It’s time for more transparency over wholesale fuel prices and for the Department of Transport to launch a review
If it looks like a duck, walks like a duck and quacks like a duck, then it probably is a duck. Unless of course you’re an economist at the Office of Fair Trading – in which case it is a magnificent swan, gliding serenely down one of Her Majesty’s waterways. That, at least, is the conclusion one must draw from the competition watchdog’s report on the petrol and diesel market, published yesterday.
Here is a sector worth £47bn a year and essential to tens of millions of Britons going to work, to the shops and to drop off their children at school. Here is an industry that the former transport secretary Justine Greening has attacked for not passing on savings to customers, which energy minister Sandip Verma has lambasted for “ripping off” motorists, and which driving associations such as the AA have been calling on for years to become more transparent.
Yet deluged by evidence from a variety of sources (acting out of self-interest, to be sure, as we shall discuss), the OFT has held a four-month consultation period, spent a few weeks scanning the evidence, and then decided that no serious investigation is necessary. Compare that with its efforts over gym membership: a year-long investigation, triggered by 1,500 individual complaints in just a few weeks, followed by a crackdown on some of the biggest fitness chains.
None of this is to dispute the OFT’s description of the big picture; it is simply to bemoan its lack of curiosity about a market with many movable parts and where there clearly are huge differences. Where the watchdog is obviously right is in stating that petrol prices are so high because of the taxes levied by the Treasury. Of the £1.36 average cost of a litre of unleaded, 81p went to the government in VAT and duty, while 44p was the crude oil price. About 11p was the forecourt margin. Looked at before tax, the UK’s petrol price is bang in line with the rest of Europe.
But that is the bird’s-eye view, which misses out all the local variations that motorists know to their cost all too well. The same retail chain will charge different prices for a gallon of diesel on stations 20 miles apart from each other. Analysts talk about an “Asda effect”, where having the supermarket within a locality forces competitors to slash their prices. There are two possible responses. The first would be to say that this is competition at work, and hard cheese to those in rural or suburban neighbourhoods who do not have the same choice of where to fill up. That is effectively the OFT’s line.
The other is to say that this is a case of retailers gaming the public, getting away with whatever they can in a market that is never going to be as competitive as, say, groceries. You can’t order a gallon of unleaded over the web and it is harder to set up a forecourt than a corner shop. And besides, road fuel is rather more vital to most people than probiotic yoghurt.
Finally, the fuel market is just vastly more complicated than most others. It’s subject to foreign-exchange fluctuations, taxes, the falling number of refineries and the changing composition of our own fuel industry (long gone are the days when Britain was a net exporter of oil). Then there are the contracts struck by wholesalers, which are likely to vary hugely depending on whether they’re signed by Asda-Walmart or a tiny independent. Faced with all of that, the OFT would have been perfectly justified in calling for a proper study. Its decision not to do so would be inexplicable were it not of a piece with its tameness in tackling supermarkets a few years ago.
You can ask for no better sign of the political neuralgia caused by petrol prices (up over 40% in the past five years, despite road fuel tax being held down) than this: yesterday, the Conservatives, the party of low regulation, were up in arms over a report that called for, well, no further regulation. It’s their fault for passing the buck to a government watchdog. Time for a bit more transparency over wholesale prices and for the Department for Transport to start its own review.
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