Select Committee on Trade and Industry Fifth Report


Fuel prices and tax
(a)In the short term, the pre-tax price fluctuates as a result of changes in the price of crude oil, but over the last decade the steady increase in the real price of motor fuel at the pumps has been entirely and intentionally the result of Government taxation policies (paragraph 11).
(b)It is undoubtably the case that levels of fuel taxation are higher in the UK than in other countries, whether or not that is balanced by lower corporate tax rates, cheaper motoring infrastructure costs and lower social costs (paragraph 14).
(c)It is a widely shared perception that pump prices are quick to rise but slow to fall. Given that time lags have occurred in the past between movements on the world crude oil markets and prices on forecourts, we recommend that the Government keep a close watch on the relationship between the price of crude oil and that paid by customers at the pumps, and identify publicly any companies which fail to fulfil the undertaking given to Ministers that cuts in duty will be speedily passed on to customers (paragraphs 16 and 62).
Government objectives
(d)It is still unclear how the Government is measuring its success at meeting its objectives; the Environmental Audit Committee's recent Report criticises the Government on precisely these grounds. If it has no valid means of measurement, the Government should hardly be surprised if people conclude that revenue is a rather more important element than the environment in fuel taxation. The consensus of opinion among the five big oil producing and refining companies is that demand for motor fuel is relatively inelastic. If one intention behind high fuel taxation is to reduce the amount of petrol sold, the evidence available to us is ambiguous as to whether it is working (paragraphs 18 and 52).
Bulk buying
(e)Whilst we appreciate that bulk buyers may agree in advance the price of fuel they will purchase and prices may subsequently fall, it seems bizarre that such wholesale arrangements should ultimately penalise bulk buyers. We recommend that, following the Office of Fair Trading's inquiry into wholesale petrol, they should continue to monitor the situation, to examine the source of discrepancies between pump prices and bulk prices for diesel, and identify remedies (paragraph 46).
The point at which duty is levied
(f)There are a number of concerns over the point at which duty is levied. Not only does the current point of duty appear to have effects on the competitiveness of oil companies, but the low levels of fuel held by retailers were a factor in accelerating the September fuel crisis. We are not convinced that the Government has given sufficient consideration to changing the current arrangements. What is efficient for the Government is not necessarily in the best interests of industry or consumers. We recommend that the Chancellor commit the Government to an open review of current arrangements for the point at which duty is levied on fuel (paragraph 54).
(g)The situation on the island of Ireland is different in scale and ease of access to that between Britain and the continent of Europe. Widely differing tax rates have caused, and are causing, serious disruption (paragraph 39).
Overall impact on trade and industry
(h)Companies that are heavily reliant on road transport, particularly small companies, will inevitably be hit hardest by high fuel taxation levels. In some sectors, and in rural areas, rises in fuel taxation can be the straw which breaks the camel's back. However, we have received no conclusive evidence to show that the current level of motor fuel taxation has rendered UK business as a whole less competitive. High fuel taxation levels have no doubt adversely affected some businesses, but any analysis of the overall impact on business must also take into account the external environment. We remain to be convinced that any decline in UK competitiveness in recent times can be attributed to any significant degree to high fuel taxation levels (paragraphs 23 and 61).
Hauliers: cabotage
(i)We recommend that immediate action is taken to ascertain whether continental hauliers are indeed breaking EU rules on cabotage. If this is found to be the case, UK enforcement must be stepped up and appropriate action taken. There is, however, no evidence that non-UK hauliers are responsible for more than a small volume of freight carriage within the UK, nor that the recent fall in haulage rates within the UK is directly attributable to the threat of lower rates offered by non-UK hauliers (paragraph 33).
Hauliers: international journeys
(j)The figures available to us suggest that UK-based hauliers are losing their competitive edge against other European hauliers in respect of international journeys as a result of high fuel taxation. The introduction of a 'vignette' for non-UK hauliers may help redress the balance. We recommend that the Government seek to maintain a full picture of international vehicle traffic to establish the trend (paragraph 35).
Hauliers: unqualified drivers
(k)Employment by hauliers of unqualified drivers from eastern Europe is one which affects competitiveness, although wholly unconnected to motor fuel taxation levels. In the interests of equity, the Vehicle Inspectorate should actively seek out and prosecute any cases where hauliers can be shown to have broken the law (paragraph 37).
Hauliers: insolvency & bankruptcy
(l)In spite of extensive anecdotal reporting of haulage companies going under, there is a dearth of official statistical evidence to prove conclusively that this has occurred, or if it has occurred that it is due to high levels of motor fuel taxation. Government has a responsibility to clear up this confusion (paragraph 42).
(m)Farming has been in crisis for some time. Any additional costs, whether from fuel prices or from elsewhere, inevitably have a disproportionate impact. It is difficult to draw a clear distinction between the problems facing the industry as a whole and the impact fuel prices are having on farmers' ability to compete in the European marketplace. The high proportionate increase in the price of red diesel arose not a result of motor fuel taxation rates, but increases in the price of crude oil (paragraph 47).
(n)Transport costs are obviously an important element of overall costs for retailers. However, we have received no evidence to suggest that UK retailers are rendered less competitive because of the levels of UK motor fuel taxation (paragraph 48).
Bus and coach
(o)Although high fuel taxation impacts on the bus and coach fares paid by consumers, and may make passenger and road transport less competitive with other means of transport, fuel taxation levels do not appear to have adversely effected the international competitiveness of the UK bus and coach industry (paragraph 50).
Petrol retail industry
(p)Petrol retailers are having difficulties of various sorts, with very low margins, competition from supermarkets, and disagreements with the big oil companies. In Northern Ireland, their plight is exacerbated by cross-border purchases. Independent petrol retailers are facing problems over the pricing of their purchases from oil companies. The fuel crisis made life uncomfortable and more problematic. But taxation itself is not the real problem, so long as demand for fuel remains relatively inelastic (paragraph 55).
Arrangements for possible interruption of supply
(q)We hope that the chaos precipitated by the last fuel crisis will not be repeated. We trust that the Government have now sufficiently robust procedures in place to deal with any future interruption of supply (paragraph 60).

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 15 March 2001