Submission by BP to Trade and Industry
Select Committee as part of its inquiry into The Impact on Trade
and Industry of Motor Fuel Taxation
1. BP is the United Kingdom's second largest
retailer of petrol and lubricants in the United Kingdom. Our market
share is some 18 per cent, and there are around 1,528 BP branded
sites within the United Kingdom. Some 800 of these are company
owned. We have two main refineriesGrangemouth in Scotland
and Coryton in Essexand thirteen terminals.
2. The levels of Motor Fuel Taxation decided
upon by Her Majesty's Government obviously have an immediate and
direct effect upon our customers. But with some exceptions relating
to our own use of fuel (para 7), the location of duty points (para
8) and the illegal sale of fuel oils in Northern Ireland (para
9), these levels do not directly affect the competitive position
of retailers such as ourselves. Neither do they appear to have
much effect on the total quantity of fuel purchased and consumed
by our customers.
THE UK FUEL
3. As has been often remarked, prices of
motor fuel in the United Kingdom are amongst the lowest in Europe
before tax. In addition, the competitiveness of the fuel market
has regularly been confirmed by inquiries undertaken by the Office
of Fair Trading. However, excise Duty and VAT account for some
three quarters of the pump price and it is understandable that
consumer attention has increasingly focused on this aspect.
4. BP has never commented upon the level
of duties within the UK - although we have referred to some of
the general characteristics of motor fuel taxation when addressing
the broad principle of environmental or "green" taxes.
We have observed, for example, that governments are apparently
driven more by revenue than environmental objectives when setting
the level of fuel duties. We have also questioned the environmental
efficacy of motor fuel taxes, mainly because they have so little
effect on consumer behaviour. They may have helped to encourage
more efficient vehicles or smaller carsbut otherwise, the
lack of real alternatives and the importance of the motorcar in
modern life has left consumers with little option but to pay whatever
tax is levied by government.
5. We have never challenged the right of
governments to tax our products, and would not seek to do so.
We have, however, argued how easy it is for "green"
taxes to be badly constructed and wrongly targeted: and taxes
on petrol and diesel are liable to fall into this error. On the
other hand, tax incentives can have a useful role in encouraging
the early introduction and use of "Cleaner Fuels". We
are already committedin alliance with the motor industryto
helping our consumers reduce their fuel consumption, through greater
energy efficiency and better engine design. We see a competitive
advantage in doing so.
6. Notwithstanding the above, there are
three specific instances where the existence and level of fuel
taxes has a limited impact on our business.
7. The first concerns the amount of fuel
consumed by our own vehicles, upon which we too pay duty. The
BP UK delivery fleet (including our contractors) uses 15 million
litres per annum which costs us in duty terms £7.5 million
plus VAT (which we are able to recover). Additionally, we pay
duty on product which is either "lost" (eg through evaporation),
stolen (the number of illegal "drive-aways" increase
as prices rise), or through measurement-variations.
8. The second area where the level of duty
affects our business is related to the geographic point at which
duty is levied. Since the mid eighties, duty has been levied in
the United Kingdom at the refinery gate as opposed to the terminal
gantry. The original purpose for this change was to reduce the
administrative costs incurred by Her Majesty's Customs & Excise.
It is questionable whether this is any longer validindeed,
the new system causes numerous bureaucratic issues with Customs
and Excise which other EU countries do not face. Equally, the
current arrangement places the UK downstream industry at a competitive
disadvantage compared to the rest of the EU since all the fuel
held at UK terminals is duty paid (whereas elsewhere the duty
is paid only when the fuel is loaded into the tanker and as it
leaves the terminal). The logic of this tax distortionwhich
causes a fourfold increase in tied-up working capitalis
to discourage stockholding in UK terminals, and maximise stockholding
in refineries. Apart from the competitive implications, this can
also have a negative environmental effect, because it leads to
longer journeys, and more road use. Competition within the UK
is also distorted, since importers do not pay duty on product
held in coastal terminals. The UK is unusual in restricting duty-suspension
movement between tax warehouses within its own territory.
9. The third main area of concern related
to duty concerns the illegal sale of fuel oils in Northern Ireland.
Because of the differing rates of duty, there is a very large
price differential between Northern Ireland and the Republic of
Ireland. Large amounts of pirate loads of fuel are frequently
transported over the border from Southern Ireland, and can be
sold at some dealerships at lower prices than regular product.
Differentials have been as high as 29 pence per litre for diesel
and 21 pence per litre for unleaded fuel. The smuggling which
is taking place is a serious source of unfair competition to our
BP branded sites, and they have lost significant amounts of business.
Our company is losing revenue, as is the Government from lost
duties. Any increase in duty obviously increases the attraction
of this illegal activity, and the problem has been exacerbated
in recent years as the duty differential has increased.
10. Many practical lessons have been learnt
from the recent fuel dispute, and new vulnerabilities have been
discovered, the full extent of which was probably not fully appreciated
11. It is important, however, to distinguish
between the fundamental realities and these new realisations.
During the last dispute, BP hadeven at the height of the
blockade25 per cent of our drivers on the road. We had
no instance of a driver refusing a request to drive, given adequate
police protection. There were plenty of examples of terminals
remaining open throughout the blockade. But the fact remains that
under the Health and Safety Act 1974and given the basic
requirements of Employment legislationit was (and continues
to be) impossible to oblige any member of our staff to undertake
an activity which could reasonably be judged as unsafe. Government
would have had to have suspended existing legislation for such
a course to have been "legal"and even then, it
would have been unthinkable under our own policies. The provision
of police protection was absolutely critical in providing assurance
on safety. From this, it should be apparent that the level of
motor fuel taxation had no bearing whatever upon our drivers'
willingness to drive, or upon our management's resolve to make
as many deliveries as possible.
12. The additional measures which have since
been agreed under the auspices of the Government's Fuel Supply
Task Force would under future similar circumstances improve coordination
between the police, government, unions and industry; it would
be easier to supply essential needs; but safety considerations
remain paramount. So far as the level of motor fuel taxation is
concerned, it looks as if its crucial effect could be upon the
resolve of the protesters to maintain any future blockade, and
upon whether or not the general public would be prepared to lend
its support to such action.
13. The level of duty is clearly a major
consideration for many of our customers. But our own experience
is thatwhile higher rates of duty cause some minor and
specific disadvantages to BP's refining and marketing businessthere
is no evidence to date that our overall level of sales is affected
by the amount of duty imposed.