HC Deb 06 July 1939 vol 349 cc1649-64

Interpretation.

In this Schedule—

  1. (a)the expression "the relevant product" means the product in relation to which the normal minimum price or charge is deter mined;
  2. (b)the expression "the relevant process" means the process in relation to which the normal minimum price or charge is deter mined; and
  3. (c)the expression "the relevant quantity" means the quantity of the relevant product by reference to which the amount of the normal minimum price or charge is expressed.—[Mr. Stanley.]

Brought up, and read the First time.

10.34 p.m.

Mr. Stanley

I beg to move, "That the Schedule be read a Second time."

In dealing with this subject we are dealing with what everyone on the Committee will acknowledge proved much the most difficult part of the Bill. It was a question on which we spent a considerable amount of time, and when the time in the Committee came to an end, although certain lines of thought were emerging, we had come to no definite conclusion. The point raised here is the definition of the price which can be determined under a price-fixing scheme. The scheme in the Joint Committee's original proposals was on a totally different basis. They then proceeded on the idea that it would be possible to have, under the price-fixing scheme, a minimum price which could be kept secret, that each one would be able to sell his products as high as possible but the price level would be underpinned by this minimum price which it would be possible to keep secret. In that belief they introduced in their original proposal a formula for finding this minimum price which certainly entirely excluded profit and I think probably, on an accurate reading of the words, also excluded depreciation; but during the discussions which followed the publication of the Bill it became plain to the Joint Committee, and it satisfied me, too, that the original basis on which they proceeded was quite impossible, that, in fact, there was no possibility of having a minimum price fixed which would be kept secret, and that the almost inevitable tendency would be for the minimum price to become a maxi mum price. Once a customer knew that they were not allowed to sell below a certain price, almost inevitably he would force them down to sell at that price.

It is clear, if that view of what would happen was right—and I believe that on the whole it was right—that the original basis for finding that minimum was entirely inadequate, because if this minimum price was to become for Lancashire's industry the maximum price, it was impossible to contemplate a maximum price which included nothing for depreciation and nothing for profit. The outlook for an industry which during the whole life time of this Bill had to conduct itself on such a bleak basis as that would indeed have been a lamentable one. It was generally recognised in the Committee that if we were to adopt that view of what would happen, that is, that in all probability the minimum price would become the maximum price, we must find some new definition which would allow in the mini mum price a fair return for depreciation and for profits.

Although it was easy to come to these general decisions we found it was not at all easy to translate them into actual practice. I did produce to the Committee a new Clause which tried to meet this point. In that new Clause I proceeded on the basis of regulations in which there would be laid down some formula which would define the ratio of depreciation and profit which it would be possible to charge. We discussed the matter a good deal in Committee. I took the perhaps rather un usual course, but a course which I think was acceptable to the Committee, of deliberately putting down a new Clause, which I said before we started to discuss it I should withdraw at the end, in order that I might have on this very difficult subject the opinions of Members of the Committee and be in a position to frame the final proposal in the light of what they had said. It fairly emerges from the discussions on that Clause in Committee that the Committee felt that on such an important matter as profits and depreciation Parliament must have some say in, at any rate, the fixing of the maxi mum rate which could be charged.

As I said, I proposed in this new Clause to deal with the matter by way of regulation which would lay down some formula defining how the depreciation was to be calculated and how profit was to be calculated and what the maximum rate was to be. When I came to look more closely into it I found the task of devising any general formula which would cover all sections of the industry was really quite impossible. The variations, the sort of ratio of machinery to working costs, or, indeed, the ratio of working capital to costs, differs so immensely in every section that a formula which would have been perfectly all right for one section would have been wholly inapplicable to another, and a formula which would have been high enough to embrace all the sections would have produced in some of them the most ludicrous and quite un acceptable results. I was, therefore, forced back to the conclusion that it was impossible to deal with this on a basis general to the industry as a whole, and that we should have to deal with it section by section in the light of the difficulties of each section.

The scheme therefore that I propose in this new Schedule, following on the Amendment that we have already made to Clause 9, is as follows: There should be no formula laying down how maxi mum depreciation or maximum profit should be arrived at. Instead of that, in the actual price-fixing scheme the promoters of the scheme in the section should state the actual limit of depreciation and of profit that they propose. It will not be expressed in the form of a ratio but in the form of the actual figure, whether that is ½d. per pound or per yard or so much per spindle. It will be an actual maximum depreciation or profit. That scheme has to run the gauntlet of all, the inquiries under the Bill. It has to go to the Cotton Industry Board and has to be examined by representatives of all the other sections. It has to go to the Cotton Industry Advisory Committee and to the Board of Trade. Finally this scheme, with all those figures set out in it, has to be approved by an affirmative Resolution of the House of Commons. In that way, far better than by any theoretical discussion of a formula, we shall get the actual presentation of the figures, the sub mission of them to all the other sections and competing industries and finally to Parliament itself. I believe that that will provide the best safeguard for depreciation and profit according to the needs of any particular section. That is what Part I of the Schedule lays down.

That is the scheme, and the reference to it is in the sub-paragraphs of paragraph 3. Under the scheme the sort of idea will be, first of all that the scheme goes out with a maximum, let us say, of ½ d. per pound of yarn for depreciation and ½ d. per pound of yarn for profit. It runs the gauntlet and is finally approved by Parliament. That fixes the maximum figure. The price-fixing board which is running the price-fixing scheme has to fix the minimum price, which it submits to the Cotton Industry Board, whose duty it is to ascertain whether the scheme is within the limits of the Bill. Part I of the Schedule sets out what they have to do in order to arrive at that result. They have first of all to select from the firms in the particular section to which the price relates a group of the most efficient undertakings. Then, in relation to each of those undertakings, they ascertain the actual cost of production of each unit. They add to that the maximum amount specified in the scheme for depreciation and for profit, and they take the average of those sums. They then have to be certain that the actual price fixed by the price-fixing board is below the sum thus arrived at.

Hon. Members will notice one provision that we have made with regard to hours of work. In fact, that is the same provision as appeared in the original Bill, Under Part II of this new Schedule we develop the idea, which was very strongly pressed in the Committee and which I think met with general approval. It was that what we called the super-efficient producer—the man who, because of his skill, was able to produce at a lower cost than any of his competitors—should have some opportunity of proving that that was the case and of being allowed to take advantage of his extra efficiency. It would also, of course, act as a check upon the level fixed under the price scheme, and ensure that some people did not show abnormally high costs.

Part II sets out the machinery by which this super-efficient producer can obtain his price relief. As set out here, it looks terribly complicated, but it really means no more than that, having ascertained the appropriate amounts in the price fixing scheme for cost of production and for depreciation on his particular type of plant, then, allowing exactly the same ratio for depreciation, if he can prove that his cost of production is lower than the average cost of production of the group selected under Part I, he is allowed to revise his price below the minimum price by the amount by which his cost of production is below the average cost of production under Part I. [Hon Members: "Hear, hear!"] I do not know whether the hon. Gentleman's cheer is one of encouragement or of understanding. He has the advantage of having had a long explanation of the scheme, and, if, with that advantage, he does not now under stand it, I have no hope for those who have not had that advantage. Hon. Members will be interested in seeing, at the bottom of page 1886 of the Amendment Paper, that when we are computing the production costs of this super-efficient producer we make special provision with regard to wages, in order to ensure that he shall not gain any advantage if the wages he pays are lower than those customary in the trade.

It is, of course, at any time open to the Price Board to reduce the minimum price, and here a danger has been represented to us. The super-efficient producer makes his application, it is granted, and he is entitled to sell at a price below the minimum price which has been fixed. The Price Board then, in order not to have this competition cutting into them, reduce their minimum price to this man's level. He is then able to make another application and again to show that his costs of production are lower than the average selected, and is allowed again to sell below the minimum price. The minimum price thus follows him down, and you have a vicious spiral which, if' continued, would bring prices down to ruinous levels. Nobody would suggest that it would be wise or prudent to allow that to occur, and, therefore, we put in a definite stop below which the super-efficient producer cannot reduce his prices and avail himself of this procedure. That stop is put at the level of his cost of production plus the full depreciation allow able under the scheme. We feel that to sell below that figure can be of no advantage to the super-efficient producer him self, and can only tend to bring down the industry with him to a level which is wholly unprofitable.

The only other point to which I need call attention is that, if the applicant for this privilege based on his efficiency of production is aggrieved by a contrary decision of the Cotton Industry Board, he can appeal to an arbitrator, and the arbitrator may vary the award of the Cotton Industry Board. I am afraid I sit down without any hope that I have made this simple provision plain to the House but, although the language is extremely complicated, I think the general principles are probably fairly plain to Members as a whole and, from all the investigations that I have made so far, I think they commend themselves to those who joined in the discussion on the point in Committee and appreciated the very great difficulties.

Mr. Burke

On page 1886 the wording is different from the wording as we had it in the original drafting. Can we have an assurance that this means that no relief in price will be given if the standard rates of pay, that is to say the recognised trade union rates, are not being paid?

10.51 p.m.

Mr. Levy

I was one of those who criticised the Clause that my right hon. Friend put forward. I appreciated the difficulty and how impossible it would be under such a Clause to get anywhere at all with regard to this price scheme. Although at the time the Clause was withdrawn my right hon. Friend did not know how he would find a solution, I want to congratulate him and his advisers on finding a solution to this very difficult intricate, complicated problem;. It is one in which you have a ceiling and a floor and an intermediate price, and I feel that, if there is any solution to be found, the method that they have adopted is the only conceivable one that is likely to be of benefit. The President of the Board of Trade has certainly been very ingenious in devising it and I wish it all success, and I am sure it will have it.

10.53 p.m.

Sir G. Entwistle

I should like to add my praise to the President and his officials, and also to the Parliamentary draftsmen, for the way in which the Schedule has been drawn. It really looked as if the problem was insoluble, at any rate from the point of view of being expressed in an Act of Parliament, but on all sides I think there will be general agreement that the task has been admirably performed. There are two points of small detail which I shall be grateful if the President could consider. Is he satisfied with the definition now in the Clause or might it need a word of alteration in another place? Paragraph 3 (a) says: The cost to the person carrying on that undertaking of manufacturing the relevant quantity. I am not sure that the word "manufacturing" is sufficiently wide to cover the prime cost of production. If my right hon. Friend is satisfied that it is sufficiently wide, well and good, but would it include such costs as the expenses of salesmen in selling the produce? Would it include the cost of sampling, or even some necessary research? Does it include what would be regarded as essential overhead costs? That that is intended I have no doubt. But I wonder whether it would not be better to have a wider term, such as "cost of production" or, as I would prefer, "cost of manufacturing, including costs incidental to the manufacture." Such words as that would make it quite clear that those incidental costs are to be included.

The other point I want to raise is a similar point, as to whether the words "depreciation of plant" are sufficiently wide. I should have thought that it would have been better to have left simply the word "depreciation." If you are to say what is depreciation, I would prefer the words "depreciation of assets," or "depreciation of fixed assets." I doubt whether "plant" would include buildings, and it is important that there should be provision for depreciation of buildings, both for obsolescence and other purposes. There may be other things which do not come strictly within the word "plant" but ought to be included. As long as the word "depreciation" is capable of being construed in the way it is normally construed for commercial purposes, that is all I am asking for. I should be grateful if my right hon. Friend would consider whether these words are satisfactory for the purposes desired.

10.57 p.m.

Mr. Rhys Davies

I wish to say a word in relation to the point raised by my hon. Friend the Member for Burnley (Mr. Burke). When we discussed this problem upstairs we talked about conditions of employment. Certainly, they will enter into any price-fixing scheme as much as rates of wages. The Lancashire textile industry is the one industry which has been immune from the introduction of the two-shift system up to recently. We should regard any price-fixing scheme that would lend itself to the extension of the two-shift system in the industry as a very serious blow to the standards of life of the people. I should like to say a word concerning the tilt of the right hon. Gentle man about my understanding. I will pay him this tribute in return. I wish my mind was as alert as his, but if I were supplied with as many memoranda as he I could make myself almost as intelligible as he has been.

10.58 p.m.

Mr. Hammersley

This is the most ingenious part of a very complicated Bill. As the fixing of prices is perhaps the most important factor in any industry, and as we had such a long discussion on this matter upstairs and found it so difficult to come to a solution, I should like to say a word of praise for the right hon. Gentleman and his Department, who have found a solution which has com mended itself to the House as a whole and will react to the benefit of the industry.

10.59 p.m.

Mr. E. Smith

I should like to join with other hon. Members in expressing satisfaction at the method adopted by the President of the Board of Trade in finding a solution to this difficult problem. Members of the House will agree that he had a very difficult task, and he must have given a great deal of attention to it since the Committee's proceedings terminated to have been able to deal with it in so able a way. It gives me satisfaction to know that in Part II the operatives' conditions have been dealt with. But I would like to ask whether the President of the Board of Trade can give an assurance that this will be operated on the basis of the best possible conditions as to wages and piecework prices. The right hon. Gentleman stated, and as I listened to him I could agree, that the only satisfactory way of dealing with this problem was that they should dispense with any formulas, and in my view, after giving some consideration to the problem, the right hon. Gentleman has dealt with it in the best possible way.

He went on to say that the board will have regard to the limit of profit and of depreciation. I understand that the board will deal with these matters, but who will fix the standard of valuation of depreciations? Is it to be done in consultation with the Board of Trade officials? In my view, a good deal of the success of the scheme will depend upon the maximum amount of agreement that can be arrived at in the industry, and especially in the sections, upon the valuation of depreciation. The next point is with regard to cost of production. Those hon. Members who are well informed on industrial affairs will agree that there may be a great difference between overhead charges in one factory and those in another, and, therefore, I think it is most important that in the regulations that are to be introduced by the right hon. Gentleman the board, when they are considering the important questions of overhead charges, costs of production, and valuation of depreciation, should come to their decisions only in consultation with the specialists who are employed by the Board of Trade to deal with these matters.

11.3 p.m.

Mr. F. Anderson

I will put a hypothetical case. In Lancashire a large number of automatic looms have been introduced, and some organisations have come to agreements, while others have not yet done so, especially where the two- shift system has been put into operation. In the event of, say, a two—shift system having been put into operation, what method will be adopted to arrive at what is called a reasonable or fixed price for the selling of that commodity? As is generally known, the ordinary power loom can produce cloth A, and the automatic loom also can produce cloth A. What will be the position in arriving at the efficiency price for the super-efficient loom? Is it going to be that the power looms are to be judged on their own merits, and the automatic looms that are producing similar cloths all the way through also on their own merits? Or what will be the method adopted as a whole in regard to what are called the super-efficient looms or the automatic looms? As the right hon. Gentleman is perhaps aware, the position so far as automatic looms are concerned, is gradually shifting to a greater efficiency in production from the standpoint of mass-produced goods. What is going to be done in those circumstances?

There is one further point. As the right hon. Gentleman knows, a number of industries have been established in the Special Areas that may come under the Cotton Industry Board. In making any calculations as to what is going to be done so far as those industries are concerned having regard to the fact that they are relieved from rates, Income Tax, and so on, what will be their position as far as depreciation is concerned in making the calculations under the super-efficiency scheme that has been mentioned?

11.6 p.m.

Mr. Dodd

To those of us who were in Committee upstairs it is with no little astonishment that we find nothing but praise from all quarters of the House in regard to this particular matter. The amount of time that we took in discussing it in Committee was only exceeded by the time that was taken in discussing the question of "may" or "shall." Whilst there was a vast diversity of opinion upstairs, there seems to be much less diversity of opinion here. I think my right hon. Friend has shown infinite patience in listening to everything that was said upstairs and in succeeding in incorporating it into a single Schedule such as this. I support the Clause with this Schedule, but there are one or two things to which I should like my right hon. Friend to give further consideration.

There is, first, the point that was raised by my hon. Friend the Senior Member for Bolton (Sir C. Entwistle) with regard to costs—the costs of the person carrying on the undertaking, manufacturing the relevant quantity, etc. What are costs? We ought to have the widest possible scope for defining what costs will be. Some firms advertise, while others do not. Some people find it suits them to advertise, and others find that it does not. There are a dozen different ways of incurring costs. In the first part of the Schedule the word "profit" occurs. Profit is a very difficult word to define, and I am wondering whether if we used some such phrase as "return of a reasonable amount on the capital involved" it might not be a better way than to use the word "profit." I do not, however, press that point.

With regard to the so—called super-efficient concern, I am sorry that my right hon. Friend has not accepted my point of view. I am in a minority and have been all the way through, but I am glad to say that I have got a few recruits since I started in regard to the so-called efficient concern. I have contended all the way through that the so-called super-efficient concern has the right to come down on appeal below the other people if he can demonstrate that his costs are lower, and I have further contended that the other people in that section should not be permitted to come down to that same costs level until they have demonstrated that they have reduced their costs to an equivalent amount. I do not want to enter into a discussion of that matter at this time, but I had hoped that there was a chance of that view being incorporated or, at any rate, that it might have been left open to be introduced at a later date, if need be. I view this with a great deal of concern because right through from the Second Reading my aim has been to increase the efficiency of the industry within the county and to encourage the renewal and replacement of plant as far as possible. As the hour is late and we are dealing with far and away the most complicated Clause and Schedules in the whole Bill, I will not say anything further, except that the President of the Board of Trade and his advisers have done a remarkably fine piece of work in putting on to paper in a form of words what was said and urged upstairs.

11.9 p.m.

Sir H. Fildes

I join in the chorus of congratulations in respect of the cleverness of the President of the Board of Trade and the Parliamentary Secretary, but I must say that never before in my time has there been legislation of this character introducd in the present circumstances. The story from the beginning has been that Lancashire was clamouring for this Bill and this Schedule, and today is the first time that we have really seen the Bill. How can Lancashire have had an opportunity of discussing it? If my right hon. Friend the President of the Board of Trade is fair and stands by the pledge of the Prime Minister, he will, before he goes any further, give Lancashire an opportunity of expressing its opinion upon this Measure. It is without parallel in the legislation of this country to attempt, as is envisaged in this Schedule, to state what should be profit and what should be depreciation. We are going to pass this Bill without having had an opportunity of going into these things. This is a betrayal of Lancashire. There is no justification or authority for proceeding further with this Measure. In view of this Schedule, I appeal to my right hon. Friend, now that he has made up his mind on what is desirable to be incorporated in this Bill, to submit it to Lancashire and to take an independent ballot. If there is a majority in favour of this wretched Bill, I shall have no more to say, but if not, he should take his defeat like a man and enable this trade, which has gone on so well for so many years without interference, to carry on.

11.12 p.m.

Mr. Stanley

I do not think that I need follow the hon. Member for Dumfries (Sir H. Fildes) into his wider researches, although I confess that I was a little surprised and disappointed, when, after starting his speech so successfully by warmly congratulating me, he ended by making quite plain that what he congratulated me upon was, in his mind, a betrayal of Lancashire. The hon. Member for Burnley (Mr. Burke) asked a question with regard to the drafting of the sentence at the bottom of page 1886 of the Paper. I think he is under a misapprehension. There has been no change in the drafting, although I understand that the possibility was discussed of some change being made in another place to make it plain that what we have in mind is not so much the rate as the total remuneration which a man receives. There has been no change in that so far, and if the hon. Gentleman will have a word with me before the Bill is considered in another place with regard to this point, I will certainly consider it.

One of my hon. Friends raised two points, one of which was whether our definition of the costs of production was wide enough to cover certain costs which he thinks should be included, such as research. I will look into the matter, and will certainly consider his suggestion of using the word "incidental" as regards the definition of depreciation of plant. It is certain that it does not cover a building or fixed assets of that kind. My hon. Friend will realise that full maintenance and repairs for buildings will be allowable under the costs of production, but depreciation of plant is all that is allowed for in the depreciation, just as I understand that it is only depreciation of plant that is allowed for under the Income Tax law. Although a factory building will be subject to a charge for repairs and maintenance, nothing is allowed for maintenance.

The hon. Member for Stoke (Mr. E. Smith) raised the question of the basis of valuation. I think he will realise that so far as the scheme itself is concerned it will be unnecessary to lay down a basis of valuation. The scheme will lay down the actual amount which is to be allowed for depreciation. With regard to the cost of production, there are wide variations, and for that reason this is not to be judged on the case of one firm alone, but on a group of firms. In regard to his further question, he will find in paragraph (4) a provision that the assumption is that the undertaking was carried on for the number of hours customary in the section of the trade to which the scheme relates. I understand it cannot be said that in any section of the industry the customary hours are a two—shift or three—shift system, and, that being so, it will be on the assumption of the customary hours worked in that particular section.

The hon. Member for Oldham (Mr. Dodd) raised an interesting point which he said he did not want to pursue, and, therefore, at this late hour I will not pursue it, but I cannot contemplate laying it down in an Act of Parliament that the Price Board shall be forbidden from going below a certain price. That is not a principle which we can fairly adopt. We must allow them to be free to choose a price which they consider to be satisfactory. In conclusion I should like to express my appreciation of the compliments which have been paid by hon. Members in all quarters of the House to my officials and to the draftsmen who have been responsible for the preparation of this extremely complicated piece of drafting.

11.19 p.m.

Mr. Petherick

I beg to move, as an Amendment to the proposed Schedule, in line 108, at the end, to insert: 8. The decision of the Cotton Industry Board on an application made by any person registered under the scheme for the determination by that Board in accordance with the preceding provisions of this Part of this Schedule of the special allowance for cost and depreciation appropriate to that person in respect of the relevant product shall be notified to that person not later than seven days after the submission to the Cotton Industry Board of such particulars in regard to the application as may reasonably be required by that Board for the purpose of arriving at such decision. The orchestra during the course of the afternoon and evening has been fairly harmonious. I must say that the efforts of one or two crooners I did not entirely approve, it may be that my conservative ear is not attuned to this modern music. I do not think anybody really except the leader of the orchestra, and possibly the composer, can understand it. If it does not benefit the cotton industry it will at least benefit the paper industry particularly the new Schedule which is to be added to the Bill. I wish to say only a few sentences in support of my Amendment. As I understand the new Schedule, if a person wishes to sell at under the fixed price, and can confirm to certain conditions which are laid down very elaborately and extremely well in the Schedule, he may in those circumstances be allowed to do so. A decision as to whether he may sell at under the price fixed or not should be given extremely quickly. As everybody knows, sales in the cotton trade may easily be lost to a foreign competing firm unless an offer is accepted very quickly. Therefore, it is essential that a decision should be given at the earliest possible moment by the body to which the appeal is made. The Amendment lays down that the decision has to be given by the Cotton Industry Board within seven days, and I hope my right hon. Friend will be able to accept it.

11.21 p.m.

Sir. H. Williams

I beg to second the Amendment.

I support the Amendment because I think that a decision should be given promptly, although I am not in complete agreement with the period mentioned in the Amendment. It might be that the period of seven days would raise certain difficulties at Christmas time, Easter, Whitsun, and the end of July, for example, and during the periods of the customary holidays. Nevertheless, it is vital that from time to time, if trade is to continue without interferences, these decisions sthould be given without undue delay. I second the Amendment in the hope that my right hon. Friend will Le able to give some undertaking that he will look into this matter for the purpose of seeing whether in another place appropriate words can be introduced for a reasonably mandatory instruction that those concerned, when they commence their duties, shall not hold up decisions in a manner that is unreasonable.

11.22 p.m.

Mr. Cross

I fully agree with my hon. Friend the Member for Penryn and Fal-mouth (Mr. Petherick) as to the need for speedy action in giving these decisions, but it does not follow from that that I think an Amendment of this kind is either necessary or desirable. The time that may be required to come to a decision on these points must depend upon, and vary with, the circumstances of different cases, and indeed, as to putting in any time limit at all, I think the Cotton Industry Board could always, without any difficulty, delay a decision simply by asking for further information. On these grounds alone, I suggest to my hon. Friend that a time—limit is not a desirable way of dealing with this point. It would be impossible to say that any information for which they asked was not reasonably required, and the moment they found themselves a little behind the statutory time limit within which they had to give their decision, they could easily evade the provision. I would further submit to my hon. Friend that, on general grounds, it is very undesirable that the Cotton Industry Board should be required to come to a decision within a specified time when they would be acting in what would be a semi—judicial manner. The question is one which will have to be settled by the three independent members of the Board, and those three independent members are to be appointed by the Board of Trade, who will be conscious of the very definite functions, including this function, which they have to perform, and I feel we should do best to rely upon my right hon. Friend's Department to appoint persons who would not unduly delay their decision.

Amendment negatived.

Schedule added to the Bill.

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