexibilities. Some retailers may decide not to have any contract at all, preferring instead to negotiate with suppliers as and when they require deliveries. It is for individual retailers to decide what type of contract they want, and to negotiate with oil suppliers accordingly.
It has been suggested that petrol retailers in the highlands and islands might be subject to lower rates. The hon. Lady will no doubt be aware that the Scottish Office published a consultation paper about a business rates relief scheme for village shops on 7 June 1996.
The paper proposes that certain small general stores and post offices in rural villages will in future be entitled to at least 50 per cent. relief on their rates bills, and local authorities will be able to top this up to 100 per cent. In addition, local authorities will have wide discretionary powers to grant relief to other rural shops and businesses that are of benefit to the rural community. It will be for individual local authorities to determine whether independent rural petrol stations fall into this category.
I understand that many petrol stations in the highlands and islands are a number of years old, and the costs of replacement and upkeep will be high. Outlets may need to be upgraded to offer additional services, to keep existing customers or to attract new customers. Improvements must be made to comply with health and safety, and environmental, regulations. For example, the European Community directive on the recovery of petrol vapour during the storage and distribution of petrol requires outlets to have their pipework modified to minimise pollution by petrol vapours.
However, the directive applies only to outlets with a throughput of more than 100,000 litres of petrol per year. Also, it is possible to provide exemptions for outlets with a throughput of up to 500,000 litres per year in areas where emissions are unlikely to contribute significantly to environmental and health problems. The requirements of the directive do not apply to existing stations below 500,000 litres a year until 2004 and we would expect the exemptions to cover a large percentage of petrol stations in the highlands and islands.
There is a Health and Safety Executive requirement that storage tanks be tested after 20, 25 and 30 years, and biennially thereafter. There is a fee for the testing, and tanks that fail will have to be improved or replaced. As I mentioned earlier, fuel suppliers may well be able to offer financial assistance to their retailers for infrastructure improvements.
It has been reported in the press that the metrication changes that took place last October have imposed significant costs on petrol stations that sold petrol by the gallon. I understand that a large proportion of the costs referred to in press reports are probably related not to metrication but to the necessary upgrading of petrol stations to meet safety standards, which I mentioned earlier. The cost of converting a petrol pump from imperial to metric can be relatively modest--in most cases, I understand that it should not exceed £1,000. My Department has ensured that advice on conversion is made available through the National Weights and Measures Laboratory.
The hon. Lady has called for public sector support for investment in petrol station infrastructure. I do not see this as a workable proposal. If rural petrol stations were given special treatment, why not rural shops or rural pubs? Where would we stop? The money would have to come from somewhere, and the generality of taxpayers would have to pay.
However, the recently created Scottish rural challenge fund offers £500,000 to promote and support innovative new projects that would make a significant impact on particular social and economic problems in rural areas. This could include projects such as community petrol stations offering significant benefits to the local area.
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