Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 60 - 79)



  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 first.
  (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 higher rate.

Mr Butterfill

  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 perhaps.

Mr Baldry

  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 treated—I appreciate to a certain extent it is market forces—the 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 itself.


  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.

Mr Baldry

  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 of cost.
  (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 petrol—
  (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.

Ms Perham

  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 out.
  (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.

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