Combustible issues that are fanning the fuel crisis

Drivers queuing for petrol dominated coverage of the fuel crisis. But the real problem is how the oil price affects hauliers, farmers and oil companies

Back in March, when I wrote that “oil prices are lurking in the background to spoil the party”, little did I realise how prescient I was being. I seem to remember adding a cautionary note about “how hard the oil-producing economies can clobber other economies if so minded” and concluded that our modern prosperity “may become the victim of the most old-fashioned of industries, not to mention old-fashioned politics in the shape of [Gordon] Brown”.

So I was right up to a point. Inflation in the price of crude oil has allegedly been an intolerable burden on industries such as haulage. Meanwhile, the Chancellor has paid the price for a Comprehensive Spending Review that amounts to old-fashioned, tax-and-spend Labour politics, albeit of the indirect, “stealth tax” variety.

But I thought these twin factors might play a role in dampening economic performance by eroding corporate profit-margins, especially in distributive industries. Instead, it looks as though a couple of thousand people with collapsible picnic tables – the so-called “blockaders” – have forced the Government to deflate fuel prices by reducing the tax it levies. In any event, ten or so days into a 60-day ultimatum, it’s hard to see the Government not taking some such action to avoid a pre-Christmas reprise of the blockades.

Of the political issues, only two things are relevant. Firstly, if we want more money spent on our public-transport infrastructure and environmental quality, then a tax on expenditure is more just than a tax on income, as it is targeted on those who choose to burn motor fuel.

And, secondly, the ending of the blockades was very shrewdly timed. The shortage was initially driven by panic buying. This meant that, in a prosperous economic climate, demand quickly outstripped supply as consumers decided it was more important to have fuel in their tanks at inflated prices than to protest – whatever they chose to say to television reporters about their support for the blockades.

It follows that, had the dry-out spread significantly from the forecourts to consumers’ tanks, the focus of populist protest would have moved from the oil companies and the Government to the blockaders.

These are factors worth bearing in mind in 50 days’ time, in the unlikely event that the Government has failed to pre-empt further action through a carefully crafted cave-in. Meanwhile, the petrol crisis has shown there are three industries that need special consideration – hauliers, farmers and the oil companies.

Hauliers are probably of most relevance here, since they perform such a critical role in the distribution chain. Leaving aside a natural complicity between petrol haulage and other lorry drivers, it’s difficult to get a handle on the nature of hauliers’ complaints.

A key, if specious, argument, according to the Road Haulage Forum (RHF) is that, in April, the costs for French truckers operating in the UK were approximately five per cent lower – and for Dutch trucks ten per cent lower – than the equivalent costs for British operators.

But this is only relevant if there is foreign competitive penetration of the UK market. Apparently, the internal UK volume of haulage accounted for by foreign truckers, according to the RHF itself, is 0.06 per cent. The commercial effect of cost differentials is consequently negligible.

Next, there’s the argument that we urbanites fail to understand the financial misery that expensive fuel causes in the countryside. I do not deny that British farming is suffering a depression on a scale that hasn’t been witnessed since the Thirties. But, on the fuel issue, farmers are on their weakest grounds for sympathy. They pay a preferential rate of 3p per litre for “red diesel”, one-sixteenth of the rate paid by the rest of us. Perhaps that’s why the farming lobby has been relatively quiet on the fuel issue over the past few weeks.

Then there are the oil companies, which are said to have colluded with the protesters. According to the Centre for Global Energy Studies, British petrol is among the cheapest around. Excluding tax, the most recent comparable figures show that the British price is 17.7p per litre. In France and Germany they pay 17.78p and 17.74p respectively and in the US, with altogether greater distributive demands, the price is 19.78p per litre.

Since 1998, crude-oil prices have risen by 9.1p per litre. Excluding tax, petrol prices have gone up 5.5p. So the oil companies have absorbed much of the rise in the price of crude oil, while watching taxes rise in the same period by some 14p a litre.

Against this background, it was a canny stroke of Esso to raise its prices by 2p a litre when the blockades were called off, as it should have drawn attention to where the money was being made in the petrol industry – at the Treasury, not on the forecourts. Did the oil companies make this point? No. They wittered on about non-collusion, the alleged intimidation of their drivers and their desire to sell petrol.

But the crisis could return and, if it does, we may wish to hear about the real issues affecting the three key industries involved, rather than simply listening to motorists whining about the price of something they have just queued for three hours to buy.

George Pitcher is a partner of issue management consultancy Luther Pendragon


    Leave a comment