§ Motion made, and Question proposed, "That this House do now adjourn."—[Lieut.-Colonel Kerr.]
§ 7.1 p.m.
Mr. Owen Evans
I desire to draw attention to the administration of the War 105 Risks Insurance Act in so far as it deals with stocks of commodities in this country. Whatever use this discussion may have, I trust that it will, at any rate, afford an opportunity to the Minister to make a general statement on the position as he now finds it and, possibly, to clarify some very important problems that have arisen. I trust the Minister will not be unwilling to give the House the benefit of his views. It has never been disputed that commodities should be covered against war risks, and both the House and the country have expressed the desire that such a system of insurance should be extended to other classes of property. The only complaint that I have heard against the insurance of commodities, and especially the compulsory aspect of it, is that it is costly and has given rise already to somewhat widespread increases in prices; but from the point of view of individual manufacturing and trading concerns, the serious complaint is that the indeterminate liability that is the unascertained and indefinite premium has been a cause of considerable worry.
One does not wonder at these problems arising, because this was a very hasty piece of legislation to deal with a very complex subject. In normal times it would have occupied a considerable number of days in this House. As it was, Members had not sufficient time to examine all the possible effects of compulsory insurance upon industry. I have been looking up the OFFICIAL REPORT, and I find that the Second Reading of this most revolutionary Measure occupied five and a half hours of Debate and that the Committee stage lasted two and three-quarter hours. As to the subsequent stages. the OFFICIAL REPORT states:Bill, as amended, considered; read the Third time, and passed.In those circumstances it is not surprising that a good many problems have arisen and are arising in connection with the administration of the Act. Reading through the speeches on Second Reading I feel that they were not particularly instructive or helpful, because they were inapposite. The main complaint then was that the Bill omitted to deal with the insurance of real property, a matter which has been postponed by the Government to await the report of a committee which has been investigating the subject. I believe that that report has been received, 106 and perhaps the Minister may be able to tell us when we may expect to have before us a scheme for the insurance of houses and other forms of real property.
But in saying that I have also to say that executives and heads of manufacturing and trading concerns could have been spared a great deal of unessential labour and worry in considering the unascertained demands upon the cash resources of their concerns if a little more time had been taken to see what were the probabilities in regard to air raids. The Minister himself, in his speech on Second Reading, referred to the Bill as one of a seemingly unending series of war Measures which the House had been considering. That was inevitable, and no one complains about it, but I assure him that each of those Measures has raised a great variety of problems in industry. They bristle with difficulties for those who are responsible for the conduct of business. I submit that those engaged in industry should, as far as possible, be saved from being harassed and worried by obscure rules and regulations which are often unintelligible even to learned lawyers. My own experience in submitting these problems to lawyers is that they can give only a very qualified opinion, and even the Board of Trade interpretations are subject to the usual caution that the courts are the final arbiters.
I do not think I need argue that the efforts of manufacturers to-day should be concentrated on using the maximum industrial capacity of the country to produce essential goods for the home and other fronts; but, unfortunately, many of them are compelled to spend much of their valuable time waiting upon the doorsteps of Government offices trying to find some one who can tell them something authoritative about the demands made upon them by the flood of legislation recently passed through the House. We all recognise the immense task in front of the Government, and many of the troubles are unavoidable, and so I do not want to make destructive criticisms but to offer constructive suggestions. The trader who is blessed with the most imaginative optimism can have no conception of the demands made upon him in respect of premiums under this compulsory insurance. I have been told that in many cases they exceed the 107 normal year's profits of an ordinary business. Certainly it is true to say that the premiums under this compulsory scheme make a big gaping hole in the cash resources of a multitude of industrial undertakings. That is a serious thing in these days, because it is bound to lead to the slippery slope of borrowing at high rates of interest, which will undoubtedly end in disaster if the war is to go on for a considerable time. It is the duty of everybody to conserve the cash resources of his undertaking as much as possible in these days, but it is an undoubted fact that the premium involves a big drain on the cash resources of our industrial concerns.
There has been a good deal of discussion in the Press of the Act and of the scheme, and able writers have suggested that the scheme should be scrapped. I do not ask the Minister to scrap the scheme at all, but I think he must realise that there is a great deal of support in the country for that idea. I suggest that, in regard to premiums, care should be taken not to over-estimate what is required. It should be the care of the Government to under-estimate the premiums required rather than to over-estimate them. The duty of the Government to trade and industry is to take them into their confidence and to say boldly that, after the war is over, we shall mobilise the whole of our financial resources to make good all war damage and to enable industry to start upon a peace footing, rather than that we shall have excessive premiums. The Government should studiously avoid excessive premiums, even to the extent of under-estimating the premiums and making good the deficiency at the end of the war. For Heavens sake let us not mislead the country into believing that the damage will be repaired out of the defeated enemy. That bubble was burst at the end of the last war.
In his speech on the Second Reading, the Minister, with his customary charming and disarming manner, induced the House to pass the Measure with great ease because of the blessing of security it gave to the traders of this country. As to the object of the Bill, the right hon. Gentleman said it was essential that maximum stocks of commodities should be accumulated in the country before an emergency occurred, that the Government were responsible for collecting the stocks 108 and that their efforts were to be supplemented to the fullest extent by private traders. I feel sure that the right hon. Gentleman will agree that the traders responded willingly to that appeal. Then the right hon. Gentleman said: "I cannot get them to do that unless they are satisfied that they are fully covered against war risks." The question is, by whom are they to be covered and at what price? There was no indication that the premium charged would have no relation to the risks contemplated on different classes of goods situated in different parts of the country, with due regard to the heavy expenditure already incurred by traders to protect their goods from enemy action.
The three points which I wish to emphasise are: The premium has had no regard to the description of the goods, to the locality in which they were placed or to the circumstances and the protection which had already been afforded them at great expense by the traders of this country. I think I might ask the Minister for some explanation on this point. If he will be good enough to refer to Section 9 of the Act he will see that it provides:Different rates of premium may be prescribed for different descriptions of goods, according to the …circumstances in which they are situated.So far we have heard only about one rate of premiums. I would ask the Minister to say whether a change is contemplated. Does the Board of Trade intend to take advantage of the power given to it in that Section? I suggest that a different rate of premium is justified in respect of different commodities. I cannot for a moment agree that the same premium should be charged in respect of industries with indestructible products as is charged in respect of commodities like wool. The idea that a different premium should apply to different localities does not appeal to me at all. It would give undue protection to concerns in less vulnerable areas.
The second question which I should like to address to the Minister, and to which I hope he will be good enough to reply, relates to another Section, under which the Board of Trade may make orders specifying that "goods of any description" are deemed not to be goods insurable under the Act. Only one order has been made so far, and it refers to the 109 kind of goods I have indicated, those which arc difficult to destroy, such as metals of different kinds, steel products and so on. I should like him to tell as whether the Board of Trade contemplates making further orders in that direction, and what principles will guide the Board in determining the classes of articles to be exempted under that Section. I happen to know of one case of a commodity which would take 2,445 degrees Fahrenheit in order to melt it. It is impossible to conceive that Hitler's most fiery bomb could cause any damage to that commodity. There are many other instances which I could mention. I submit that the Board of Trade should take advantage of the power which it has to differentiate between different classes of goods in regard to premiums. I do not think that it should differentiate in regard to locality, but that is a matter of personal opinion on which hon. Members may differ.
The third question on which I would like some clarification is that relating to value. In the Act, value alone without qualification is mentioned but, on the other hand, in a circular it issued and in answers to queries and questions which have been addressed to it, the Board of Trade has used the expression "full value." I would like the Minister to tell us how the Board interprets full value. Is it equivalent to replacement value or not? Is it market value, or does it bear the same meaning as in Section 3 of the Act, which has already been made subject to an order in which value is defined as cost or market value, whichever is the lower? I would ask the Minister's guidance in this matter. It makes an enormous difference, and trebles the cost in many instances, according to the meaning you give to the word "value." Apart from that, how is this value to be determined, and by whom? Whatever definition is given to value, it is extremely important that all traders subject to compulsory insurance must declare the right value.
That is one method, but I understand that that is not the usual definition in insurance circles. When a person insures goods voluntarily against f re the value is usually taken to be the replacement value.
110 The Minister may be certain that there are further problems of very great complexity to come before him in connection with this Act. I am sure he knows that already there are eight long lists, containing over 270 questions addressed to him, and that they are still coming in. I put these points to him in no carping spirit, but I would invite him to make a statement on these matters. And may I emphasise that it is essential that the Board of Trade should concentrate upon this subject in order to expedite the decisions and the Orders to be made under the Act. The premium question is, in my submission, the crux of the whole matter. At present a stable premium is probably impossible. There is no information about the damage likely to be done, upon which to base a figure. I welcome heartily the announcement made by the right hon. Gentleman recently that one month's premium for the initial period shall be credited. That carries people up to 1st December next; but what is to happen after that? The Minister has already conceded—if I may use that expression—that the reasonable cost of this insurance may be added to the price of goods, with, of course, due regard, as he put it, to the rate at which goods are being turned over. I am sure the whole House will be glad that many trade organisations in this country have impressed on their members the necessity of keeping prices as low as possible. One of the main objects of the scheme is to encourage traders to keep adequate stocks by removing the fear of heavy losses owing to enemy action. That being so, every effort should be made to reach as quickly as possible a condition of affairs in which traders can know their liability wilth some reasonable certainty.
§ 7.25 p.m.
§ Mr. A. V. Alexander
We are all grateful to the hon. Member for raising this matter, and we have listened to him with great interest. The questions he has put are important, although I do not suppose that he will expect us all to agree with every one of the sectional business opinions that he has expressed. I think it is opportune to get a statement from the Government about the general position in regard to war risks insurance. Here is a scheme which was not launched suddenly, so far as stocks were concerned, after the declaration of the war. The date of the Royal Assent was before the war. 111 Although the urgency of the insurance was quite plain to us all, I think it seems to us now that there might have been more consultation with the various interests, commercial, trade and insurance, than there seems to have been before the matter was put through to the final stage of the Order after war broke out. That Order fixed a rate of premium for the goods section of the insurance which was so high as ½ per cent. per month, or, for straight-run stock, 6 per cent. per annum.
There is no doubt that the insurance has proved costly, and, of course, a great deal depends in regard to its final incidence at the last point of sale, on the nature of the commodity and the processes through which it has passed. I will come back in a moment to the indestructible stocks in connection with which the hon. Member is such an expert, but in regard to the large number of manufactured articles manufactured in this country the cumulative effect of war risks insurance paid at every stage is almost devastating in its final "effect on the consumer. Take a trade with which my own organisation is connected in a small way—cotton. You buy a stock of raw cotton at the warehouse, and you pay half per cent. on that. You pay again on the cotton yarn, you pay again on the woven cloth, you pay again on the finishing, bleaching and packing processes, you pay again on merchant stocks, you pay again on retailer's stocks. Altogether you have paid the premium seven times when you come to the final stage. The President of the Board of Trade seems a little surprised, but I assure him that that is the case. If he had to run a business he would know it. It is not always shown prima facie upon an invoice with so much added for insurance; in many cases it is just taken into account.
Perhaps the retailer finally gets a bill which may vary according to the class of commodity, governed by the number of times the stock is turned over in the course of the year, and governed, too, sometimes by the honesty of the merchant. The retailer has to pay anything from 3 or 6 or 9 per cent. on dry goods, according to the way in which the charge is made plus what is fair to him as the market increase on a product the price of which in many cases has been affected by the cumulative additions of war risks 112 insurance. That makes a very serious charge indeed to the consumer.
There is the question also to be considered of whether the rate itself was a right one. I do not complain about the advisers of the President of the Board of Trade perhaps looking at the thing in the rush of the first week of war from the possibility of a series of air raids, which might have been the case if a lightning war was to be the method of attack, but I suggest that we might have had a revision at an early date. We welcome the arrangements of the President of the Board of Trade under the first three months' period by which we carry into the next monthly period a month's credit of the premium already paid for the first three months. But it is reasonable to ask, in the light of the stocks at present covered, that the general rate of premium to all those who are engaged in trade and wish to make that revenue producing profit so essential to the State in the near future, instead of being a rate as high as half per cent. per month, should have been very much less.
I have never been able to understand why there should have been a distinction made of the stocks of individual traders where the total stock of a trader was less than £1,ooo. In many cases a particular trader might object, but there are as many cases, I am sure, in which the trader might say, "If I am forced to insure for war risks outside the Government scheme, I am going to have to pay a great deal more and have far less chance of being recouped." All stocks of £100 or over held by individual traders ought to come within the compulsory scheme, which would, in my judgment, lead to a lowering of the risk premium rate. Take, for example, the wide exemption contained in the Order of 22nd September, which was not by any means for all indestructible material. I should have thought that coal, especially when it is stock, would have been included. Coal is exempt. A whole range of important metals are exempt, and I should have thought that it would be desirable that a very large part of the stocks of the country should contribute, especially in this case where, by the use of these materials, the owners are going to do well out of the war. They should contribute their share to the general pool of the war risk insurance fund. We have to insure against war damage caused by an attack 113 upon the community as a whole which you ask the community as a whole to resist. The whole of the community ought to take its proper share of the premium to be levied. There are some who would say that it would be better for the State to undertake the whole of the risk itself and charge it all to the citizens. I do not hold with that view. Usually when you come to deal with stocks at all they are in the possession of firms, associations or corporations who hope to make a profit out of them. They should contribute, as suggested, on the basis of the scheme which the President of the Board of Trade is working out.
A suggestion was made just now by the hon. Member for Cardigan (Mr. O. Evans) that rather unsettled me. It was that it might have been left until some period after the war for the Government to organise all the resources of finance in the country in order to help industry, finance and production generally to become mobilised in the best interests of peace and prosperity. That sounds very nice as a phrase, but if we are to be faced with a war of three or four years of a most exhaustive character, in which our economic resources finally, by the very strain upon them, become a deciding factor, we shall have a very different situation to face after the war. In my judgment, seeing that in the course of the war period the people handling the stocks make profits at a time when there is constant internal spending, the Government should collect all that it might legitimately collect at that time in order to cover these damages and risks. I hope, therefore, that from that point of view the President of the Board of Trade will listen to the hon. Member for Cardigan where he has a case, though not where I consider he has not a case.
There is another point in respect of which the hon. Member did me a great service by touching upon it. He expressed the hope that the Government might to-day be able to say a word on that very large and important area of insurance not covered under the War Risks Insurance Act, namely, the insurance of real property. I spoke at some length upon this problem before the war in the middle of July. The fact that insurance undertakings are seeking to serve a public demand for this kind of insurance at rates which are very often higher than otherwise would be the case under a Gov- 114 ernment scheme of the kind, shows that the public at large wants an insurance scheme. It ought to have an insurance scheme which brings the largest measure of funds with the least incidence of charge to the individual owner of property, especially bearing in mind the fact that a large percentage of the working class now own their own properties. It ought to be a scheme which would deal with the economic problem at the end of the war by creating the largest insurance fund available in the circumstances for clearing up the repayment of war damage. It has been one of my misfortunes in the last few weeks to appear before the Weir Committee—I do not mean a misfortune from the point of view of meeting the committee—and I shall be exceedingly disappointed if the question of war risks insurance of real property is left in the position in which the Act passed by this House excluded it altogether. I am convinced that while the statement which the Chancellor of the Exchequer made some months ago was one of good will, a suggestion that you might deal with war damage to property at large after the war on the basis of what you would be able to afford for the community, would not bring a great deal of comfort and reassurance.
If we estimate the value of real property in the country as not less than £10,000,000,000, the Government would find no grumbling but rather general support from the country if they were to impose a fixed rate of, say, 10 per cent. on that property value, which would bring in a premium income of £50,000,000 a year. We are already getting quotations from certain companies of from 15s. to 20s. per cent. However well managed and well intentioned they may be, they must have a very much larger ratio of expenses than would be the case in connection with a great scheme of Government insurance or re-insurance.
§ Mr. Speaker
The right hon. Gentleman is now dealing with something which would require legislation, and which is outside this particular Act.
§ Mr. Alexander
I should not wish to introduce any matter which would be out of order in a Debate of this kind, and I will leave it where I have put it, in the hope that having trenched upon forbidden ground, through your kindness and courtesy, Mr. Speaker, what I have said will find a place in the mind and the heart of 115 the Minister. I hope that when the President of the Board of Trade replies he will say something which will reassure us on one or two points. Can he widen the area of the stocks to be covered? Can he thereby reduce the premium? Will he remember the effect upon each different industry of the assessment made which is so devastating in its cumulative effect? Perhaps he will make a statement which will help to correct any errors that we may have fallen into in regard to this question. It is very difficult to estimate the total value of stocks of all kind to be insured. If the right hon. Gentleman could give us figures and he could tell us what kind of premium he hopes to collect, it would help us. Certainly, it would be helpful to traders who are feeling the effects of the present position very much.
§ Mr. George Griffiths
Am I to understand from your Ruling, Mr. Speaker, that private property cannot be discussed in this Debate?
§ Mr. Speaker
The right hon. Gentleman referred to the insurance of real property, which is certainly outside the scope of this Act of Parliament. It would necessitate legislation and it would not be in order on the Motion for the Adjournment to deal with legislation.
§ 7.44 p.m.
§ Mr. Higgs
Hon. Members in all quarters of the House are grateful to the hon. Member for Cardigan (Mr. O. Evans) for bringing forward this important matter. I have received more correspondence on this particular problem during the last month than on any other subject with regard to my Parliamentary duties, and I am sure that other hon. Members will have received much correspondence of a similar character. In regard to the remarks of the hon. Member for Hillsborough (Mr. Alexander) about covering stocks seven times over, his argument is correct if it takes seven years to manufacture a commodity, but if the commodity is manufactured in one year, surely one stock would replace another stock and you are only counting the stock once. I am sorry the right hon. Gentleman takes so long to manufacture his commodity.
§ Mr. Higgs
This question of insurance in regard to stocks, plant, machinery and building is causing very great concern to manufacturers all over the country. The Government, obviously, fear being able to fulfil their obligations if they extend the insurance beyond commodities; but I would remind them that the great problem of evacuation has been dealt with to a certain extent, and I consider that a far more difficult problem than covering the necessities of industry by insurance. The fire insurance system has been evolved over a period of 100 years, and we are trying to solve the insurance of war damage in 100 hours. There are, and there will be, considerable difficulties in solving the problem. I do not think the public will complain at having to pay any extra premium that may be necessary, but the public may riot if there is not sufficient protection, and there is a large amount of damage done by air raids.
The Government ought to face this matter more squarely and take into consideration the difficulties and the fears of the community in order to satisfy the large number of people who are concerned. They could and they ought to do something at least to give some relief, but not necessarily complete indemnity. We are used to having 100 per cent. cover and 100 per cent. indemnity, but I do not think that can be expected now. It would be far better if less indemnity were promised, with a less premium. The loss, as hon. Members opposite have said, must fall on the whole community. I would remind the House that air raid insurance in the last war brought in a profit of something like £100,000,000. I am not suggesting that any premiums are going to bring in a like profit on this occasion, but I do say that we ought to be able to manage on a reasonable premium. The tendency so far has been to charge too high a premium, in order to be sure that the Government will have enough money to compensate those who suffer loss. The object of the Government ought to be to charge a lower premium and to put up the scale in case of necessity, rather than scaling down as we are doing at the present time.
117 The President of the Board of Trade gave the value of commodities as something approaching £2,000,000,000 and the value of buildings as £12,000,000,000. Obviously, if we are going to cover commodities, buildings, plant and so forth, and to give complete cover, the premium will be prohibitive; but I see no reason why we should endeavour to give a 100 per cent. cover. I suggest that there shall be no exceptions. The present exceptions are causing very great difficulties throughout the country. Iron and steel goods are exempt. On the other hand, I came across a case the other day where a quarry owner had to pay on his stocks of stone chippings, which are less destructible than iron and steel. Anomalies of that description will arise under the present system, and the best plan would be to have no exceptions at all. It is a ridiculous state of affairs that a man has to pay insurance on quarry chippings, when iron and steel goods are exempt. Such a thing is beyond reasonable explanation. The public were allowed to register prior to 3rd September. War then broke out. The public who were insuring as late as 20th September were paying a pro rata premium. They were saved the premium from 3rd September to 20th September. This is a compulsory scheme. I would inform the House that there are many owners of stocks who are not insured to-day—I venture to say that it may be within the order of 10 per cent. or 20 per cent.— and yet the Government have taken no action against these people. I believe there is a penalty of £100 and then a penalty of £50 a day. If these people come into the insurance scheme to-day, on the information which I have, they are charged only at a pro rata premium.
§ The President of the Board of Trade (Mr. Oliver Stanley)
That is not correct.
§ Mr. Higgs
The Minister says that I am wrong, and I am glad to hear that that is so, but I believe I am correct in saying that pro rata premiums were paid up to 20th September. The Minister has not informed insurance companies directly of changes and rulings that he has made before they have been issued in the Press, and the result has been that insurance companies have not had the necessary information to give to their clients when they have been approached, and these clients have obtained more information 118 through the Press than through the insurance companies.
I advocate that the premium should be reduced, that more commodities such as plant and buildings in the case of manufactures should be included and that we should get some sort of cover for all our possessions. The companies are covered to a certain extent, and while I do not expect that we should get 100 per cent. cover, I consider that with the premium which is being charged at the present moment more cover should be given, resulting in greater security. Some industries have approximately a third of their money in plant, a third in buildings and a third in stock. A ridiculous state of affairs arises when the less destructible third is insured, and the other two-thirds at the present moment cannot be insured for war risks; I hope the Minister will give further consideration to this very pressing problem which is in the minds of all manufacturers now.
§ 7.53 p.m.
§ Mr. Horabin
I will detain the House, I hope, for only a few moments on what I feel to be certain anomalies and difficulties created by the present scheme of a flat rate for the insurance of commodities. Many people in this country at the present moment feel that the relative degree of war risks for stocks of different types of merchandise in this country are related to that of fire risks in peace time, and I should have thought it would have been sounder to have calculated a premium for the insurance of commodities on the same basis as fire premiums instead of on the flat rate. For instance, the fire insurance premium on steel may be as low as 1s. 9d. per cent. On paper it may be 7s. 6d. per cent. and on millinery as high as 14s. per cent. These premiums are calculated on a sound actuarial basis derived from the long experience of the insurance companies.
§ Mr. Stanley
Does the hon. Member think that a fire insurance premium on any of those commodities would have any application?
§ Mr. Horabin
The position is that you may have to charge a much higher premium, but there would still be relations between the risks of these different types of commodities. If the premium for commodity insurance had been calculated as multiples of the fire rate, the 119 President of the Board of Trade would not have been faced with commodities less liable to damage being withdrawn from the scheme. I think the owners of the stocks of these less vulnerable commodities would not have agitated to have them withdrawn from the scheme, as some have done. The Minister is left with the bad risks and is losing the good risks. It would be a simple matter for the insurance companies to operate a scheme based on multiples of the fire insurance rate.
There is another aspect of this problem. The President of the Board of Trade told us, I believe, during the Second Reading of the Insurance Bill, that the value of the stocks coming under the scheme amounted approximately to £2,000,000,000, and at 10s. per cent. per month the total annual premium as long as all stocks were included under the scheme would be approximately £120,000,000 per year. At the new rate for the first three months announced last week the annual payment would be approximately £90,000,000 per year. As traders are allowed to pass the cost of the scheme on to the consumer this becomes a substantial addition to the cost of goods sold. For two reasons this addition to the cost of goods sold far exceeds the premium that will be obtained by the Government under the scheme.
As the hon. Member for Hillsborough (Mr. Alexander) has told us, commodities may pass through three, four five or even more hands as they are turned from the raw material into the finished merchandise bought by a consumer, and at each stage the percentage is added to the invoice to cover the cost of commodity insurance. Many traders, unfortunately, do not know their stock turns accurately in peace time, much less do they know them under the present conditions of war, and in self-protection the trader must add more to his selling price in order to cover the cost of commodity insurance than he would if he could exactly determine his stock turn. This addition for contingencies also comes out of the pocket of the consumer. Again, the cost of commodity insurance to the consumer is, after all, not a straightforward sum of the amounts at each stage required to cover the cost of commodity insurance. This additional charge for commodity insurance made at each preceding stage 120 becomes an element of cost on which the trader calculates his gross margin, to cover his overheads and net profit, and the consumer as a result of this scheme may be called upon to pay an increase in price of anything from 3 to 10 per cent. or even more, although only 1½ per cent. may be added at each stage in the process of manufacture.
For these reasons I believe that the present scheme will lead to a substantial increase in the cost of living and I do not think 5 per cent. would be an extravagant estimate of what the increase might be although that is only a guess on my part. The whole cost of the premiums under this scheme is being paid ultimately by the consumer, that is, by the community as a whole. These premiums are an indirect tax levied by the Government on the consumer, and the cost of the collection of this tax under the present scheme is unnecessarily expensive because, as I have shown, it is collected at every stage from the sale of the raw material to the sale of the finished product, and at each stage an element of gross profit is added to cover the overheads of the trade. In spite of what the hon. Member for Hillsborough said, it might be in the national interest to abolish the present scheme altogether and for the Treasury to take full responsibility for any loss which occurred as the result of enemy action. I think that would prevent the rise in prices that seems to be inevitable under the present scheme and which, if it goes on, must result in a general and, in my opinion, a justified demand for increases in wages. In fact, this scheme may bring about an inflationary spiral which everyone in this House wishes to avoid.
§ 8.0 p.m.
§ Sir Joseph McConnell
I was greatly intrigued by the speech of the right hon. Gentleman the Member for Hillsborough (Mr. Alexander), who said he thought the small man should be brought into this insurance scheme. I have some nodding acquaintance with financial matters, and I understand that the small man is in a very bad position as regards purchasing power in comparison with the great multiple shops. If the right hon. Gentleman is going to bring these small men in pari passu with the great multiple shops, will he put them in with the same advantages in respect of purchasing powers?
§ Sir J. McConnell
I think the right hon. Gentleman has not quite understood my question. This is an occasion where there is a great emergency and it is proposed to put everyone in on equal terms. The right hon. Gentleman has proposed that the small man should be put in on the same terms as the great multiple shops. Is that correct?
§ Sir J. McConnell
The right hon. Gentleman will not contradict me when I say that. If you are going to put them in on the same terms as far as insurance is concerned, you must put them in on the same terms for purchasing power. In other words, the small man must be able to buy his goods at the same price as the multiple shops and he has to have the same advantages.
§ Mr. Alexander
As the hon. Member for North Cornwall (Mr. Horabin) has said, this insurance premium is passed on to the consumer. This commodity, if you like to call it so, of insurance, can be bought in two ways. It can be bought through a Government scheme at a low rate or it can be purchased, as many small traders are purchasing it on their small stocks, at a much higher rate. Which does the hon. Baronet prefer?
§ Sir J. McConnell
It is no use begging the question. The right hon. Gentleman knows that in all these cases when the time comes the big man wins and the small man is crushed out. All I ask is that fair play shall be shown to the small man, the small retailer or the small wholesaler, who has done great service to the country. It is a very great responsibility that the House has to see that these huge multiple shops and combinations, let them be co-operative or any other multiple shops, should not be given any advantage at the expense of the small individual trader who is the backbone of the community.
§ 3.4 p.m.
§ Mr. A. Edwards
The hon. Member who opened the discussion suggested a kind of differential scale, and my right hon. Friend suggested that that was an impracticable proposal. He went on immediately afterwards to say that it should 122 be a charge spread over the entire community, and other speakers have emphasised that view. If that is the case, I cannot understand what is the objection to the Government taking the charge in its first stage instead of the last. It is obvious that every time this charge is put on to manufactured goods it ultimately has to come back to the Government, and the Government is going to provide all these charges and all these profits, because it is the only purchaser in the market at the present time. It is the same with property. I cannot understand why a man having a business in the North of Scotland, not contributing to the common pool as far as fighting the war is concerned, should get off more lightly than those who live on the North-East coast, where we had to bear the first attack during the last war. The iron and steel industry has been exempt, but I do not see why it should. It has no right to be. That is the particular industry in my constituency. If you are going to make it a fair charge, it should be spread over all industry, because all are contributing to the war, or are going eventually to derive their income from the Government.
I should like to give a specific illustration of how it will affect the steel industry. We know that there is in contemplation a fairly substantial increase in the selling price of steel. The Government is going to have to pay more for it. The justification is the higher rates of insurance and, if you bring them into this scheme also, there is some justification for a considerable increase in the price of steel. You cannot mention a single industry which is not going to have to pay higher prices and increase its costs as a result of that single action. In the iron and steel industry there is an automatic scale. It has been pointed out that wages will have to rise within a short time. There is a sliding scale, and wages automatically go up. If you put £2 a ton on the price of steel this month, next quarter automatically the cost of wages goes up. Not only that, but linked up with the sliding scale is an automatic increase in the price of coke, whether there is any justification or not, and obviously when the price of coke goes up the price of coal also goes up.
I cannot understand why the Government should introduce a scheme like this, which is going to involve an immense 123 amount of labour and difficulty for everyone concerned. You are going to begin the spiral inclination, but you can prevent it in its first stages. Why does not the Government take the sensible step of absorbing these costs at the first stage instead of the last, when you have played havoc with the whole of industry? If they had the courage to face up to it I believe they could. They could evolve a scheme to absorb these costs at the first stage, which apply to other things than insurance and freight, and keep in check this awful prospect of uncontrolled inflation. I hope the Government will give serious consideration to the problem.
§ 8.9 p.m.
§ Mr. Foot
I should like to add one or two illustrations to what was said by my hon. Friend the Member for North Cornwall (Mr. Horabin), who spoke as to the effect on the price level that this scheme is bound to have, and is indeed having. Some days ago the hon. Member for Exeter (Mr. Reed) asked a question and, after the President of the Board of Trade replied, I asked him whether he realised that in many cases far more than 6 per cent. was being passed on, particularly by wholesalers who charge 1¼ per cent., or some such figure, on these prices, and who turn over their stocks many times a year. I asked whether he was watching that aspect of the matter. The right hon. Gentleman replied:I am glad that the hon. Gentleman has called attention to this point. It has been assumed that in all cases this charge represents 6 per cent. on the stock. That, of course, is a complete fallacy, because it depends upon the number of times that the stock is turned over in the course of a year. I am investigating a case where that charge is being made to see whether, in fact, it represents the real turnover of the stock."—[OFFICIAL REPORT, 20th September, 1939; col. 941, Vol. 351.]I do not know whether the right hon. Gentleman could give us the results of that investigation, but I should like him to say a word as to what steps the Board of Trade is proposing to take to deal with this question of passing on, and passing on in certain cases a great deal more than the premium which actually has to be paid. I have had later information from Scotland saying that since the matter was ventilated in this House, and since attention was drawn to it by the Ministry of Information on the initiative of the Board of Trade, there has been some improve- 124 ment in the matter, but I did hear this morning that there are certain firms which are still charging 1¼ per cent. on invoices; firms which turn over their stock at least 15 to 20 times per annum. That is a type of concealed profiteering. It enables the particular wholesaler to make considerable profit out of this scheme at the expense of customers, and ultimately at the expense of the consuming public, and it would be of great interest if the President of the Board of Trade can tell us what steps are being taken to deal with this particular form of raising prices.
But in spite of the exemptions which are being made the scheme does weigh unduly heavily on certain concerns. Already you have exempted jewellers because they turn over their stock in a long time, but let me give another kind of example. There are certain concerns whose industry has been practically brought to a standstill by the outbreak of war. I have in mind the case of a firm which produces high-class fabrics for making curtains and cushion covers. They produce a form of luxury goods and their business, although it has not been completely broken down, has been slowed down very much. They have to keep a large quantity of stock on hand and have to pay this considerable total upon it.
§ Mr. Foot
I am referring to a concern which, as I have said, is producing what may be called luxury fabrics for making curtains and similar articles. Their market has naturally been much diminished by the events of the last few weeks. The hon. Member for North Cornwall (Mr. Horabin) referred to the £1,000 limit. It seems to me that among the smaller class of tradesman an anomaly has been produced by this limitation. If you get a man who holds stock which is over the £1,000 margin he is compelled to insure all his stock, but if you get a man whose holding is £800 he is not under an obligation to insure at all. If he does not insure it gives him a considerable advantage over the man who is not in a much bigger way of business but who is compelled to carry this particular burden. I should have thought that there should be a similar exemption up to a certain amount in each case, or, much better, that the Board of Trade should adopt the sugges- 125 tion made by the right hon. Member for Hillsborough (Mr. Alexander) and considerably lower the figure at which this exemption takes effect. I hope that in addition to the other matters which have been mentioned the President of the Board of Trade will be able to deal with these three specific points.
§ 8.15 p.m.
§ Major Owen
There is one matter to which I should like to refer as it affects my constituency in particular. We have only two industries in the constituency, and one is the slate industry, which at the present moment is suffering from great depression largely as a result of Government action. The industry in normal times employs about 11,000 men, but in view of the fact that the Government have stopped all building schemes and does not allow slates to be specified for any purposes appertaining to the Air Force or the War Office there is no demand for slates at the moment. I notice that in the annexe to the Order issued by the Minister non-metalliferous mines and quarries are excluded so long as their products are not manufactured. That is in paragraph 7. In the next list, in paragraph 8, tiles and bricks are excluded, and they are in my view quite as destructible as slates. All I am appealing to the President of the Board of Trade for is that he should include among the exempted trades the slate industry. At the present moment the quarries in my constituency are not producing slates for sale. They are compelled to produce them and put them into stock. If they have to pay this heavy insurance it means that the quarries will have to close down and the result of that would be unemployment benefit for the workers would cost the Government nearly £750,000 per annum. I appeal to the Minister that if tiles are excluded from war insurance risks then there is a case made out for the exclusion of slates also. The matter affects a large number of employés and for their sake, and for the sake of this particular part of the country, which is not liable to any war risks, I hope the right hon. Gentleman will see his way to put them on the annexe of exemptions to the Order.
§ 8.18 p.m.
§ Mr. Stanley
I think it would be for the convenience of the House if I deal first with some of the wider questions which have been raised in this interesting 126 Debate and then endeavour to answer those questions which are of more particular interest to particular constituencies. Mr. Speaker has already ruled that it would be cut of order to discuss, on this Debate, any question of the extension of the terms of the Order to such things as house property, and if he had not done so I should have had to refer the right hon. Gentleman to the fact that the Chancellor of the Exchequer said to-day that he was going to make a statement on the subject, and that of course I could not anticipate his speech. I think we are all grateful to the hon. Member for having raised this question and for the manner in which he raised it. I am glad to have the opportunity of discussing some of the points and without offence, pointing out some of the fallacies as up to the moment I have not had an opportunity of doing.
This is a matter of great importance. We are here dealing with something quite novel, the incidence of which for the moment—and long may it remain so— we do not know. The suggestions which hon. Members have made, and the accounts which they have given of their difficulties, will be of very great value in trying to shape the scheme, for obviously the scheme is still not in its final shape and is still capable of adjustment. When we come to discuss the big question, on which there appears to be some difference even among hon. Members sitting very close to one another, as to whether the insurance principle should be maintained or whether there should merely be some form of State compensation, it is necessary to go a little into the history of this matter in order to see the origin of the Act and its principles. It arose out of a request by the trading community themselves, over a year ago, that they should be made fully secure and that they should know that the stocks of commodities which they held, if war came suddenly and the stocks were destroyed, would be replaced by some means, so that they would be able to carry on their business.
That was important not only to them but to the Government, for unless the trading community received an assurance of that kind and could be certain that they would get full cover, it was clear that, during the period which intervened between then and the war, they would have allowed their stocks to run down 127 and that, at a time when the Government wanted stocks of every kind in this country to be at their highest level, there would have been that great force working to reduce the stocks. Therefore, when the Government appealed to the trading community to increase their stocks in the national interest, they gave to the trading community the pledge—the right hon. Gentleman the Member for Hillsborough (Mr. Alexander) knows this well, for he has had a great deal to do with the matter, and we have had many discussions together—that they would introduce a scheme which would result, not in some indeterminate amount being paid at the end of the war, but full cover when the damage took place. The trading community acted on this and increased their stocks, and many people are holding increased stocks of commodities now because of that. Therefore, it would be a breach of faith to introduce in place of this scheme something which gave them any less satisfactory cover.
What is the alternative to an insurance scheme of this kind? Surely, it must be something which merely makes them dependent upon the Government replacing stocks. If that onus were put upon the Government to replace stocks, it is clear that, in the national interest, all the Government could do at the moment would be to replace stocks which they felt it to be in the national interest to replace. Consequently, there would be a differentiation. At the present time, there might be in one street a branch of the co-operative society and a branch of Marks and Spencer. If the same bomb destroyed the stocks of both shops, they would both be entitled to full cover for their goods, but it might well be that, under the alternative scheme, the Government would say that. on the whole, they considered that they wanted only one stock in that street, and it would be a question as to which of the two stocks they should replace. That would introduce an element of uncertainty, discrimination, inequity and unfairness between different traders which the Government pledged themselves a year ago not to do. I feel that when the traders consider what is the alternative to the present scheme, they will be the first to realise that this is the sort of scheme for which they asked, and the only one 128 which can really give them any feeling of security.
It is true that when the Bill was passing through the House, it was debated on the basis of a voluntary scheme, although at the time, in my Second Reading speech, I distinctly pointed out to the House that not only were their powers in the Bill to make it compulsory, but that probably experience would show that it would have to be made compulsory. I had anticipated that, had events pursued a normal course and the emergency not arisen until all preparations were complete, we should have a period in which we could see whether a difficulty—I think a very real difficulty—arose under the voluntary system which would make a compulsory system essential—namely, the very thing which is advocated by one or two hon. Members, but I am glad to say rejected by the majority, a differentiation of rates between various areas. Had there been under a voluntary scheme a position in which all the so called safe areas—one can never be quite so certain that they really are as safe as may be thought—largely, perhaps, the country districts, stayed out, and naturally all the people in the dangerous areas wanted to come in, it would have been necessary to increase the premium in the dangerous areas, and immediately there would have been a price disparity between the safe areas and the dangerous areas which would have increased what is already a competitive advantage enjoyed by the safe areas. After all, a man in a dangerous area now can anticipate much more difficult conditions of business. His transport arrangements are upset, and there is the possibility of air-raid warnings keeping his customers in shelters for long periods. He is at a disadvantage compared with a man in what we think of as a safe area. I felt then, on the question of the voluntary scheme, just as I feel now, on the question of a differentiation of rates, that it would not be in the national interest to do anything which would increase the disparity and make it more difficult for the man who manufactured, and indeed the man who distributed, in the dangerous industrial, crowded areas to carry on in competition with the man who enjoys what seem to be more secure circumstances.
Actually, it was inevitable that the Act should be made compulsory, for the whole plan, which alone would have made the 129 voluntary system possible, had not time to be completed. Hon. Members will recall that the idea was that there would be a period of registration. Those who wished to join the scheme would register beforehand and they would know that from the outbreak of war they would be covered at once; and others who did not register beforehand would be able to take out: a policy after the war began, but it would take two or three weeks for them to do that, and during that period they would have no cover. That was the incentive to register in peace time. The emergency came when the registration had only just begun, and when even the people who meant to register in peace time had really not had time to do so. It is all very well now, after a month in which we have been free from air raids, to look back and say that we could have carried out the registration and that there would have been plenty of time to bring in the scheme; but there might have been the danger, and we had to anticipate the damage from air raids happening not four or five weeks, but four or five hours after the declaration of war.
Therefore, we had to take steps to cover everybody, because there may have been many who would have wished to cover themselves under the voluntary scheme of registration, but had not any reasonable time in which to do so. Once you said to everybody, "If a bomb falls within an hour you are covered," then you had to say to everybody, "You are all to be covered equally and you must all share the liability for meeting it." Once we say that only a scheme of insurance can give the traders the full and immediate cover which I think they desire, and which I think is valuable, once we realise why it was necessary to make any insurance scheme compulsory in the first place —and I believe it should remain compulsory now because if it is compulsory that means it is universal—then I think we come back to the main criticism of this scheme as it is now operating, as being a criticism of the rate of the premium.
Here, of course, we are sailing completely uncharted seas. Anybody's opinion as to whether the premium is a correct one or not, is almost as good as anybody else's, but let me say this at once. The rate of premium has not been fixed with any idea of making great profits out of this insurance scheme. In fact, we shall, as time goes on, adjust the rate 130 of premium from time to time as closely as possible in order to keep the scheme on an even keel. It is not even designed with a view to building up large reserves out of which, if things possibly became worse, these payments could be met. It is frankly based on the assumptions given to me by those best qualified to judge— although I agree that even those best qualified to judge have only had what is almost guesswork to go upon—of the rate of injury which we might have to expect during the first year of war.
Hon. Members often say, and I believe they are right, that the people of this country will do anything if you tell them the truth, and that there is no need to wrap things up for them in cotton-wool. There is, I think, a great deal of wishful thinking at the moment about the possibility of the extent of damage by air raids. We all hope that it will be much less than we expect, but, naturally, we take every step we can to minimise it, and I do not think it is any good disguising from ourselves the very serious extent of the damage which there may be. I hope that this rate, as fixed, will be proved in the future to be too high. All I can say is that it has only been fixed at this rate on a calculation of the assumptions given to me of the rate of damage which may be suffered; that there is no attempt in it to make profit out of the scheme, and no attempt to do anything except to make the necessary provision on those assumptions. I have already given an assurance that as and when we get the data which will enable us to correct the assumptions—which are all we have been able to work upon up to now—I shall be perfectly ready to consider, immediately, alterations of the premium level.
We have already had one of our assumptions disproved. One of the assumptions on which we proceeded was that the rate of damage would start immediately from the outbreak of the war. That assumption having been disproved, I took the step, I think with the approval of the House, of crediting to the people concerned the premiums paid for that month which we expected would have to bear its full share of risk, but which in fact has passed without any damage at all. People may take that as an earnest that we are really aiming only at raising under this scheme the money that is really necessary and that, when 131 circumstances justify it, we shall be only too ready to give the trader the benefit of the greater security and the less expectation of damage on which we think we can count.
Beyond those main points there are, I think, only one or two others with which I need deal. There is first the exemption of people with stocks of a value under £1,000. Let me be quite frank upon that. The insurance companies warned me that to bring into this scheme all the multitude of small traders would make it almost impossible to operate and would certainly add very much to the expense. Taking into account the great cost of dealing with the multitude of small people, I do not believe that the addition to the fund would be of any great amount or that it would be substantial enough to make any real difference to the premiums which were being paid by others under the insurance scheme. Of course, I would remind hon. Members that these traders are still entitled to insure voluntarily and, as far as I can make out a certain number are taking advantage of that.
§ Mr. Alexander
I would like to interpolate that some of the companies who may have made those representations to the right hon. Gentleman are actually undertaking those insurances now. If they are going to the small traders and undertaking insurances—and I have one or two instances and I shall be glad to show the right hon. Gentleman the correspondence—it is difficult to understand why they should not be willing to do it within the Government scheme. In fact, I hold the view that while it is much cheaper to insure through the Government scheme than through individual insurances with a company, the allowance which is made to the insurance company is quite generous.
§ Mr. Stanley
I wish the right hon. Gentleman would give me details of such cases. My recollection is that one of the things which we laid down in the Act was that once war started no one was to carry out this particular type of insurance, except the Government.
§ Mr. Alexander
The right hon. Gentleman has just admitted that it is open to any of the traders themselves to insure voluntarily. Surely if they do not want 132 to insure in the Government scheme, you would not stop them from insuring with other people?
§ Mr. Stanley
Section 10 of the Act lays it down that after the date on which the scheme is put into operation no person shall, except as a person authorised by the Board of Trade, issue policies in pursuance of the scheme. If the right hon. Gentleman will give me particulars of the cases, I should like to look into them. It would appear from what he said to be a serious infraction of the law.
§ Mr. Stanley
No, the hon. Gentleman is wrong. Suppose his goods to be uninsurable, he cannot be compelled to insure them, nor can he do it voluntarily, but the man with a stock worth less than £1,000 is in quite a different position. His goods are insurable, but he is not forced to insure. The other main point has been the exclusion from the operation of the Act of certain classes of commodities. There are two grounds on which orders have been issued excluding certain commodities from the scheme. One is on the ground of indestructibility and the other, applying only to a very limited class, is the ground of unsaleability. It is an attempt to deal, not with the particular case to which the hon. Gentleman referred, but with that sort of case where goods, owing to the emergency, have become completely unsaleable. The case I had in mind, for instance, was that of postage stamps. They may be nominally extremely valuable, but for the purpose of trade they have really ceased to have any value. The same remark applies to antique furniture and other things of that sort. In regard to indestructibility, wherever there is a risk, I think the thing has got to be on a level basis, but there are certain types of material, like stone in quarries and many iron and steel pro- 133 ducts, where there really is no risk at all for all practical purposes, although I quite agree that the thing has got to be used carefully and has got to be applied only to those cases where the risk of destruction, owing to the nature of the substance, is a very small one indeed.
The hon. Member for Dundee (Mr. Foot) raised one other point, and that was the question of this insurance premium having been made the pretext for raising prices. The right hon. Gentleman opposite referred to the cumulative effect of these premiums paid at all the various stages of manufacture. I think he would agree with me that that cumulative effect is not justified. He is not really claiming that at every step a man is entitled to add 1½ per cent. or whatever it may be. It all depends upon the length of time that he retains the commodity during the process through which he puts it. If the commodity of the right hon. Gentleman passed from the raw material to the ultimate consumer during it does not matter how many processes in the course of a year, the total premium could never exceed 6 per cent.
§ Mr. Alexander
That is all very well in regard to organisations which have entire control of every process, from the purchased raw material right down to the last retail sale, but in fact nearly all these contract industries are owned by different people at each stage, and they pass on their amount of insurance at every stage, and so it becomes cumulative.
§ Mr. Stanley
The right hon. Gentleman will agree with me that they must only pass on their insurance for their stage, according to the length of time for which they will retain the commodity for their process, and it is only if altogether they have retained a commodity for various stages for the period of a year that the full 6 per cent. can possibly become payable. Of course, if a large number of people have taken advantage of the scheme to charge at various stages a great deal more than the actual extra cost, that cannot be justified, and that is the sort of case to which the hon. Gentleman drew attention. I cannot remember the particular case that he mentioned, but we have inquired into a certain number of cases ourselves where people did it under a genuine misunderstanding. There is, however, a number of cases far more 134 flagrant than any of those that the right hon. Gentleman talked about, cases not of 6 per cent. or 10 per cent., but cases where the goods were turned over three times in a year and where they charged 33⅓ per cent. There, of course, it was flagrant profiteering. As the House is aware, I have given notice of a Bill to deal with such cases, and I can assure the House that that kind of profiteering will come within the scope of the Bill just as much as any other. As to the commodity mentioned by the hon. and gallant Member for Carnarvonshire (Major Owen), in his constituency, I understand that discussions are going on at the moment in regard to that, and I cannot say any more about it now.
In conclusion, let me say that I think this Debate has been, from our point of view, very useful. I do not for a moment claim that this scheme is perfect, that it does not present great difficulties, and that there is not a number of problems still to be worked out. I hope that hon. Members who either know these difficulties from personal experience or to whom cases are brought will have no hesitation in communicating them to me, in the knowledge that we are anxious to find a way to make the scheme work as smoothly as possible, that we can only do it if we know what the difficulties are, that we appreciate very much these things being brought to our notice, and that we appreciate suggestions as to how we could best deal with them.
§ Mr. A. Edwards
Have the Government, in going into this scheme, considered the cost to the State of bearing the whole of the insurance? Supposing we had all continued our insurance policies in exactly the same way, and the insurance companies had met all claims and then gone to the Government to reimburse them for all the extra charges due to the war, have the Government estimated the cost of doing that, as compared with the cost of doing it in the way in which they are doing it, and if so—
§ Mr. Deputy-Speaker
The hon. Gentleman has already exhausted his right to speak and can only be allowed to ask a question.
§ Mr. Edwards
Then may I put my question briefly? Is it not the fact that all the moneys which they do collect in the way they are doing now are ulti- 135 mately borne by the State, and would not the other way of guaranteeing the insurance companies be more economical?
§ Mr. Stanley
I do not think I can go over that matter again. We discussed at great length, when the Bill passed through the House, why we had an insurance scheme, and I have given my reasons again to-night why I thought that that scheme was necessary.
§ Mr. Stanley
My hon. Friend is quite wrong in thinking that because a man postpones payment beyond the time in which he is liable for payment, he thereby escapes his obligations pro rata. With regard to taking proceedings, certainly a time will come when we shall, but we have had regard to the fact that some firms have had a great many difficulties in raising sums unexpectedly at a time like the present, when money is difficult to raise, and we do not want to increase hardships to people who genuinely intend to carry out their obligations as and when they can; but wherever we get a case of 136 a flagrant attempt to evade this duty, we shall take action.
§ Mr. Foot
Would the right hon. Gentleman deal with a small point which I put to him as to the effect on two tradesmen, one with stocks just over £1,000 and the other with stocks just under that amount? One is compelled to carry the burden of insurance and the other is exempted, and therefore the first is at a disadvantage compared with his competitor.
§ Mr. Stanley
That is so, but it is a thing which always emerges when you have a dividing line and one person is on one side and another person is on the other. I will certainly look into it and see whether there is anything one can do to smooth the jump from one to the other.
§ Question, "That this House do now adjourn," put, and agreed to.
§ Adjourned accordingly at Nine Minutes before Nine o'Clock.