Memorandum submitted by the British Retail
OF UK ENTERPRISES;
A VIEW FROM
BRC welcomes the opportunity to submit written
evidence on this subject. BRC represents 90 per cent of the total
retail trade in the UK, operating in excess of 320,000 shops and
stores, occupying over 30 per cent of commercial property portfolio
by floor space. Retailing is a significant part of the economy,
accounting for 10 per cent (2.4 million employees) of all employment
and 26 per cent of GDP by expenditure.
Membership covers all forms of retailing, from
the large multiples and department stores, through to the corner
shop, from food and drink to furniture and DIY, from centre of
town to rural, to mail order and electronic commerce.
Retailing is a major engine of employment growth
in the economy, creating 58,500 new jobs (41,400 of them being
full-time positions) during 1999.
UK retail is highly competitive as shown by
the intense pressure on prices. Prices of retailed goods have
fallen year-on-year in 16 of the last 17 months, according to
BRC's Shop Price Index. The retailed goods element of the RPI
showed prices in the shops fell by 0.2 per cent year-on-year to
September. This has occurred within an environment of continual
product and store improvements and innovation. Recent research
conducted for BRC, again by London Economics, has put a value
on the benefits flowing to consumers as a result of this investment.
London Economics calculated that consumers benefited by around
£18 billion over 10 years as a consequence of the resulting
increased efficiency of retailing.
The retail industry is almost totally dependent
on the road infrastructure given the complexity of the retail
supply chain, the time sensitive nature of many (especially food)
products, and the absence of any plausible alternative to road
transport, with very few exceptions.
It is extremely difficult to isolate the direct
impact of motor fuel taxation on the competitiveness of UK retailing
as so many cost factors and operating criteria need to be taken
into account. What is clear, however, is that road transportation
costs are placing additional burdens on an industry which is already
highly cost conscious and under pressure to keep prices low. Without
an adequate margin, it is difficult to invest for the future.
However, BRC has been concerned for some time
at the range of operating costs, whether incurred as a result
of legislation or market inertia, which differ significantly from
those experienced in other European Union countries. Many of these
costs are accentuated for the retail industry because of our dependence
on road transport, high property occupancy and the labour intensive
nature of retail. Data from ONS demonstrates the scale of the
cost of bought in road transportation services for retailers,
over £2 billion in 1998. In addition to this, many retailers
maintain their own delivery fleets.
These costs are principally fuel duty and Vehicle
Excise Duty for HGVs, which at nearly £4,000, is nine times
higher than in France and 13 times higher than in Spain. Again,
to illustrate the scale of costs involved, one major retail company
faced an additional £1 million resulting from the increase
in fuel duty announced in the March 1999 Budget. In all, businesses
have faced a near one-third increase in fuel duties over the past
three years. Diesel duty in the UK is now over double the EU average.
Figures as at 25 September this year show that 1,000 litres of
diesel in the UK cost £820.14; compared with an EU average
In the European countries under consideration
in the second Department of Trade and Industry International Price
comparisons study, the duty and selling prices were as shown in
the table below. Retailers cannot be expected to charge similar
prices for goods as other countries when their costs of getting
goods to the stores is so much higher.
|EU Member State
||Duty on 1,000 litres of diesel in £
||Total selling price (including VAT) per 1,000 litres
Source: Freight Transport Association, 25 September
Retailers are also major operators of car and light van fleets,
so face increased costs from duty on petrol.
BRC commissioned research from London Economics to assess
the factors that underpin price differences between countries.
Although this work was designed to accompany the first DTI International
Price Comparisons exercise, the findings are useful in exploring
some of the operational cost factors.
London Economics found that UK post tax diesel prices were
over three times those faced by US retailers. They also identified
other costs, where the UK faced a disadvantage, such as in remote
locationsthe cost for freight of ferries to the Scottish
islands, Vehicle Excise Duty and the costs associated with delays
and inefficiencies resulting from congested transport links.
Retailers are major operators of commercial vehicle fleets,
or have contracted out these operations (fully or in part) to
third party operators. According to the 1998 McKinsey report "Driving
Productivity and Growth in the UK Economy", UK food retailers
have "defined global best practices in logistics". Retailers
have made this investment to gain efficiencies. Their cost advantage
from such investment is eroded by the cost disadvantage they face
in terms of higher fuel duty.
Much of the added cost has resulted from the taxation of
motor fuel on environmental grounds. However, duty increases on
their own, without the provision of alternatives, represent a
limited and blunt instrument with which to combat congestion and
BRC would like to see greater encouragement of innovation
in vehicle design and efficiency. This might have a greater tangible
impact on environmental standards over time. In fact, the overall
number of vehicle movements is declining with the use of "just
in time" deliveries and better logistics management. Business
efficiency and better vehicle design and operation will yield
some significant improvements. BRC considers that this should
be an important direction of Government policy.
In conclusion, UK retailing is already highly competitive,
delivering choice and value for consumers. However, higher operating
costs, particularly compared with EU competitors, and the use
of fuel duties as an environmental measure are all causing damage.
The scale of this damage is hard to quantify, but at the current
level the cost of fuel and the duty payable can only be to the
detriment of our industry and the customers who depend upon us.