Examination of Witnesses (Questions 60
TUESDAY 31 OCTOBER 2000
60. That will have an impact on your profits?
It will have an adverse effect on your profits?
(Mr Brinded) There is also the situation that prices
were kept low during the period of the recovery. I think that
is well known.
61. Presumably if prices are reduced this means
that the fuel duty is reduced, that impacts benignly on your cash
flow to a degree. Presumably it gives you some saving because
of the improved cash flow that you have because you pay it so
early. Your cash flow would be improved if a fuel duty were to
be reduced. Would that enable you to pass on some of that saving
to the public over and above the actual duty reduction?
(Mr Jones) I think there are certainly some marginal
savings, as you say. Again, when you look at the enormous number
of litres that we deliver and those effects, you are talking about
small percentages of a penny.
62. Cumulatively here we are, 72p of every litre
is tax and you are paying that, you are the people who pay it
(Mr Jones) No.
63. That must impact on your cash flow.
(Mr Jones) No. Clearly your point is well taken. It
is a very competitive industry. It is a very efficient industry.
Our experience has been that generally savings that the industry
as a whole incur are quickly passed on to the consumer.
(Mr Codd) The perverse negative effect of a reduction
in duty is if it goes straight through to the pump then all the
stock in the terminals on which we have paid duty at a higher
rate we take a loss on. It depends how the market reacts at the
pump as to whether it is as benign as you say.
64. If it is five or six days of difference,
you are still going to be able to have a wee bit of an advantage
over your enemies in the supermarkets, are you not?
(Mr Codd) Five or six days?
65. If you can carry five to six days of supply
in a filling station and we have a cut in duty taking immediate
effect within five or six days you will be in a position to reduce
your price. Even then you will still have a number of days after
that before the supermarkets can reduce their prices because they
pay their duty some time later.
(Mr Codd) I would argue the converse. It is not just
the five days in the filling station, we also pay duty on the
stocks held in the terminal. We have already paid duty at the
66. Every time we have had an increase you have
done well because you have put the price up at the pump straight
away. You pay the lower rate of tax but the price at the pump
goes up almost immediately.
(Mr Codd) It depends how the market reacts.
67. You have done well out of the increases.
(Mr Codd) It varies from year to year.
68. You do badly or you do well?
(Mr Codd) Sometimes there is a benefit.
69. In recent years the tax has always gone
up. You cannot really say that in the last four or five years
since the Tories introduced the fuel escalator that you have suffered
as a consequence of this surely?
(Mr Codd) No, we do not suffer, but it depends how
quickly the pump price reflects the duty increase.
70. You do not seem to be very slow in putting
the pump prices up as far as I can recall.
(Mr Codd) It is a perception.
Chairman: Based on hard evidence of a sore pocket
71. My question is this. I appreciate we are
almost at a close. Small petrol retailers, the independents, feel
that generally you do not play fair by them, that basically you
carve up the industry, that you do deals with the large petrol
distributors and petrol stations and that the small independents
rather get squeezed by all this. As the independents tend to be
more in the rural areas this is a sort of double whammy so far
as the rural areas are concerned. Is there any particular reason
why they cannot be treatedI appreciate to a certain extent
it is market forcesthe same as others?
(Mr Mumford) I would argue that they are treated the
same as others. The price of fuel delivered into their tanks is
the same as the price of fuel delivered into the larger petrol
station tanks, the only difference is that for some remote service
stations the distance the petrol tanker has to go and also the
size of the load means that the delivery economics are not as
good. We are talking differentials of maybe one, or at the most
maybe two pence per litre as a result of that. I think the major
impact there is actually the economics of the rural petrol station
72. What about volume discounts, do you offer
those as well?
(Mr Mumford) No. There is a graduated scale on the
amount that is delivered which is to do with the economics of
running the truck. If you run the truck only part full then obviously
it costs more per litre delivered. That is the only impact.
73. Two pence per litre would have a big impact
on the price at the pump in terms of a disincentive to customers
to buy there.
(Mr Mumford) What I am suggesting to you is that there
is a cost differential which is at most tuppence per litre but
for most of these rural stations it is less than that.
74. Given the profits you are making around
the network generally, the profits of the large motorway service
stations, where I suspect the profits are not just profits from
petrol but also profits from selling Mars bars and so on, it would
be a small price to bear to ensure that more remote petrol filling
stations around the country in the more rural areas do not have
to have a one or two pence premium on the price of the petrol
they serve at the pump?
(Mr Mumford) It is not a premium, it is a reflection
(Mr Brinded) I think the major issue around rural
sites is their own throughputs and their own costs. Amortising
those costs over the volume that goes out, that then leads to
the differential with the big stations in town and you then see
changes in rural buying where they go to town for the weekly stock
up of both food and petrol and that then squeezes the local stations
even further. I think we have all tried to address how we can
provide ways of keeping rural stations open, particularly in the
North of Scotland, where I live, I am very pleased that we have
been able to do that and actually expand the number of rural stations
through our partnership with Gleaners.
75. Would it be right to say, and let me move
on from prices on this point, you guys are never going to win?
I know from bitter experience that just outside your Grangemouth
refinery there is a petrol station whose prices are always very
high, they are certainly higher than most of the other ones around
about. There can be no arguments about delivery, no arguments
about throughput or things like that. I suppose there is a case
for that particular station charging more than the Shell one up
the road or the other BP one in Cargenbridge. You set your prices
in some cities less than others, regardless of delivery distance.
You do it because there is a supermarket nearby that is skinning
you at every turn.
(Mr Mumford) I worked at Grangemouth for many years
and I used to walk past that service station on the way to work.
76. Maybe if you had driven there and bought
(Mr Mumford) There is not a logical answer to this,
it is all down to market forces. In some places there is a lot
of competition and it drives the prices down.
77. Can I raise the issue of flagging out whereby
UK hauliers register their vehicles in other European states in
order to benefit from lower duties, such as Vehicle Excise Duty,
and perhaps reducing the purchase of diesel in the UK by crossing
to the continent to buy fuel. There is also an issue with fuel
coming via the Republic of Ireland. If more UK hauliers were to
register abroad and/or fill their vehicles abroad, would that
affect your business? Because you are global companies are you
not affected by national patterns of fuel consumption?
(Mr Mumford) I think one area where we have seen this
as an issue is Northern Ireland where we have seen substantial
movement of trade from the North to the South.
78. In fact your submission mentions that, BP.
(Mr Mumford) Yes. In fact I note the debate which
took place in the Northern Ireland Assembly on this subject. I
have a copy of Hansard here and I think it expresses the
issue extremely well. There are a lot of concerns there.
(Mr Polkey) I think it is a very real issue where
there is a border and very marked differences between the duty
rates. Certainly I agree our business in Northern Ireland is finding
it very difficult at the moment. Ironically if you go back ten
years it was the other way round.
(Mr Jones) I just want to thank you for defining flagging
(Mr Codd) We are not globally indifferent. If you
are talking about the French position versus the position of the
UK, we have no filling station in France so if they fill up in
France we are net losers on that business.
79. You have not noticed any effect?
(Mr Codd) It is difficult to measure but clearly if
that is happening and people are buying diesel in France as opposed
to the UK we, for one, are net losers.