Examination of Witnesses (Questions 195
- 199)
WEDNESDAY 1 NOVEMBER 2000
MR R HOLLOWAY,
MR P BARLOW,
MR N BROCKLEHURST
AND MR
G JENKINS
Chairman
195. Mr Holloway, would you care to introduce
your colleagues and then we shall get started?
(Mr Holloway) My name is Ray Holloway. I am the Director
of the Petrol Retailers Association. On my left is Mr Gilbert
Jenkins. Gilbert is an oil industry analyst and therefore works
as a consultant to the Petrol Retailers Association. On my far
right is Mr Nick Brocklehurst. Nick is actually a petrol retailer,
having a business based in Northampton. On my immediate right
is Mr Peter Barlow. Peter is Health and Safety Adviser to the
Retail Motor Industry Federation.
196. We have already had the oil companies and
we have been talking to them about the impact of taxation they
perceive on their sales. What I should not like to do today is
to stray into areas of the contractual arrangements which you
have as petroleum retailers with the oil companies. We have had
a kick at that ball before and the OFT are looking at it so I
would rather not stray down that road this morning. Can you give
us any indication whether you are selling less fuel than before,
given the increases in taxation? How elastic is the demand for
petrol?
(Mr Holloway) Let us talk about the total market.
We are not in an industry which has grown for a number of years.
It has been a fairly static demand and in fact falling ever so
slightly as engines become more efficient; that applies to both
petrol and diesel. Of course we have had product switch from petrol
to diesel as well. In the current year there is an increase in
demand overall. The first seven months of this year saw an increase
for petrol of broadly five per cent and diesel somewhere round
about two per cent. The market this year has actually grown ever
so slightly. The problem in our industry in terms of the average
volumes is of course the way that the industry is structured.
The industry is structured basically with three main players.
One is obviously the major oil companies, followed by second tier
oil companies, then the independents who own the filling stations
but choose to brand with a particular fuel. The hypermarkets make
up the last part of the retail market. In the commercial market
then there are bulk buyers. They buy either from an oil company
directly or indeed from one of the regional distributors to whom
refiners in the UK supply. That is broadly the structure of the
total market. How the individual players then conduct their business
obviously creates the environment where taxation becomes a feature.
Rising taxation and a competitive industry are having really rather
a sandwich effect on a particular sector. Undoubtedly the fact
is that in an industry where tax makes up something round about
three quarters of the retail pump price and a competitive market
where you have very large players then you can of course achieve
the ultimate which is margin squeeze and therefore market restructuring,
switch of business. That is the principal problem we have with
taxation. Rising taxation for the independent retailer comes about
because effectively petrol retailers act as unpaid tax collectors.
When tax is a very small percentage of the price, it really has
little effect. But taxation on motor fuel has actually doubled
in just seven years, at a time when in fact margins in the industry
have gone the other way and are less than half today what they
were seven years ago. We do have a critical interest in taxation
because it increases costs in terms of rising working capital
costs, in the way that the industry works where broadly three
quarters of the sales are through credit cards and credit card
costs are based on a percentage of the retail price. In a diminishing
margin environment there are rising costs which come from funding
the business and indeed from trading through the credit card line.
(Mr Brocklehurst) Certainly over the last three years
it has been increasingly affecting petrol retailers where the
cost of the product has risen and the margins have been fixed,
in some cases contractually, but have generally fallen over the
last few years. It has substantially affected the cash flows,
insurance costs, cash handling costs, Securicor costs; all these
have increased and the retailers' margin has fallen. A recipe
for disaster.
197. You sell petrol and diesel and perhaps
now LPG but we will not discuss that because it is still early
days. Let us take just petrol and diesel. Have you noticed any
difference in the responsiveness of consumers of these two fuels
to tax rises?
(Mr Brocklehurst) Traditionally motorists have always
driven looking for the cheapest fuel, never more so than now.
Sometimes it amazes me. They will drive for one pence/litre or
whatever. Yes, they are very keen to save on their own expenses
whether it is a company vehicle or a private motorist. Is that
what you mean?
198. No, I was really talking about the impact
of the increase in taxation on petrol as against diesel. Have
the people who use either fuel behaved in different ways or has
the response been the same?
(Mr Brocklehurst) Diesel is often more expensive than
95 octane unleaded petrol now. It is basically the same. You do
not want to talk about LPG but there is a trend obviously to look
for cheaper fuel.
199. At the moment the availability of LPG is
fairly limited still.
(Mr Brocklehurst) At the moment but it is increasing.
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