Weak competition led to higher petrol and diesel prices, says CMA
Newsflash: Britain’s competition regulator has warned that motorists are paying higher prices for petrol and diesel, due to a decline in competion in the sector.
Following a review of the sector, the Competitions and Markets Authority has identified a series of problems in the retail market for motor fuel.
The CMA warns that supermarket chains Asda and Morrisons have taken a “a less aggressive approach to pricing” since 2019. They have traditionally acted as price leaders in the market, but have recently charged higher prices – and other supermarkets have not reacted by cutting their own prices.
According to the CMA:
Asda took a decision in 2022 to achieve higher margins by reducing prices in some of its PFSs more slowly than would previously have been the case as wholesale prices fell (ie “feathering” prices), with other retailers pricing by reference to them following a similar pricing path.
The CMA investigation found that consumers are paying generally higher prices than prior to 2019, for any given level of wholesale prices. During 2023, “competition has been significantly weaker on diesel than on petrol”, it warns.
In practice, the CMA says, average annual supermarket fuel margins had increased significantly from 2019 to 2022, representing a 6p per litre increase over this period.
The CMA is also concerned that there are “longstanding patterns of variable pricing” in different local regions, meaning consumers in some areas can pay “significantly more” for fuel than in others.
Thirdly, the CMA warns that competition at motorway services stations are weak, meaning that customers without access to fuel cards pay significantly more to buy fuel on the motorway than off it.
The regulator is recommending the creation of an open data fuel finder scheme, which would let customers check the price of fuel in their area (as already operates in Northern Ireland).
The CMA also wants the government to create “an ongoing road fuels price monitoring function for the UK market”, meaning an official eye on the market to keep retailers in line…
Last week, the boss of Morrisons admitted that supermarkets have increased profits at the petrol pumps as he was quizzed by MPs.
Senior officials from several major supermarkets told MPs they would support a transparent system of live fuel pricing, to help consumers get the best deal.
Key events
Downing Street has weighted in too, saying it is “absolutely not right” that supermarkets have been putting profits ahead of protecting consumers.
The Prime Minister’s official spokesman told reporters:
“It is absolutely not right that drivers aren’t getting the right fair deal for fuel and have in some circumstances been overcharged by retailers.”
CMA’s Cardell: We need to reignite competition among fuel retailers
Sarah Cardell, chief executive of the CMA, has warned that competition at the pump is “not working as well as it should be”.
Presenting today’s report into the motor fuel market, Cardell explains that changes need to be made, swiftly, to protect drivers.
She says:
Drivers buying fuel at supermarkets in 2022 have paid around 6 pence per litre more than they would have done otherwise, due to the four major supermarkets increasing their margins. This will have had a greater impact on vulnerable people, particularly those in areas with less choice of fuel stations.
We need to reignite competition among fuel retailers and that means two things. It needs to be easier for drivers to compare up to date prices so retailers have to compete harder for their business. This is why we are recommending the UK government legislate for a new fuel finder scheme which would make it compulsory for retailers to make their prices available in real time. This would end the need to drive round and look at the prices displayed on the forecourt and would ideally enable live price data on satnavs and map apps.
The CMA’s report also shows that increased margins on diesel across all retailers have cost drivers an extra 13p per litre from January 2023 to the end of May 2023.
The Unite union have declared that supermarkets are just one piece of the “profiteering jigsaw”.
Responding to today’s CMA report into the motor fuel sector, Unite general secretary Sharon Graham said:
“Profiteering at the petrol pumps is more proof our economy is rigged. Drivers are paying the price and failed regulators like the CMA have been enabling it.
“But the supermarkets are just one piece of the jigsaw. Price gouging is happening right along the supply chain, in the refineries and the oil companies too. The six refineries that control the UK’s petrol supply saw their margins jump an unbelievable 366% last year.
“Giant multinationals have been raking in profit through the cost of living crisis. Profiteering is a systemic issue across our rigged economy. It’s high time something was done about it.”
The newest policymaker at the Bank of England has warned that interest rates, and inflation, will not automatically fall back to their pre-Covid-19 levels.
Megan Greene has written a column for the Financial Times, in which she analyses the economic concept of “r-star”, the so-called long-run neutral rate of interest which neither stimulates nor slows the economy.
She warns:
It would be a mistake for central bankers to take comfort in the notion that inflation and rates will automatically go back to the low levels we saw before the pandemic. This is their challenge for the future.
That’s a sign that Greene may not be as dovish as Silvana Tehrehro, who she replaces at the Bank’s Monetary Policy Committee this month. Tehrehro was one of two doves on the MPC who opposed recent interest rate increases.
R-star is an important concept for central bankers, as they try to judge where to set monetary policy to guide the economy. But the problem, as Greene points out, is that “it is a concept, not something that can be observed.”
Some economists believe that r-star has not been pushed up by the pandemic, which would imply that interest rates would fall back to pre-Covid lows once the current inflation shock has abated.
Greene, though, argues technologies such as artificial intelligence, and investment in green infrastructure, could mean that R-star will rise – even if it hasn’t yet….
Here’s Danni Hewson, head of financial analysis at AJ Bell, on the CMA’s road fuel market study:
“At a time consumers and businesses were already struggling with rising prices supermarkets were adding to the burden by increasing their profit margins on fuel.
“Almost one billion pounds was syphoned out of motorists’ pockets in 2022 as a result of the change in practice which the competition watchdog says began with Asda and Morrisons, both of which had recently changed ownership.
“Prior to being taken into the hands of private equity both supermarkets had been aggressive in their pricing policy, with Asda in particular setting the bar which other supermarkets and retailers used for their own pricing decisions.
“Sainsbury’s and Tesco could have made a different choice and cut prices in line with falling wholesale costs, but they chose to maintain their previous position which helped the average annual fuel margin jump from 4.4% in 2019 to 7.6% in 2022.
House of Commons leader Penny Mordaunt has welcomed the CMA’s two recommendations:
Pump pricing has been too opaque for too long, that is why I have supported FairFuelUK’s #PumpWatch campaign. Delighted to see @CMAgovUK’s recommendation for a Fuel Monitor and a fuel finder to ensue diesel and petrol prices are fair and transparent. Thanks to @HowardCCox and… https://t.co/ox7y9aAx7o
— Penny Mordaunt (@PennyMordaunt) July 3, 2023
Here’s a video clip from the CMA outlining their review of the motor fuel market:
⛽ Our review of the road #fuel market has found that competition at the pump isn’t working as well as it should be, driving up prices.
That’s why we’re making recommendations, including the creation of a new fuel finder scheme to help #drivers get more competitive fuel prices. pic.twitter.com/0oL7Au7rUQ
— Competition & Markets Authority (@CMAgovUK) July 3, 2023
Mark Sweney
Back in the City, nearly £10bn has been wiped off the stock market value of AstraZeneca over concerns that a new lung cancer drug may not be as successful as had been hoped.
Shares in the Anglo-Swedish pharmaceutical company fell by as much as 6% on Monday morning after it published the first results from its phase 3 trial for datopotamab deruxtecan, making it the biggest faller among FTSE 100 companies.
The company said the study showed that the drug, which it is developing with Daiichi Sankyo, could halt the progression of a patient’s cancer for longer than the drug currently considered the standard for chemotherapy, docetaxel, but that it was too soon to say with statistical significance if they would also live longer.
More here:
Motorists ended up spending an extra £900m on fuel at supermarkets last year alone, due to the higher profit margins which led to an extra 6p per litre on petrol and diesel, the CMA says.
The CMA point out, somewhat pointedly, that UK retailers managed to cut their prices once the regulator took a keen interest in the sector.
Today’s report says:
We have observed significant drops in the price of fuel shortly after our previous publications (urgent review in July 2022, initial update report in December 2022 and cost of living update in May 2023), indicating that there was room for retailers to reduce prices.
The GMB union are urging business secretary Kemi Badenoch to investigate the merger of Asda with petrol station operator EG Group, following today’s inquiry into the fuel retail sector.
Nadine Houghton, GMB national officer, said:
“Today’s investigation completely vindicates GMB’s call for a full CMA investigation into the merger between Asda and the EG group.
“This merger will reduce competition further and ultimately workers and consumers will pay the price.
“The Business Secretary must use her powers to order a full investigation without delay.”
Billionaire brothers Mohsin and Zuber Issa, who founded EG Group, completed the takeover of Asda from Walmart in 2021.
At the end of May, Asda Group announced it was buying EG Group’s UK and Ireland operations for £2.27bn, as part of its push to overtaking Sainsbury’s to become Britain’s second biggest grocer.
