Examination of Witnesses (Questions 480
WEDNESDAY 14 FEBRUARY 2001
HAIN, MP AND
480. Perhaps you can clear up a small misunderstanding.
We know that the price of fuel rises and falls in the world marketa
barrel of Brent crude and what-have-youbut what we are
not very sure about is whether it falls as quickly as it rises
at the pump when the price at Rotterdam increases or falls. One
of the things that has disturbed some of us from early December
is the fact that we were hearing about ever-dropping world oil
prices but when we went to put our petrol in our cars we did not
see any drop until about the middle of January. Is the ever-vigilant
OFT looking at this issue? One would have thought that some kind
of small bell might have gone off in the OFT saying "Ah,
prices are coming down, why don't they come down at the pump?"
It seemed that it was only after Christmas, after the New Year,
when the supermarkets started to have to attract people back into
their stores rather than keeping them out (as they have to do
round about Christmas), that the loss-leader element came into
the equation once again. Am I being unduly cynical?
(Mr Hain) I would never accuse you of that, Chairman.
481. That is very generous of you, but that
may not be correct.
(Mr Hain) I think you put a fair question and I will
attempt to answer it. I recall that the Director General of Fair
Trading said on 21 November that a combination of higher world
oil prices and public pressure on the United Kingdom retail market
had resulted in a squeeze on petrol margins, and that, therefore,
because they had been squeezed so much the price reductions were
not immediately passed on. However, we will certainly encourage
everybody to be very vigilant about what exactly is happening
in the petrol and diesel markets, so that if there are reduced
world oil prices then the customer should benefit at the filling
482. So should I advise my constituents when
they come and complain to me about oil prices going back up to
write a letter to John Brown of BP saying "I am sorry, Mr
Brown, I have been squeezed rather badly lately and, therefore,
the price rise that you have instituted I will not be able to
pay in total, so I am only giving you 73p a gallon at the moment
because I realise, as you do, that when times are hard we cannot
always pass on the benefits to other people"? This is a rather
insulting argument to most intelligent people, I would have thought.
(Mr Hain) It might be worth a try!
483. "I will see you in court", I
think is the rejoinder to that.
(Mr Hain) To take your point seriously, Chairman,
we are very concernedand I know we are going to discuss
gas prices laterwith Ofgem, with the OFT and with DTI,
between us, that the retail petrol and diesel market operates
in Britain in a very competitive and fair fashion. Everything
we have done (and, I think, to be fair, our predecessors as well)
has sought to achieve that. When you look at the very, very tight
margins, some of themtold to me by independents who came
to see me last weekas low as 0.05p or 0.08p a litre on
each litre sold across the forecourts, these are very tight margins
indeed, and there is a highly competitive market. If there were
to be any uncompetitive behaviour the OFT would step in in a flash,
and we would certainly monitor in terms of that very quickly.
484. Can you tell me as to how we arrived at
the situation last September in the fuel crisis where we had lists
of forecourts where key workers could go to obtain fuel and yet
they found themselves, on occasionsperhaps more than on
occasionsin a position where they were turning into forecourts
to find it had been, perhaps, closed or, maybe, the garage had
been bulldozed and did not exist? How did we end up in that sort
of state of affairs?
(Mr Hain) Everybody has learnt a lot of lessons from
that extraordinary period, including Government, which is why
the Prime Minister set up a Task Force and published, on 29 September,
as you may recall, a Memorandum of Understanding between the Government,
the oil companies, the trade unions, hauliers and the police,
to make sure that nothing like thaton the scale that had
happenedcould recur. There were all sorts of things happening
in that period which, I think, deserved answers to. That is one
485. So you are pretty confident, are you, that
the system is now robust, and ifheaven forbid and trust
we do notwe indeed had a similar situation again, where
people were directed to, perhaps, strategically located forecourts
to obtain petrol just for the essential nature of their business,
that they would find them open and by far a slicker process to
enable them to draw fuel?
(Mr Hain) As I say, the lessons learnt have been very
salutary and, as a result, we have drawn up measures to make sure
that fuel supplies are maintained in the event of any future fuel
disruption. All the signatories to the task force that I mentioned
will take the necessary contingency action to ensure that the
supply of fuel is maintained in the event of future protests.
If I can just identify the key elements in that agreement: a joint
early warning system, co-ordinated contingency plans, joint crisis
management systems covering stock levels and location, fuel movements
and delivery, and also tackling the potential for intimidation
of tanker drivers. So we worked very hard to make sure there is
not a recurrence. Obviously, the just-in-time economy is very
vulnerable, and that is why we want to ensure that the whole of
Government working together, from the Home Office to the DETR,
ourselves and others, makes sure this does not happen again. Of
course, the order granting emergency powers under the Energy Act
runs until 10 September this year.
486. Can I just inquire about how the list of
key workers was drawn up? I represent nearly all the taxi drivers
in London who live in Ilford North, and they were eventually added,
I think, a day or two later. It seems to me that people providing
transport for getting people driving other transport to work and
carrying disabled people as well ought to have been on the list
from the start. Do you know how that list was arrived at, and
what would happen in future to avoid an obvious thing like that?
(Mr Hain) May I say the taxi drivers have an excellent
Member of Parliament, but I do not know, Chairman, as I was not
in office at the time, about how taxi drivers came to be put on
the list and in what circumstances. I will check that to make
sure that the list is fully comprehensive.
487. Obviously no Ministers were in taxis at
(Mr Hain) I think I was probably on a `plane somewhere.
Chairman: I am not meaning you personally, Minister.
488. The Petrol Retailers' Association gave
us evidence about their concerns that the levels of stock held
at petrol stations was, really, inadequate in their opinion. In
view of the evidence that you have given us on your concerns about
the margins for petrol retailers, the reason that petrol retailers
were not able to hold what they believe to be adequate stocks
was, quite clearly, financial. A significant part of that was
the point of taxation. Have you given consideration to changing
the point of taxation? What measures are you going to put into
place to support an effective level of stock across the country?
(Mr Timms) We are not looking at changing the point
of taxation. I think the tax duty system we have is a pretty efficient
one and I think greatly increasing the number of duty points would
increase the cost of collecting the duty, and I would not favour
that. I think, really, the level of stocks that are held is a
matter for the retailers to determine; it is clearly not in their
interests if they should run out of petrol because they will lose
trade if they do so. I do not think that is a matter for Government
to intervene in.
489. In the evidence we were given it was quite
clear that the smaller retailers, who are a very important part
of the retail infrastructure, have a very considerable burden
paying tax well ahead of the time that they receive payment. Even
if you are talking in terms of the individual customer there is
a delay and they want to keep that delay as short as possible.
However, when you are talking about company accounts, there can
be about a week and it can run into months for smaller retailers.
The margins are not such that they can actually manage that amount
of money and they are holding very inadequate stocks. You are
talking about stocks that can hold, maybe, a day-and-a-half to
two days' volume.
(Mr Timms) Surely , that is a commercial matter for
the retailers to determine what is in their best commercial interests.
490. They have determined it and it is to hold
(Mr Timms) The commercial arrangements between them
and their customers is clearly a matter for them, but I certainly
would not supportand I do not think the Committee would
eitherchanging to an arrangement whereby each petrol retailer
did his own duty payments, because that would be an immensely
complicated and costly system to administer by comparison to the
present system, which is very efficient.
491. Is the matter, from a slightly different
angle on tax, that if petrol is bought in a spot market and comes
into the United Kingdom and is delivered to a filling station,
tax is paid once it is delivered to the station, whereas if you
get it from a refinery you pay the refinery and that that time
gap is a significant factor in the price differential between
an oil majors filling station and the supermarket filling station,
because the supermarkets tend to buy the bulk of but not all their
petrol on the spot market? So that there is a difference in taxation,
depending on the place where the oil is refined and would it not
be better then to have it all charged on the same basis so that
there would be equality between supermarkets and the forecourts?
(Mr Timms) My understanding is that in the case of
imported petrol, duty is paid on leaving the import warehouse,
which, in terms of time, is not that different from duty paid
on leaving a refinery, which, as you say, is the arrangement for
United Kingdom refined petrol. So I do not think there is a competitive
492. It was put to us sometime ago when we took
evidence that there was a differential, and it put the oil companies
and their people at a disadvantage against the bulk purchaser
on the spot market, which is the practice of the supermarkets.
(Mr Timms) That certainly is not a concern that has
been raised with me by the oil companies.
Chairman: It was some years ago now, but I know
the law has not been changed because I have raised it with Chancellors
of differing complexions.
493. The issue was raised by the independent
body of retailers, and I think they described it as they get a
tanker and have splash into the bottom of the tank to keep them
going for a couple of days. That was part of the problem, that
they did not hold, even within the capacity they have, a full
tank, but just splash a bit of petrol around in the bottom. Clearly,
they have not got the turnover that, for example, some of the
forecourts owned by petroleum companies or supermarkets have.
That was the problem and they claimed that that was the reason
why, during the period of the crisis, their supplies were exhausted
literally almost overnight; they just do not hold the capacity,
and partly the reason for that was the taxation arrangements and
the tax point that penalised them, they have to put so much money
up front that they cannot afford to do that. It might be worth
looking at it.
(Mr Timms) I would not want to encourage the Committee
to believe that we are seriously looking at changes in this area,
because we are not. It is a very, very efficient system at the
moment. The duty is paid at the point of leaving the refinery
or, in the case of imported petrol, at the warehouse. I think
to try and introduce a system where duty was paid at every petrol
station would be impossibly complicated and expensive, and it
is not something I would favour at all. Clearly, as I have said,
the stocks that are held by an individual retailer must be for
that retailer to determine in their own commercial best interests.
I think the arrangements that Peter was referring to have now
been put in place to ensure that, if there was to be an attempt
at future disruption, then the necessary contingency action would
be put in place. I think that is the answer rather than trying
to change the tax systems to ease these problems should they arise,
as we all hope they will not, in future.
494. Can I clear up one point? Value Added Tax
is imposed upon petrol. When and where is that paid? Perhaps one
of the army of assistants can help.
(Mr Timms) Indeed. I am sure somebody will inform
me very shortly. I can provide you with a full answer. It is indeed
paid at the petrol station.
495. Great. So you do collect tax at the petrol
station. It cannot be that efficient when you have two systems
of paying tax at the present moment already; you pay VAT at the
station but it is inconvenient to change it because it is efficient
for youit may not be fair for some of the retailerstherefore
it is all right. Is that the deal?
(Mr Timms) It is efficient, and I think it is in the
public interest that the collection of fuel duty should be efficient.
The current situation undoubtedly is very efficient and reduces
the costs on the public purse as a result.
496. I know there are some Members of this Committee
who are obsessed with regulationand probably correctly
sobut if economic efficiency is being undermined here,
if people are being disadvantaged, and some people probably are
(I think we have to agree to disagree on this issue of when tax
is paid on imported fuel) then one would imagine that if they
are already making VAT returns it would not be that onerous to
make other forms of payment if it was going to be fairer.
(Mr Timms) I would not accept that people are being
disadvantaged. The point that is being put by the Committee is
that the tax point affects the level of stock that an individual
retailer keeps, and that may well be the case. However, the only
problem I am aware of with that was in the period of fuel disruption,
which, hopefully, we are not going to be having again. So I would
not accept that retailers are disadvantaged by the current arrangements.
Of course, as I am being reminded, there are very significant
differences between the way that fuel duty works and the way that
VAT works. I would not want to encourage the Committee into thinking
that a simple change to the system would allow both to be collected
497. One group of retailers who certainly are
being disadvantaged by this present situation are the petrol retailers
in Northern Ireland, because the amount of fuel being bought in
Northern Ireland has dropped by about a half, and that is not
because people are driving less but because they are all going
to buy their fuel in Southern Ireland and paying duty at half
the rate they would otherwise have to pay in Northern Ireland
to the Southern Irish Government, which seems to be awash with
funds at the momentperhaps partly because of this system.
What are you going to do about this, because it is not just a
question of smuggling, it is legitimate, cross-border shopping,
which is also happening across the Channel, where people go and
fill up their vehicles in the South of Ireland so that they can
avoid paying United Kingdom duty. We had evidence from the Post
Office on this, which said "Perhaps the best example of this
is our instruction for Northern Ireland based vehicles to draw
fuel in Eire, despite the fact that this often means vehicles
going considerable extra distances". Furthermore, for other
trunk services, they require that the way in which their fleet
is organised enables the vehicles to be empty in the South of
Ireland so that they can fill up with a maximum amount of fuel.
That is the Post Office doing that, one of the largest haulage
organisations, and that is why the amount of petrol and diesel
sold in Northern Ireland has dropped by about a half under this
Government. It is ludicrous, is it not?
(Mr Timms) It sounds as if you are rather trying to
make a case for tax harmonisation, or duty harmonisation.
498. I am making a case for reducing our taxes.
(Mr Timms) Tax harmonisation is not the policy of
the United Kingdom Government. We want to set the levels of duty
in order to achieve our objectives, raising revenue for the public
purse and environmental objectives as well. However, we are aware
of problems across the Northern Ireland land border. I met with
representatives of petroleum retailers in Northern Ireland to
discuss these matters and, as a result, we have very substantially
increased enforcement activity to address the illicit smuggling
of fuel across the Northern Ireland border and that has led to
greatly increased seizures and much more effective arrangements
across the Northern Ireland border than we have had before. Of
course, it is the case that if we have different rates of duty
in different countries of the EU there is scope for tax competition
in all sorts of areas, and that is a position that the Government
is entirely relaxed about, and actually thinks tax competition
has a number of benefits.
499. Surely, in Northern Ireland the result
of that is that we actually get less for the taxpayer from the
duty on fuel in Northern Ireland than we would get if the duty
was significantly reduced. It is the same problem as taxing cigarettes
and alcohol too highly, because it encourages people to go cross-border
(Mr Timms) I am not sure what deduction you are drawing
from that. If you are suggesting that there ought to be a different
rate of duty in Northern Ireland