Commercially, price wars are nearly always wholly pointless; profit margins get shot to bits and even if a competitor is eventually forced out of the market, it can take years to recoup the financial damage. In petrol retailing it is questionable whether even the motorist gains. In the past, one of the effects of price-cutting initiatives was to drive thousands of small operators out of the business, leaving the big chains with greater control over prices at times of shortage.
This latest round of price-cutting may be different, however. The catalyst was the supermarkets, which in their search for new product lines have quite blatantly used petrol as a loss-leader. The oil majors have already been hit where it hurts, at their high price motorway sites. With a visit first to a supermarket forecourt, many modern cars can travel the length of a motorway without stopping. Casualties among smaller independents, which claim that petrol is being sold by the big oil companies at below cost, are certain. The supermarkets will not easily be driven out of the game, however. In France, they have 54 per cent of the market. Small garage chains are pressing for an OFT inquiry but until the Government fulfils its promise in 1993 to tighten the law, this is pretty much a waste of time. As price wars in the bus industry testify, aggrieved companies are often dead and buried by the time an inquiry is complete. In any case, the OFT rightly sees the supermarkets as new-wave independents, better able to withstand the oil majors than little firms, and so of benefit to competition and the consumer. The Government is equally unsympathetic.
There is a downside. The petrol price war will create petrol deserts in large parts of rural and inner city Britain as Esso, BP, Shell and the supermarkets battle it out and small retailers close. But this time round, the real losers look like being the oil majors themselves.
Real jobs remain in short supply
Britain's flexible labour market is delivering a lower unemployment rate than the stakeholder economies of Continental Europe: that is the Government's proud claim. With unemployment still at 8.6 per cent on the internationally accepted definition, this is no more than a triumph in relative terms. And it comes with a sting, a chronic sense of insecurity that could scupper the Chancellor's dream of buoyant consumer spending in 1996. For the "feel- good" factor to come good this year, the Government needs what Mrs Thatcher used to call "real jobs". Most people nowadays would happily settle for full-time jobs. Unfortunately, they are once again in short supply, according to the latest figures from the Labour Force Survey. The LFS is based on what members of households say about their employment. Ministers prefer this measure, not least because it shows more growth than the employer- based count.
This helpful pattern is repeated in the latest figures which show employment down in the third quarter according to the employer count, but rising according to the LFS. On an annual basis, the LFS shows an appreciable rise in employment of 250,000, compared with a meagre increase of under 100,000 on the other measure.
But never mind the width, feel the quality. On that score, the LFS conveys a less encouraging message. The pick-up in full-time employment which got under way in 1994 has ground to a halt; indeed, full-time jobs fell by 9,000 in the latest quarter. Part-timers made up the difference. On an annual basis, they accounted for almost two-thirds of the 250,000 new jobs.
The renewed shift to part-time work may suit employers, but it creates a climate in which consumers are reluctant to dip into savings. As long as these conditions hold, consumer expenditure is unlikely to take off, notwithstanding all those windfall gains that lie ahead. The Chancellor may not have cut rates yesterday, but cut again he assuredly will.
A Japanese fly in Eurotunnel ointment
Financial crisis is such a regular occurrence at Eurotunnel that it is hard to remember the company being in any other state. Life under the Channel is just one long financial crisis. If once apon a time there was a beginning, circa 1986, there is certainly no prospect of an end. There may be something to be gained from the present unresolved state of affairs, however. A bit like the Northern Ireland peace talks, neither party (in this case bankers and company) has much interest in finding a solution. The important thing is simply to keep the dialogue going.
First the company. There is no reason Sir Alastair Morton and his crew should want a full financial reconstruction since it would mean recognising the underlying economic reality; that Eurotunnel equity has no value at all. Part of the function of a board of directors is to sustain at least the hope of some value for shareholders, even if this is only at some indefinite point in the future.
Charade this may be, but bankers have some interest in going along with it. They are already guaranteed every penny of money the project generates over and above its operating costs, so it could be argued that tolerating the present stand-off makes no difference. Why clock up vast professional fees finding a neat financial reconstruction, or worse still give anything back to more junior creditors, when you already have all the protection you need?
There is a fly in the ointment here, however, and that is the position of Japanese bankers. Unlike others, they actually have a direct interest in crystalising their bad Eurotunnel debts for it is not until there is an event of bankruptcy or insolvency that they can claim tax relief on their losses. But this is not an insurmountable problem. Most bankers seem content to let the present situation ride.
So, while on paper, deadlines appear to be crowding in, the timetable is potentially very elastic indeed. The 18-month debt standstill agreed with the banks last September was on the understanding that proposals would be put to the banks by March. That deadline is almost certain to be missed. At the end of the full 18 months, there is nothing to stop Eurotunnel proposing a further standstill agreement. Bankers gain nothing by putting Eurotunnel into receivership, unless the tiresome business of finding new management could be described as a gain. Furthermore, Sir Alastair's chances of squeezing compensation out of the Government are probably as good if not better than most. Eurotunnel's insolvency may be something that all will just have to learn to live with.Reuse content