The Competition and Markets Authority, which has warned forecourt operators they are “on notice” over concerns of unfair profits, has admitted the calculation it uses for estimating fuel margins is “a simple metric”, and that it has “not analysed” the sector fully.
A footnote in the watchdog’s latest road-fuel monitoring report says the organisation only compares wholesale and retail prices to estimate retailers’ profits on fuel, despite admitting that this is a “simple metric”, adding that it has “not analysed in detail the other costs of doing business in this market”. The CMA also says its pence-per-litre margin estimates are not adjusted for inflation.
So rudimentary a calculation means the watchdog ignores the rising business rates, electricity costs, minimum wages and employer National Insurance contributions forecourt operators have been hit with in recent months, with such hikes going hand-in-hand with the need to increase margins or risk going out of business.
Despite this, the CMA considers that fuel retailers are ”pursuing largely passive pricing policies, rather than actively competing to win customers”, and it remains “concerned that drivers are likely to be paying more than they otherwise would in a more competitive environment”. It estimates the average profit made on a litre of fuel was 11.3p in April, a margin of 6.6% based on the latest Fuel Finder dataset.
Of the 11 major retailers (who between them sell 60% of the UK’s fuel) assessed by the CMA for its report, 10 experienced “opposing margin trends” over the period analysed, meaning profits decreased in March before increasing in April, or vice-versa.
The watchdog’s executive director previously said her organisation was looking out for consumers being “ripped off” by forecourt firms, while the CMA “stepped up” its monitoring of petrol and diesel pricing amid the Iranian conflict.
Yet the CMA’s June monitoring report reveals the organisation has “not seen evidence of retailers actively changing their pricing strategies to take advantage of the crisis”, with rising wholesale prices explaining “most of the increase in pump prices in March and into April”.
Gordon Balmer, executive director of the Petrol Retailers Association called it “encouraging” that no evidence had been found of forecourt operators changing pricing strategies in light of the Iranian conflict, but he found it “hugely disappointing that the CMA mentions that their calculations on fuel margins ’have not analysed in detail the other costs of doing business in this market”’. He added:
”Our members have been hit hard by increasing costs including business rates, increases to the national living wage, inflation and sky-high rates of crime. By ignoring these the CMA’s report does not provide a complete analysis. Research from the RAC Foundation demonstrates that from the start of the war on 27 February to date, the direct costs to drivers include having been forced to pay an additional £505 million to the Government in VAT.’
Balmer said that if the government were “serious” about reducing the cost of fuel, ministers would rethink January’s planned fuel duty rise.
A spokesperson for the CMA commented: “It is misleading to claim we have not properly analysed the sector. We recognise there are different ways of calculating profits, but our approach provides the clearest indication of how well competition is working. We’ve also previously analysed operating costs and found they do not explain why fuel margins remain at persistently high levels.”
This article was updated to include comments from the PRA and CMA.
