Fuel Prices

Amber Rudd Excerpts

Wednesday 21st January 2015 Westminster Hall

[The Parliamentary Under-Secretary of State for Energy and Climate Change (Amber Rudd)]

It is a pleasure to serve under your chairmanship, Sir Roger. This has been a very interesting topic to debate. It has attracted a lot of attention, and I hope I can answer most of the questions that the hon. Member for Inverclyde (Mr McKenzie) asked.

Let me begin by saying that the evidence is that at a national level the UK fuel sector represents a very competitive market. It is as a direct result of that competition that we see the fall in crude oil prices being passed on to consumers at the pumps and in their homes. The hon. Gentleman particularly wanted to address the issue of whether competition is working nationally and in his constituency, so I will comment on the role and what I believe is the success of competition in the road fuel market.

The downstream fuel market served by UK petrol stations and forecourts is a market in which competitive forces should operate to deliver a fair deal for customers. It is subject to UK competition law, and the Government do not have a direct role in setting the price of petroleum products in an open and competitive market. As the hon. Gentleman said, in January 2013, the Office of Fair Trading published the results of its call for information, which found no evidence that oil price rises are passed on to motorists more quickly than oil price falls; that issue was also mentioned by the hon. Member for Strangford (Jim Shannon). The OFT national analysis suggests that the so-called “rocket and feather impact”, whereby prices rise like a rocket and fall like a feather,

“does not appear to be a significant feature of the road fuel sector in the UK.”

The OFT report continued:

“Our estimates of the speed at which upstream price changes were passed down the supply chain when upstream prices rose was not found to be statistically significantly different from the speed of pass-through when upstream prices fell indicating that this pass-through is, on average, symmetric, both for diesel and petrol.”

As we have discussed, movements in pump prices are driven by crude oil prices, and analysis by the Department of Energy and Climate Change suggests that, once crude price changes are converted into sterling, they are fully passed through into pumps within six to seven weeks, which largely represents the time required to refine crude oil into petrol and diesel, and to distribute petrol and diesel. Although we have already seen some price falls, I am hopeful that we may see more in the future, after the time lag of six to seven weeks.

[Jim Shannon]

I have not seen that in my constituency. What my constituents have seen is an increase within 24 hours every time oil goes up in price, but certainly not the equivalent downturn when oil prices fall. May I respectfully make a suggestion to the Minister? I am not saying that it is always the case, but in some cases the petrol tanks were full of fuel that was bought before the price increase, and I suggest that that practice would result in exorbitant profits for the person concerned.

[Amber Rudd]

It is interesting to hear the hon. Gentleman’s views and his account of the experience in his constituency. In fact, as I say, it has been six to seven weeks since the oil price fell, so I would be very surprised if he did not start to see that fall reflected in the forecourt price in his constituency. Perhaps he would keep me posted, because the Government are committed to making sure that that happens.

[Mr MacNeil]

The Minister has asserted that these price falls come through within six or seven weeks, and she may well be right. However, the difficulty—it was mentioned by the hon. Member for Inverclyde (Mr McKenzie)—is that that is not apparent or obvious to anyone, including the general public. It should not take a Government Minister to assert that; there should be transparency in the entire system, so that we can see price falls with our own eyes and do not need to go to the Government or any investigative authority for such guarantees.

[Amber Rudd]

I beg to differ. There has been quite extensive coverage in the newspapers—there certainly has been in my local newspaper—about where there are different prices for petrol, and the fact is that people are seeing a reduction in the price of petrol. The hon. Gentleman will be aware that although the price of oil has a big impact on the price of fuel, it is not, as the hon. Member for Inverclyde said, the only element in the price of petrol. Duty also plays a large part, and I will make some comments about that in due course. Nevertheless, the oil price fall is beginning to have an impact. I am delighted to take part in this debate today, but it is wrong to suggest that the public are not aware of the changes.

[Mr McKenzie]

Is it not the case that the evidence the Minister is basing her argument on—the investigation by the OFT—has been criticised for being flawed?

[Amber Rudd]

I am afraid that the evidence tends not to please everybody. If the hon. Gentleman disagreed with the evidence, I am sure he made that clear at the time. There are groups that would disagree with it; whether that is because they do not like the conclusions of the report or because they doubt the evidence is always open to debate.

Let me say a little more about the 2013 call for evidence; it is relevant to this debate, because it reassures hon. Members and members of the public that we have addressed this issue and looked into it. The OFT analysis found that in August 2012, for example, there was a difference between rural and urban prices; I know that is of particular concern to the hon. Gentleman. Her Majesty’s Treasury engaged with the European Commission to approve the Government’s application for 17 of the most rural areas on the UK mainland to receive a 5p per litre fuel duty rebate. That rebate is targeted at remote areas of the UK that face particularly high pump prices.

[Mr MacNeil]

Hear, hear.

[Amber Rudd]

The Scottish islands and the Isles of Scilly have benefited from that rebate since March 2012, and the story about the rebate appeared in the press recently; there was a reference to it yesterday.

[Mr MacNeil]

The rural fuel derogation is indeed very welcome; it has been good. However, the money set aside for it was not all spent and I wonder whether there is a possibility of increasing the amount of the derogation as time goes on. It is currently 5p per litre, but could 7p or 8p per litre be considered?

[Amber Rudd]

I understand that the hon. Gentleman is ambitious to gain a further discount for his constituents. At the moment, however, the derogation is likely to remain the same, although I am sure that members of HMT will always keep it under review.

Time is short, so I will address a couple of the other points made by the hon. Member for Inverclyde, who called this debate. There was a comment about the supermarkets. The big four supermarkets have increased their share of the road fuel sold in the UK, from 29% in 2004 to 39% in 2012. The growth of supermarkets in this sector appears to have had a positive impact for motorists. Supermarkets are able to buy wholesale road fuel more cheaply than other retailers, and the high volumes that they sell allow them to operate on lower gross margins. I am hopeful that the entry of the supermarkets into this sector on such a large scale will have a positive effect on delivering improved prices for our consumers.

[Mr McKenzie]

I encourage the Minister to comment on the supermarkets’ radius of competition; as I highlighted, in certain parts of the country it is ridiculously small. In those areas, they are competing with themselves, and only themselves.

[Amber Rudd]

The hon. Gentleman’s point about supermarkets is interesting. However, the same is true of fuel as of other products, and the fact that supermarkets compete with one another demonstrates that competition is effective and keeps prices low.

I will just make a quick comment about fuel costs, as the hon. Gentleman commented on the role of the previous Government. In 2011, the Government abolished the previous Government’s fuel duty escalator; we cut fuel duty by 1p a litre in March 2011; and we have scrapped four planned increases in fuel duty during this Parliament. By the end of this Parliament, fuel duty will have been frozen for nearly four and a half years, which will be the longest fuel duty freeze for more than 20 years. The Government are taking action to protect the consumer by keeping fuel duty at a manageable level while ensuring that we concentrate on the overall need to stimulate our economy and constantly reduce the deficit.

[Mr McKenzie]

Will the Minister give way?

[Amber Rudd]

I have a few more points to make, so I hope the hon. Gentleman will forgive me for not giving away.

I reassure hon. Members that, although the price drop is being passed on, we expect more from the fuel providers. We will watch oil companies carefully to ensure that they continue to pass on the falling oil price, which benefits both consumers and the wider economy. Consumers and motorists are entitled to the best value for money, and the Government are determined to ensure that they get it. We will keep this issue constantly under review, and we welcome the impact that it is having on consumers and their weekly costs.