Petrol Prices (Wyre Forest)

Mark Garnier Excerpts

Wednesday 12th September 2012 Westminster Hall

[Mark Garnier (Wyre Forest) (Con)]

I am pleased to see the new Under-Secretary of State for Transport, my hon. Friend the Member for Wimbledon (Stephen Hammond) in his place. He has long been a friend of Wyre Forest. Four or five years ago, when he was a shadow Transport Minister, he visited Wyre Forest to inaugurate a campaign to save a local driving test centre in the face of swingeing cuts in the number of centres under the previous Government. I am delighted that his predecessor, my hon. Friend the Member for Hemel Hempstead (Mike Penning) was instrumental in resolving that inequity, and that we will have a driving test centre as a result of the Department for Transport’s sterling work.

This debate is specifically about fuel prices in Wyre Forest, but the issue affects every rural and even semi-rural community throughout the country. The Backbench Business Committee has secured a debate on the matter in the Chamber later this week, and it could be argued that I might have done better to save this speech for that debate. I am sure that there will be a huge amount of interest in Thursday’s debate, and I am eager to use the opportunity today to put on the record my experience in trying to resolve the problems facing my constituents, and the apparent stonewalling by the fuel retailers, particularly the big chains.

The debate is about the inequity facing Wyre Forest and other rural communities. It is about how my constituents have been charged more at the pumps in Kidderminster, Stourport and Bewdley than those of hon. Members in larger urban and suburban centres. Let me put the matter into context. Since I was elected, I have been contacted regularly by constituents who have noticed that they can buy fuel at up to 6p per litre cheaper in nearby Wolverhampton, Dudley and even Bromsgrove than they can locally.

Around a year ago, I contacted the retailers asking for an explanation. I wanted to know why they saw fit to overcharge my constituents. Their reply, after cutting through the various explanations of Nectar points and price reductions depending on the contents of a shopping bag, was that prices are set locally and that that is how retailers best compete with each other. I thought that that was fair enough, but as I was eager to understand their pricing models further, I contacted local retail managers and asked to meet them to talk about fuel prices. They said, “Ah. We just collect local data and send it to regional price setters who are responsible for determining the price.” I then asked to see the regional price setters, at which point I was met with stony silence. It seems that fuel retailers are reluctant to talk about the prices they charge locally.

However—credit where credit is due—Tesco agreed to meet me, and Emma Reynolds, its Government relations guru came to see me recently to explain its strategy. She told me a great deal about the special offer on fuel prices that it has introduced, and many retailers certainly provide special fuel price offers to customers. A 50% reduction is available on Tesco fuel for those who buy a specific range of items, and all retailers have a form of offer. She also told me that the general pricing strategy of the fuel retailers—Tesco, ASDA, Sainsbury, Texaco and so on—is to compete with the lowest price within a specific radius of the petrol station concerned, and for Tesco that is 3 miles.

At this point in my speech I intended to make a few lame jokes at the expense of the petrol retailers, and to jest that perhaps “every little helps”, but the only people who are really helped are Tesco’s shareholders. However, I updated my research yesterday, and to my utter delight it seems that the pressure that I have been putting on petrol retailers locally has been heeded. As of yesterday, instead of a 6p premium in Wyre Forest by petrol retailers within a 25 mile radius, which was the situation I faced a year ago, the substantive premium is now just 1p, although there is a rogue cheap supplier at ASDA in Dudley which charges 2p less than in Wyre Forest.

[Karen Lumley (Redditch) (Con)]

I congratulate my hon. Friend on securing this important debate. He says that there is a 1p price range in our region, but will he comment on the fact that in Cardiff this morning, petrol was 3p cheaper than in Redditch?

[Mark Garnier]

I am grateful to my hon. Friend and neighbour, who is also a member of the Welsh Affairs Committee, and takes a keen interest in what happens in Wales. I will come to that anomaly between cities and smaller rural towns and semi-rural areas, which is a great problem.

[Jim Shannon (Strangford) (DUP)]

The hon. Gentleman has mentioned a topical and important matter in the area I represent in Northern Ireland, which is a rural community. He referred to demand and pressure in urban and rural areas. Some of my constituents must travel long distances to get to work because of where the work is, and may spend £50 or £60 a week just on petrol and diesel. Does that not underline the issue for many people in rural communities, where we need a price structure that is achievable, fair and affordable?

[Mark Garnier]

The hon. Gentleman hits the nail on the head. People living in rural communities are doubly penalised. They face not only high prices, but higher mileage because they probably have worse access to public services. I will continue to make that point throughout my speech. The hon. Gentleman was absolutely right to raise it on behalf of his constituents.

I said that fuel retailers have cut the premium locally as a result of my pressure, but there may be other reasons, not least that last week the Office of Fair Trading announced an inquiry into fuel prices. That welcome U-turn by the OFT is important because pressure on households is, as we all know, incredibly high. It is tough enough having to pay high fuel prices because of currency and commodity prices, but when duty and tax are added, and then local factors, households face a toxic mix of costs.

Despite local success, a number of serious factors must be taken into account. First, special offers provided by the supermarkets do not constitute a fuel price management policy. If anything, unreasonably high fuel prices locally provide an opportunity for offer-making. Although the big retailers say that helping the consumer is the reason for making offers, we all know that it is about one thing: competition between retailers. Tesco is against ASDA, and against Sainsbury and the rest of them. One offers loyalty points; another offers a discount if a minimum amount is spent in the supermarket alongside the petrol station; a third will discount fuel prices if certain items are bought, and on it goes.

Such offers are marketing plugs that associate the retailers’ names with what seems to be a special offer. I am sure that some offers are taken up, but the reality is that people refuel when the needle is on empty, and not when they have just done the weekly shop. In any event, such offers may seem enticing, but when we were paying 6p a litre more in Wyre Forest, the discount was worth 6p less than in neighbouring Wolverhampton and Dudley because the discount was from a higher level. The fundamental problem was always high local prices in Wyre Forest and other rural and semi-rural communities.

Secondly, the pricing model adopted by supermarkets and fuel retailers favours those in big cities. Fuel retailers try to be the cheapest within a three-mile radius or thereabouts. In a large conurbation such as Birmingham and the black country, many petrol stations will create a chain within 3 miles of one another. In that instance, a petrol retailer east of Birmingham who decides to have a few days undercutting the local market to try to stimulate more demand for their product will create a ripple that spreads across the whole city and probably into the black country. Given that there is a significant number of petrol retailers in that area, there will always be healthy price competition, stimulated by occasional but regular mini price wars.

However, in districts such as Wyre Forest, Strangford and Redditch there are far fewer petrol stations and, importantly, around areas such as Wyre Forest, there is a desert of petrol stations, rather like a doughnut, so the only price competition will be within the locality itself. With far fewer retailers in that closed area, price competition is lower, and it is suggested that some of the big retail chains have deliberately undercut local independent suppliers to drive them out of business, ensuring less competition on pricing. That is anecdotal, and there is no evidence to support it, but it is what people talk about.

[Jim Shannon]

Is the hon. Gentleman aware that some retailers sell petrol and diesel with no profit, and perhaps at a loss, just to keep the small independent retailers out?

[Mark Garnier]

I am grateful for the hon. Gentleman’s intervention. In Wyre Forest, the pricing policy of a local, independent retailer is to make a 3p per litre profit on the cost at which they buy their petrol and diesel. That is interesting, because for a great period, that retailer was substantially undercutting big chain retailers, and as a result, I recommended that my constituents visited it, because it provided the best deal. However, when I checked its price again, that retailer is now 3p or 4p more expensive. The big chain retailers are almost certainly buying wholesale fuel from the same wholesale outlet, and they are probably paying the same amount for that fuel. Therefore, if Callow Oils is still adopting its pricing policy of 3p more per litre, it would indicate that the big chains are running at a loss. It would be interesting to find out more—if the retailers answered my telephone calls, I could find out. I think, however, that the big retailers may well be working at a loss to stimulate local demand.

With fewer retailers in a specific area, there is a greater demand against available supply than would be seen in bigger conurbations, so the price is inevitably higher. In this instance, local factors push the price along the price/demand curve against consumer interests. It is important for big retail chains to have such areas of high pricing. If they are to ensure a sustainable average price of fuel across the whole marketplace—across the whole country—they must ensure that areas of low pricing, such as cities, are balanced by areas of high pricing. That penalises rural regions in favour of urban areas, which is very unfair, as I think we would all agree.

If someone lives in Birmingham, London, Cardiff, or any other city, they will have easy access to far more efficient local public transport infrastructures. The availability of a sensible local public transport service also provides competition to petrol retailers; they are competing not only against each other for customers, but against local public transport. However, if someone lives in a rural or semi-rural area, such as Wyre Forest, their local public transport is neither as accessible nor as user-friendly. They will need to use their own car far more than their urban-based cousin. They will have little practical choice, and will have to buy fuel to run their car. That lack of choice helps drive up local fuel prices, doubly penalising the high-mileage rural commuter.

What am I trying to achieve with this morning’s debate? First, I want yet again to highlight the inequity of the pricing policies of big supermarkets and fuel retailers. We all know about that issue, and many of my colleagues raise it again and again. This is another push in the effort to get big retail chains to heed the plight of rural consumers. People living in rural communities should not be used to subsidise the fuel bills of town and city dwellers.

Secondly, I want to appeal to the retail chains to adopt a more pragmatic pricing policy. I accept that a national pricing policy would probably not work, but using a rigid three-mile radius is probably too tight in certain areas. I would like to see a pricing policy that never allows a district to become isolated within its own pricing area. A pricing link that jumps significant gaps is needed. That can be achieved either by having a larger radius across the country, or by having a radius that takes regional petrol station density into account.

As I mentioned, the OFT last week announced its investigation, which I welcome. It will look at a range of areas. The fact that prices go up pretty quickly with oil price rises but are rather slow to come down is a key concern, but I am particularly keen for that investigation also to look into regionalised price anomalies.

I am grateful to the Minister for his time and attendance this morning. As a free marketer, I am reluctant to ask him to legislate on fuel price equalisation across regions. Fair competition must be the answer, and if the competition turns out to be unfair, or evidence emerges of local cartels, I sincerely hope that the OFT will uncover that and deal with it appropriately. The experience in Wyre Forest, where it appears that local pressure has brought the reward of better local pricing, suggests that retail chains might listen, even if they are reluctant to get together for a meeting—notwithstanding Tesco. Sainsbury’s, take note.

The Minister, of course, has a far louder voice than I or many of my Back-Bench colleagues, and I appeal to him to use every opportunity at his disposal to give petrol retailers a regular prod to ensure that the plight of rural dwellers is taken into account.