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Tuesday, 11 June, 2002, 14:34 GMT 15:34 UK
Price war at the petrol pumps
A man filling his car with petrol
Independent retailers say they cannot compete


Petrol prices in the UK are among the highest in Europe.

That is why Safeway's decision to cut the price of its petrol by as much as 20 pence a litre has sparked excitement.

The supermarket chain's aim is quite simply to get people spending in its shops.


Supermarkets have been a very good force in reducing prices as much as possible

Richard Freeman
AA
It has introduced a rising scale of discounts, so that customers who spend 25 in the store will get 2p off a litre at Safeway petrol stations and those spending 150 will get a reduction of 20p a litre.

With the highest reduction, a litre of petrol will cost 53.8p, which is close to what motorists pay in Spain.

It will mean a saving of approximately 10 for anyone filling up an average family car.

Supermarket pressure

Safeway's move sparked an immediate response from its rival, Asda, which has cut its fuel by up to 1p a litre without any need to spend in the shops.

Petrol prices per litre in May
Norway: 79p
UK: 74p
Holland: 73p
Italy: 66p
Switzerland: 59p
Hungary: 57p
Ireland: 57p
Portugal: 56p
Austria: 56p
Spain: 52p
Greece: 44p

Source: AA

The two biggest supermarkets, Tesco and Sainsbury, said they did not intend to react to the cuts.

But Sainsbury already gives customers 4p off a litre if they spend 100 in the store.

Supermarkets have driven petrol prices down ever since they moved into the market in the 1980s.

Their main businesses are their stores, and they have always seen cheap petrol as a way of attracting customers to those stores.

Big profits

Other petrol retailers have argued that with many of their forecourts on out-of-town sites, the supermarkets have lower overheads and can afford to absorb price cuts.

Even so, petrol prices in general have fallen in direct response to the behaviour of the supermarkets.

Not surprisingly, the independent retailers are unhappy about this latest price war because they say they cannot match big cuts in the cost of petrol.

But this is not about big profits for the petrol retailers and the oil companies.

While the oil giants can be slow to bring prices down when the price of oil falls on world markets, the majority of the money spent on petrol in the UK goes directly to the government in taxes.

In May, the average price for a litre of petrol was 74p but 56p of that amount was fuel tax and VAT.

Lower taxes

Richard Freeman at the motoring organisation the AA told BBC News Online: "Anything that reduces the price of petrol in the UK has got to be good news.

A Safeway store
Safeway wants people to spend more in its stores

"Supermarkets have been a very good force in reducing prices as much as possible," he added.

But he said that the only way prices would really come down was if the government reduced fuel taxes.

Fuel tax was reduced or frozen in the last three budgets, but Mr Freeman said the government needed to move further.

More money

There is no question that people want to pay less for their petrol in the UK.

Safeway said there had been queues on some of its petrol forecourts and petrol sales were up by a quarter.

But as far as the supermarket chain is concerned, this is not really about petrol.

The real test is whether or not more money is now being spent in the stores.

And that is probably why Safeway says it has not yet decided how long the offer will last.

See also:

15 May 02 | Business
15 May 02 | Business
17 Apr 02 | UK Politics
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