Examination of Witnesses (Questions 460
WEDNESDAY 14 FEBRUARY 2001
HAIN, MP AND
460. Was this not the purpose of this much flaunted
Forum? How long has it been in existence? Did it arise as a consequence
of the events of September, or has it been in existence beforehand?
(Mr Timms) It was in existence well before the problems
of last September. I think it has been in existence for about
two years now.
461. It does not say much for it when it did
not realise a crisis like this was coming up?
(Mr Timms) Well, the people on the Forum were organisations
like the Freight Transport Association and the Road Haulage Association
which, of course, were not themselves supporting the protest,
but they have contributed to us gaining a good understanding of
the conditions that the industry faces and that, of course, provided
the background for the very substantial package of measures that
the Chancellor announced in November. I know that the participants
in the Forum felt that was a very welcome move by government which
addressed the concerns that they had been raising through the
Forum over this period.
462. With respect, when you cannot even agree
on a figure like 20 per cent for the degree of over-capacity,
it tends to suggest that the nearest these people get to a steering
group is the back seat of a taxi. One does not have a lot of faith
in this conceptual body when it cannot even agree on matters like
over-capacity in the industry.
(Mr Timms) What we have attempted to do in the Forum
is what I have been arguing to the Committee this morning we should
be doing which is to address the full range of the issues facing
the industry and we have been able to make some very positive
responses that the industry has certainly very warmly welcomed
as a result of the discussions that we have had in that body.
463. Finally, on the haulage industry, bridging
the UK's productivity gap is one of the key objectives of government
policy. How does our haulage industry compare with industries
in France or Germany in terms of productivity?
(Mr Timms) Those are figures that I do not have. The
DETR may well do.
464. Moving on to bulk buying, we have had evidence
from hauliers and farmers that diesel prices at pumps are often
cheaper than bulk buying. Is this an issue that has been discussed
or raised at the Road Haulage Forum?
(Mr Timms) Yes, it is. Concerns have been raised about
that and I know that the Director General of Fair Trading has,
as part of the work he did last autumn, looked at whether there
were problems in that area and his conclusion was that the differential
was not anti-competitive behaviour by major oil companies but
the result of combination of high world oil prices and public
pressure on UK retail prices. Certainly the companies and organisations
represented at the Forum were concerned at one stage about that
differential. I think the problem has eased now or may not even
apply at all, but at one stage it certainly was a worry to them.
465. I do not immediately see how world oil
prices suddenly have an effect on the differential and it is pretty
odd, is it not, if you can get cheaper diesel by popping down
to the local pump than by engaging in a bulk-buying arrangement.
That does suggest prima facie evidence that there is something
wrong with the marketperhaps a bit of market failure here?
(Mr Timms) I think what the Director General of Fair
Trading said was that a combination of high world oil prices and
public pressure on UK retail prices had resulted in a squeeze
on diesel and petrol margins rather than anti-competitive behaviour.
466. So it is those who are buying in bulk being
ripped off, not the people at the pump?
(Mr Timms) The evidence that he had indicated that
there was a lot of pressure on margins at retail pumps and that
is what led to, for a fairly short period, I think, the differential
that the hauliers were, understandably, very concerned about.
467. Would it be possible for the Committee
to be updated on this? If it is an issue that has gone away then
so be it but can you advise us perhaps in writing on the current
position on this if it is still a concern? Our impression is it
is an on-going concern.
(Mr Timms) I think the data for that would be held
by the DETR.
468. If I recall correctly I think it was evidence
received from the National Farmers' Union who were making the
claim that they were monitoring the price of diesel at the pumps
and yet they were saying that, although that was being squeezed
and being held down and stabilised, they had seen the prices they
were having to buy diesel going up, I think by some fairly substantial
figures20-30 per centand they had been monitoring
that. If you can provide the Committee with some information on
that particular aspect, that would be helpful.
(Mr Hain) We certainly will.
Chairman: Could you also provide us with the
OFT information? That would be helpfulor it might not be
helpful because we have had material from the OFT before and it
has been singularly unhelpful! Notwithstanding that, hope springs
469. Some of us have not been very impressed
by the actions of the oil companies over the past twelve months.
Mr Hain, when you were giving evidence you said that when we go
to the petrol pump we feel the pain which the oil companies do
not seem to feelthey just seem to feel profit. Are you
confident that the oil companies will pass on the proposed duty
cut that was announced in the pre budget report or do you have
some concerns about the integrity of the oil companies, as many
of us do?
(Mr Hain) Stephen probably will want to comment on
duty matters as well but I have met all the oil companies over
the last ten days or so specifically about the current situation
and the introduction of ultra low sulphur petrol and they have
assured me they will pass on the duty and cuts whenever they are
implemented, and they are determined to do that. I think market
pressures and consumer and customer expectations will demand that.
470. Is there any legitimate reason why they
could fail to do that?
(Mr Hain) Well, there is a very volatile market at
the present time. In December I think petrol prices were 5 per
cent a litre lower than they were on 4 December but then the weekend
before last there was an increase in wholesale priceshad
been over the previous three weeksso there was an upward
trend, but the oil companies all assured me, as did the hypermarkets
and other independent retailers that, so far as ULSP is concerned
at least, they would reduce prices by 2p.
471. What are you doing or what can you do to
make sure that crude oil price drops are followed by price drops
for the pumps and for the customers?
(Mr Hain) Stephen referred to the OFT examination
of this matter which found there were no anti-competitive practices
going on, and we are pressing for as close a correlation between
the two as possible. For example, I think the world price of oil
at its highest was round about the mid-30s dollars per barrel
compared with ten dollars per barrel, so more than treble its
lowest point a few years back. It has now come down to round about
25/26 and you have seen some reduction in petrol prices at the
pump as a resultaround 5 pence a litrebut it is
still very volatile so we are working with OPEC to seek to bring
down overall world prices but also to ensure that those are passed
on to the customer when that occurs.
472. It does seem very difficult for people
to understand why oil companies are making absolutely phenomenal
profits at a time when the rest of us are experiencing difficulties
in this area. Do you think that is honest?
(Mr Hain) It is very difficult for the average motorist
to understand that huge oil company profits are not passed on
at the pump but, on the other hand, as any conversation or independent
analysis will show, margins in the retail fuel markets, especially
for petrol and diesel, are very tight and have been squeezed over
the last few months. That is a separate market from the offshore
oil exploration and development market which, I think, in fairness,
has seen a big increase in planned investment over the last few
months at least, having plummeted when the oil price was very
low, which was very worrying from the point of view of North Sea
oil development and all the jobs that depend upon it. You have
now seen a surge in planned investment which has reflected grown
profitability offshore. As long as that profitability is driving
investment and the jobs connected to it, that is a correlation
which I think we would expect. If that did not happen then I am
sure that everyone would want to scrutinise more closely than
has been the case what has been happening offshore.
473. So you think we are going to see the oil
companies recognising more and more their obligations to society
and to customers?
(Mr Hain) You have to ask the oil companies that rather
than the ministers, because I do not think it is wise for ministers
to comment on individual company profits or performance, but everybody
concerned is very anxious that prices at the pump are kept as
low as possible, and we are also very anxious to see a highly
competitive retail petrol forecourt station market. I do not think
anybody can doubt that it is so competitive at the moment that
some forecourts have been going out of business. Can I just say
that one other factor which has been very welcome is the introduction
of hypermarket forecourts into the petrol and retail market. This
has had a downward pressure on prices right across the markets
and has meant that oil companies could not in a sense overprice
because the hypermarkets are operating at highly competitive levels.
474. Does the government want to see lower fuel
prices or higher fuel prices because clearly reference has been
made quite rightly by Mr Timms to the Kyoto targets and so on
and I know there is a balancing act. We have environmental considerations
and the cost of business but part of the discussion this morning
has been about the advantages of higher fuel prices and meeting
Kyoto targets; the other part has been about the value of reducing
prices to assist business. Which is it?
(Mr Timms) I think, as you rightly say, there is a
balance of considerations to be taken into account. As far as
the fuel duty is concerned, the Chancellor announced at the Budget
before last that he would make decisions about fuel duty on a
budget-by-budget basis, taking into account all the economic,
social and environmental considerations, rather than having the
annual, automatic increases that we had as a result of the fuel
duty escalator previously. I think Michael Meacher has made the
point that, in a sense, what has happened to crude prices has
done some of the job of the escalator recently, and that clearly
changes the context of the decisions somewhat.
(Mr Hain) Can I add one other point, if I could? Of
course, this might have been referred to by Stephen earlier, but
the OFT carried out an inquiry into wholesale petrol and diesel
prices last year which found there was no evidence of anti-competitive
behaviour by the major oil companies, but concluded there was
a combination of factors including higher world prices which had
resulted in retailers experiencing a squeeze on margins at that
time. If the Director General for Fair Trading suspected that
there was something dodgy in the market and that his previous
inquiry had to be, as it were, updated, I am sure he would act
475. It is accepted that the pre-tax price of
fuel at the pump is about the lowest in Europe and that after
tax the price of fuel at the pump is by far the highest in Europe.
We have had this announcement on BP's performance yesterday. Can
you take this opportunity to congratulate BP on being an outstandingly
successful British company, making substantial profits out of
its overseas operations and providing its domestic service at
almost no profit whatsoever? Can you hit on the head these ludicrous
suggestions that there might be some sort of windfall profit tax
on the oil companies in addition to the substantially increased
petroleum revenue tax yield which you have got this year of an
extra £100 million out of the rise in the price of crude
(Mr Timms) We, of course, welcome the success of British
firms whoever the firms are, and BP Amoco is undoubtedly extremely
successful and a success we commend. However, of course, it is
as a result of the successful management of the economy over the
last four years that very many British firms have done extremely
well, and I think that is something that will be pleasing to all
of us. You asked about a windfall tax on petrol companies. The
Chancellor, I think, set out in the Pre-Budget Report in November
the approach that we take to these matters, and I can quote you
what he said. He said: "I am determined not to make short-term
decisions based on short-term factors. The key issue is the level
of long-term investment in the North Sea and that will be the
approach that will guide Budget decisions in the future."
I think that is underlining the point Peter made earlier, that
we are very concerned about the need for us to continue to benefit
as a nation from investment and profits in the North Sea. It is
just perhaps worth adding that there are figures published in
the PBR for receipts from North Sea revenues, and if you look
at all the revenue coming into the Exchequer from the North Sea,
the figure published for 1999-2000 was £2.6 billion and for
the financial year 2001-2002 (two years later) it is £7.3 billion.
So there is a substantial gain to the Exchequer from the North
476. Minister of State, I quote you: "Everyone
is concerned to keep the prices at the pumps as low as possible."
That, of course, is not the case because we do have the highest
petrol prices at the pump of any European Union country, and the
reason for that is because the Exchequer extracts so much money
from consumers by way of petrol tax, which is wholly regretted.
A district nurse in a village 20 miles from Banbury is having
to pay exactly the same amount of petrol duty as someone who is
affluent (?). What we now see this morning is the continuous exercise
of buck-passing, of saying it is the oil companies' problem, it
is an OPEC problem, whatever. Would it not be fairer, in the interests
of consumer transparency, at the petrol pumps, where you tend
in the interests of consumer transparency to have litres and gallons
made equivalent, for the consumer to not also know just how much
of the cost of a litre of petrol is going into tax? Would that
be fair at the petrol pump, so they come up and they go to buy
their petrol they know exactly how much the Exchequer is ripping
them off when they actually fill up their cars or their vans or
(Mr Timms) I recall attending a Rule Bill along these
lines not very long ago, which Mr Baldry moved. It seems to me
to be unnecessary additional regulation being proposed which I
do not think would serve a substantial public purpose, and I would
not favour it. Just as a matter of interest, if you look at what
has happened to petrol prices over the last couple of years, there
has been of the order of about an 18p a litre increase in that
period, of which only about 2p is as a result of duty, the rest
has been as a result of the crude changes, and the proportion
of a litre of petrol accounted for by tax today is not very much
different from what it was three or four years ago.
477. But you see, Financial Secretary, you have
talked about the line to take is that the Chancellor will balance
the economic, social and environmental factors. What actually
he is balancing, I suggest, is what he can get away with. The
reduction after the petrol protests were what the Chancellor felt
he would get away with. In a sense, he wants to maximise the revenue
that he gets from petrol. It is a simple exercise, so far as the
Exchequer is concerned. When world oil prices go up, of course,
it has a disproportionate impact, particularly on the competitiveness
of United Kingdom industry. Going back to the question that Mr
Berry asked, really it seems that the Government, collectively,
have not quite worked out whether they want to help the competitiveness
of United Kingdom business by, to quote the Minister of State,
"keeping the prices at the pump as low as possible",
or simply the Exchequer wishes to extract the maximum amount of
revenue. There seems to be a dilemma here which is being paid
for by constituents and by business who are finding themselves
paying ever higher fuel prices.
(Mr Timms) I think it genuinely is a balance of those
factors that is needed and that the Chancellor takes into account
in making his decision. Bear in mind that the fuel duty escalator
was cancelled in the PBR before last, long before there were the
478. The tax was not. It is a rather facile
(Mr Timms) The escalator was cancelled. That is my
479. But there was still an increase. There
is still a substantial element of taxation on a litre of petrol.
(Mr Timms) Of course there is, and there always will
be and there always has been. I am not suggesting we are about
to scrap duty on fuel. The escalator was cancelled the November
before last, we then introduced an inflation-only duty rise in
the Budget that followed (the Budget last year), long before the
protests that came in September. So I do not accept Mr Baldry's
characterisation of the process that goes on in determining these
things. I think there is a genuine consideration of the environmental,
economic and social factors, all of which have an influence on
the Chancellor's decision.
(Mr Hain) Can I say, Chairman, that in case Mr Baldry
is attempting to separate my common-sense statement that the price
should be kept as low as possible, my colleague and I are welded