Petrol Prices (Wyre Forest)

Stephen Hammond Excerpts

Wednesday 12th September 2012 Westminster Hall

[The Parliamentary Under-Secretary of State for Transport (Stephen Hammond)]

Although it is a surprise to be here this morning, Mr Howarth, it is a pleasure to serve under your chairmanship, on what is my first outing representing the Government, and to respond to the debate secured by my hon. Friend the Member for Wyre Forest (Mark Garnier). I thank him for his kind words. I remember well the day in Wyre Forest, although he forgot our trip on the steam train, in addition to the driving centre. I am pleased, too, to see my hon. Friend the Member for Redditch (Karen Lumley) and the hon. Member for Strangford (Jim Shannon) here today, as it shows the interest in this matter from communities beyond Wyre Forest.

I am surprised to be here this morning, because the debate has been misallocated to the Department for Transport. Many of the comments made by my hon. Friend the Member for Wyre Forest were about competition and fuel price policies, but neither is the Department’s responsibility. Therefore, I apologise if it is not appropriate for me to answer all his points, as the responsibility to do so lies with the Department for Business, Innovation and Skills.

I was pleased, but not surprised, to hear my hon. Friend say that he is a free marketeer and that he does not wish to see the market regulated. As he knows, the petrol retail market is not economically regulated now. As with standards and competition policy, there are legal restrictions, and it is for the Office of Fair Trading to investigate breaches and enforce those. I will come on to the OFT’s investigation in a moment, but clearly, the existing situation is right, and the market operates on that basis. Like my hon. Friend, I do not wish to see economic regulation.

This debate goes to the heart of the fact that, in this time of economic difficulty, high fuel prices are putting a lot of pressure on households and businesses. Businesses are working hard, as are the Government, to ensure that motoring remains affordable for all. We have taken extensive action to ensure that motorists are supported. In the 2011 Budget, the Government cut the fuel duty by 1p a litre, and we have scrapped the previous fuel duty escalator, replacing it with a fair fuel stabiliser. That mechanism, which was effective from Budget day 2012, is designed to ensure that the burden of higher oil prices is better shared between oil companies and motorists through the increased taxation of oil and gas production when oil prices are high. When oil prices are above the trigger price of £45 a barrel, fuel duty will increase by the retail prices index only. When they are below that trigger, it will increase by RPI plus 1%, but that happens only when prices fall below the trigger point for a sustained period. My hon. Friend will remember that, in the autumn statement 2011, the Government deferred the 3p a litre fuel duty increase until August 2012. In June this year, the Chancellor of the Exchequer announced that that increase would be further postponed.

The Government are acutely aware that the high price of oil is a burden for people at this difficult time. As a result of our actions, motorists are being helped, and frankly, if that help had not been in place, whatever the price pertaining—whether petrol is more expensive in Wyre Forest than in Birmingham, or in Redditch than in Cardiff or Strangford—the reality is that the price would be 10p higher than it is now. The existing situation is a direct result of the Government’s action.

[Jim Shannon]

Even allowing for the Government’s steps, which I very much appreciate, in 2008, the price of a barrel of oil was $147, and the price at the pump was £1.04 a litre. In 2012, the price is about $100 per barrel and the price is £1.39 a litre. I am not a mathematician, but even taking into account those extra charges, that does not add up. I know that the responsibility does not lie with the Minister, but it illustrates to many of people inside and outside the House that oil companies are making exorbitant profits, and there is a need for the regulator to take control.

[Stephen Hammond]

The hon. Gentleman has put an interesting point about mathematics on the record. He tempts me to pre-empt the OFT investigation, which I would be ill-advised to do. I advise him and other hon. Members present to see what that investigation says. None the less, I hope that he takes the point that the Government are taking action because we recognise the burden of cost. In a moment, I will say a little about the Government’s concerns in relation to market transparency, because that is the line that he is going down, and I understand that.

The road fuel retail market in the UK has always been an open market, not an economically regulated market. The Government consider that to be very much in the wider interests of consumers. Regulation is undertaken by independent competition authorities. However, my predecessor made the point clearly that the Government are concerned about the lack of transparency in the market. As has been expressed not only in this debate but more widely, many people are concerned about fuel prices. They are concerned that the recent reductions in crude oil prices are not being seen at the pumps either at all or as quickly as motorists would like.

The Government have made their position very clear. The previous Secretary of State for Transport, my right hon. Friend the Member for Putney (Justine Greening), spoke several times about motoring costs, as did the Secretary of State for Business, Innovation and Skills and the Secretary of State for Energy and Climate Change. We have made the point that it is in our mutual interest for motorists and businesses to be confident that they are being treated fairly. That is important for the long-term benefit, and that point has been made several times.

When wholesale costs are coming down, those reductions should be passed on transparently and without unnecessary delay. Certainly, the aim of the fair fuel stabiliser is to ensure that action as well. Many members of the Government—the previous Secretary of State for Transport and other Secretaries of State—have made the point that motorists have the right to expect that when there are changes in the crude oil price—they can see those changes on the evening news—they will be reflected at the pumps. There is a duty on the fuel retailers to reflect that. The Department for Transport is on the record as saying that we want not only to see that happening, but to see it happening more obviously, so that there is greater transparency.

The previous Secretary of State put pressure on the fuel retailers to ensure that there was some transparency in their pricing policies. I was delighted to hear from my hon. Friend the Member for Wyre Forest that at least one of the major retailers of petrol was prepared to engage with him; it is to that retailer’s credit that it did so. Of course, being a financier of some repute in his previous life before first entering the House, he will recognise that those are quite normal pricing strategies. Whether his constituents see them as equitable or fair is another question. He will recognise that what that retailer said to him was not that different from what can be found in almost any economics manual.

As I said, the Government are clear that there needs to be transparency in this market and that we need to see that transparency being enacted. We also need to be clear that the industry is giving confidence to consumers. That is why both the Department for Transport and the Department of Energy and Climate Change wrote to several industry organisations, challenging them to ensure that there is transparency and encouraging them to work with the Government to take that forward.

The continuing and increasing public concern about the inability of some fuel retailers directly to reflect the reductions in crude oil prices in pump prices is the reason why on 5 September the OFT, which is, as my hon. Friend knows, the independent authority with responsibility for reviewing markets and enforcing the legal standards that relate to competition in this market as well as other markets, issued a call for evidence to help it to identify whether there are competition issues and a lack of transparency.

My hon. Friend mentioned that he thought that there might be anecdotal evidence of collusion, price undercutting and an attempt to drive out local independent retailers. He would therefore want to recognise—I think that he did so in his speech—that it is right and proper that the OFT gets on with its job and identifies whether there are competition issues overall in the sector or in parts of it.

The Government have made it clear that we fully support the call for information on the road fuel retail market. We clearly recognise the importance of fair pricing to cost-conscious motorists. It is clear that the OFT has been given a brief to explore what are a number of claims about how the road fuels sector is operating. I congratulate my hon. Friend, because almost everything that he spoke about in his speech is in the terms of reference for the OFT’s work. That is why I made the points about collusion, transparency, price fixing and driving out local independents. All those points are explicitly set out in the OFT’s terms of reference.

The Government have asked the OFT to call for evidence, and it is getting on with that. It has said that it will publish its key findings in January, alongside recommendations for action if it believes that to be necessary. It will obviously be appropriate at that time for the Government to make some response. It would clearly be inappropriate for the Government to pre-empt the outcome of that consideration and to speculate on what the next steps might be. Therefore, if my hon. Friend will indulge me and perhaps speak to the relevant Department in January about the outcome of the OFT’s work, I hope that he will get satisfaction. It is vital to the Government that we increase consumer confidence in this area. That is why the Government have asked the OFT to investigate. It is why Secretaries of State have been putting on pressure to ensure that the wholesalers ensure that there is retail price transparency.

I again congratulate my hon. Friend on securing this important debate. I have no doubt that the message about his standing up yet again for his constituents in Wyre Forest will ring through Wyre Forest tonight via the local press, and I congratulate him on that.