§ 10.54 p.m.
§ Colonel J. R. H. Hutchison (Glasgow, Central)
I beg to move,That an humble Address be presented to His Majesty, praying that the Order, dated 5th November, 1948, entitled the Clocks and Watches (Maximum Prices) Order, 1948 (S.I., 1948, No. 2421), a copy of which was presented on 8th November, be annulled.The Secretary for Overseas Trade has created in my mind, after the Adjournment Debate we had the other night, such a spirit of sweet reasonableness that I am prompted to hope he will not relapse 1157 tonight into obduracy on the very reasonable suggestion we have to make on this Statutory Instrument.
Why do we on this side of the House oppose this order? What are our objections to it, and what do we suggest should be done in its place. I cannot pretend that many hon. Members will have studied this complicated order in considerable detail, and, therefore, it may be convenient if I outline briefly what the order does. It fixes the maximum prices at which new spring-wound watches can be sold in this country. It does so by two quite different methods. Under the second schedule over a limited range of these articles it specifies the maximum price at which they can be sold. But over a larger range it makes use of a much more complicated mechanism, because it provides different percentages which shall apply respectively to manufacturers, importers, wholesalers and retailers, and according to their circumstances and the work they carry out, and the service they give, the percentage varies.
Finally, the order comes into operation on 1st January, 1949. I know that this order has given the Board of Trade a great deal of trouble because the situation is a very complicated one, complicated by the variety of articles it has to cover and complicated for example by the many systems which the Swiss manufacturers employ to sell their goods in this country, by agents, travelling representatives or shipment direct to importers over here. Indeed, the order is as complicated as the interior of those articles it covers.
What is the catalogue of objections I have to this order? First, there is the very complication of the order itself: its method of setting out the percentages in columns and lumping them together makes its very difficult for a member of the trade to understand what percentage he is entitled to. For example, the term "retail customer" is used alongside and in juxtaposition to "wholesaler." One would have thought this meant the retailer, but it does not. It means a member of the public, and why a member of the public cannot be so described I do not understand. I thought I heard the hon. Gentleman say that the retail customer is not the public but the retailer. If so he is in conflict with the Department. I took the trouble to telephone 1158 them to find out what the retail customer meant in this case, and they informed me it was a member of the public.
Another complication is that since the wholesaler commonly buys his goods from the importer, and since the same percentage is shown for importer and wholesaler, where the article is purchased from the wholesaler there is doubt whether the wholesaler is entitled to all the commission or if he gets half of the commission or what happens to it. The trade do not understand what the order means. I who have a nodding acquaintance with these orders realise it is most complicated, and if we, who have a slight knowledge of them, have difficulty in understanding them, I ask the Parliamentary Secretary and the House to visualise the amount of time and puzzling wasted by small traders up and down the country.
The next objection is that the order continues the cost-plus system although I agree it is in a limited way. Where a manufacturer imports a foreign movement and proceeds to encase it in a British case, he is called upon to show the cost of the imported movement, the cost of what he is obliged to do in order to make it into a finished article, and the cost of labour in so doing, and to those three added together, a percentage is added. That is the continuance of that unhappy and indeed vicious system of cost-plus which I think all sections of the House have agreed should be abandoned as soon as possible. While it may not have a tendency to exaggerate the cost at any rate there is no incentive to keep the price down as low as possible. It also involves the retailers of these articles in a complex costing and bookkeeping system.
§ Notice taken that 40 Members were not present;
§ House counted, and, 40 Members being present—
I feel there is no hon. Member of this House more gratified to find that they have not been counted out than the hon. Gentleman who has taken the trouble to come and answer this serious question and who thereby has been spared being called up on to come and give that information on another occasion.
Our next objection to the order resides in the fact that different prices under 1159 this order will in fact become payable by the public for identically similar articles. In the case where the importer is also the retailer—and that applies in many of the large retail stores in this country—he is allowed to add a certain percentage; but where that same article is imported and passes through the importer to the wholesaler and the retailer, then quite a different percentage is added. So we get the paradox of a clock, for example, which costs £5 brought into the country selling for 180s., in the case of the retailer who imports direct—I am leaving out the Purchase Tax in this example—whereas the same clock, if it passes through the combination of the importer, wholesaler and retailer will sell at 233s. 4d. That is highly undesirable. Not only that, but it will involve the price control authorities in an inundation of complaints and queries.
It is no good for the hon. Gentleman to reply that the complicated chain of importer, wholesaler, retailer could cut down the rate of commission, because surely the order provides for reasonable and not excessive rates, and if they are pared down, it will result in one of the parties in the chain being left with something on which he cannot support himself. So, by Government regulation, there is a tendency for the wholesaler, who is probably the most vulnerable, to be driven out of business.
Another objection is that if you fix maximum prices of this kind there is a great tendency for those prices to be regarded as the normal prices. Some of the percentages are considerably greater than those the trade was used to charging in pre-war days—no doubt on g bigger turnover—and if the whole situation were freed, it would be found that the percentages would be no greater, and probably less. The next objection is that the retailer who gives after-sales service is allowed precisely the same percentage as the retailer who gives no such service, and who is probably a mushroom growth which has sprung up because of a shortage and washes his hands of the article once he has sold it. There is unfairness in treating these two types of retailer in the same way.
From this catalogue of objections I think the House will agree that if it is possible to abandon this order, it would be desirable to do so. What, then, is 1160 the need for this order? It was originally devised to protect the public in a period of shortage from exploitation and excessive prices. But it is a complicated situation and a complicated order, and I believe that during the period of its gestation, while the order was being prepared and presented, the whole circumstances have changed. A year ago this order might have been necessary, but I am informed that now there is, if not a superabundance of these articles, at any rate a sufficiency in all except the highest-priced articles, and I have not noticed this Government being particularly solicitous to the type of people who buy the most expensive watches and clocks. I was informed by a wholesaler the other day that he was refusing deliveries of this sort of article, and hon. Members have only to look in the windows of shops and stores to discover that there is a pretty abundant supply of these things.
I contend that there is a good deal of evidence to support the view that this order is no longer necessary. Therefore, I urge the hon. Gentleman to abandon it entirely. Let the price mechanism cut out all these unfairnesses, complications, and complaints, and let us return to the much more satisfactory way of regulated supply and demand. If the hon. Gentleman says that is not possible, I believe there is still something simpler which can be evolved within the order as it stands; that is to use the half-way house system in the second schedule, of merely fixing the maximum price and leaving the price mechanism to work out the percentages which each in the chain of suppliers is entitled to under the order by the process of supply and demand. The whole situation will be much simpler if the range of articles, which are provided for in the second schedule and to which maximum prices are attached, is extended sufficiently to allow the public to have a reasonable choice of the sort of things they want.
Of course, it will not cover them all. It is too complicated for any one schedule to cover all the watches and clocks which might be imported or manufactured in the country, but it can be extended to cover a sufficiency. Those which are left outside will either be more expensive or cheaper. If more expensive, now that the supply is sufficient, they will not be able to be sold; if cheaper, they will automatically tend to bring down the maximum 1161 which would be applied to their competitors under the schedule.
I ask the hon. Gentleman to agree to annul this order. If he is not prepared to set the people free, he can at least set their time-pieces free. The time has come to wind up this control and I urge the hon. Gentleman to take this order away and destroy, or at least amend, it.
§ 11.12 p.m.
§ Mr. Erroll (Altrincham and Sale)
I beg to second the Motion.
I am indeed glad to be able to second this Motion, thanks to the alertness of my colleagues behind me and in spite of the somewhat schoolgirlish intervention of the hon. Member for Central Cardiff (Mr. G. Thomas). This order stems from the last crisis but one which the Government indulged in; I am referring to the economic crisis of 1947, which is largely forgotten history today—we have been through such difficult times since then. Hon. Members may remember that of the many halfhearted measures which were to be introduced to combat that crisis, one was to control the prices of goods which it was expected would be in shorter supply on account of the increase in exports and on account of the greater volume of overtime working, which would result from the need for more goods for export, so that there would be larger wages in industry, people would spend them and this would drive up the prices of goods.
Amongst the measures introduced, there was offered to the House a wide range of measures of price control. Many of these were a long time coming through. In fact, the first batch did not become available for examination by Members of this House until early this year, and when they did appear they were repeatedly found to be so inapplicable to the circumstances of the time that they had to be withdrawn and a fresh batch introduced later. It is scarcely surprising that the order we are examining tonight should only now have made its appearance, more than a year after the development of the crisis which was thought to make such orders inevitable. Some of these measures may indeed have been justifiable in the autumn of 1947 or in the first month or two of this year, but circumstances have been changing rapidly, and in many classes of goods we now find a sufficiency of supplies, which renders price control unnecessary.
1162 The full evil of the system of price control, however, which was illustrated by the first and second batches of orders, was that it perpetuated in peace time the system of cost-plus which was recently opposed by Members on all sides of the House as an inefficient and costly system of securing a limitation on profits. This present order is no exception. It perpetuates in the watch and clock industry the despised and discredited system of cost-plus by permitting margins of profits at various stages in the manufacture and distribution of a not-altogether essential article of civilisation.
I should like here to enter a proviso in regard to the second schedule to the order, which deals with the prices of British manufactured alarm clocks. Here the Board of Trade have introduced a simple system of maximum retail prices leaving the intervening stages to be worked out by the system of supply and demand and the relative pressures and falls of the interested groups. If there is still a shortage of British-made alarm clocks, then undoubtedly a straightforward price stop on the retail prices is the best way of keeping prices down.
My criticisms are directed to the first schedule and all its implications. That schedule imposes percentage increases or margins on imported watches and movements. It also imposes percentage margins for wholesalers, retailers, and others concerned, on imported movements which are afterwards cased in this country by British firms using either domestically manufactured cases or imported cases. The system outlined in the first schedule enables maximum prices to the public to be determined.
We have found in many other examples of price control that what should be the maximum price, in actual fact becomes the minimum price; and I do not think we shall find this particular class of product any exception to the general rule. We had remarkable figures given yesterday on the subject of vegetable prices, which showed that where the controlled prices were removed the prices of vegetables tended to fall, and did fall in most cases, including the prices for sprouts and celery and tomatoes. The case was that retailers tended to sell at the maximum prices, but as soon as the control was removed, the prices were subject to the normal laws of supply and demand, and in most cases 1163 they fell below the previously permitted maxima.
Here, I submit to the Minister, is a similar case where the laws of supply and demand should be allowed to operate and thus allow prices to fall below the maxima permitted by this order, particularly because there is no real shortage in the country today of watches and clocks of most qualities. There may be a certain shortage of the very best qualities, but the Government have never shown themselves particularly solicitous about the purchasers of the very best. They have been more concerned with maintaining the low prices of the utility or cheap, even of the mediocre, trade—the cheap, trashy trade. Here we have a price control introduced which makes it very difficult to restore a free trade in the best qualities of watches, chronometers and clocks, and makes sure of a large, inflated and exaggerated profit margin for the purveyors of the cheap and trashy. I may say that the retailers and wholesalers are selling below the maximum prices, so that there is nothing for them to worry about in this order in regard to prices; but it does matter a very great deal to them, for this order imposes upon all traders a complicated and intricate system of invoicing to which all must subscribe, whether they are quoting the maximum prices or less. Thus there is to be for all traders a complicated system of invoicing, whether they require to be restrained by this order or not.
I submit that the order is unnecessary and that it is too late. If the trade have not raised any considerable objections to it, it is because they regard this as a white elephant. They will be operating well within the ceiling prices permitted by the order. It is indeed a white elephant, and I hope it will go away like the white elephant in the National Savings advertisements, because no one in the House. I believe, really wants it.
§ 11.20 p.m.
§ Mr. Challen (Hampstead)
The more one analyses this order, the more it becomes obvious that it is a complicated order and that there are many points of view from which one can approach it. I should like to ask the Minister how the order came to be made and with whom the Minister discussed the matter; because if he discussed it with the Committee 1164 of the Association of Importers, I would point out that this consists mostly of those who deal in cheap watches and clocks, while importers of high-grade watches and clocks and the majority of the ordinary members take little interest in that association. This order does seem to aid and support the importers of cheap trash as against the importer of high-grade goods.
I am informed that five years ago, the trade entered into a gentleman's agreement with the Price Control Committee, and that that agreement has worked well; but during the last twelve months prices have fallen, while stocks have increased, and the buyers' market is becoming more pronounced. Prices are likely to fall more. But under this order the gross profit is the same for the importer of the cheap stuff as for the importer of the better grades, and both before and after sales, the importer of the good watch or clock has a much greater cost of service compared with the importer of the trash. Compared with better quality goods, the turnover of the cheap grades is enormous and so these importers can work on a much lower margin of gross profit. What is to be done to help the importer of the better grade of goods? What is the intention of this order? Is it to help the importer of rubbish, and if so, why?
§ 11.23 p.m.
§ Mr. Bottomley (Secretary for Overseas Trade)
I am grateful to the hon. and gallant Member who moved the Motion for the annulment of this order for his reference to the reasonableness of tone of an earlier Debate. I assure him that the same reasonableness will prevail tonight; and I hope that he will reciprocate. I accept at once that the order is complicated, but it concerns a complex trade and we want to avoid undue interference with the normal trade practices. This order applies, for the first time, in the case of alarm clocks made in Britain, a definite statutory maximum price; but in the case of imported alarm clocks, and other clocks and watches within the scope of the order, there is little or no change in practice. We still have control of distribution margins.
In the case of clocks and watches, other than British-made alarm clocks—and the order refers to spring-wound, and not electric clocks—there was an arrangement 1165 made seven years ago between the Horological Section of the London Chamber of Commerce and the Central Price Regulation Committee by which prices were fixed. What this order does, except in the case where there is a reduction in the distribution margin allowed, is to endorse that agreement which has been in operation successfully since 1941. The hon. and gallant Gentleman asked why it is necessary to have any price control. I think it is necessary to have price control because the supply of clocks and watches, other than alarm clocks which are rather in freer supply, is still short. Supplies are less than one-third of prewar and if we do not have some kind of control, we shall find that demand will be such that it may even rocket prices. What I have tried to do, in consultation with those who should have knowledge of the industry, is to fix a very fair price so that the maximum charge does give a reasonable profit without permitting prices to rise.
Then a suggestion was made, that we ought to fix a maximum price, as in the case of the second schedule, for the first schedule. That cannot be done. In the case of alarm clocks there is a more or less standardised production and types are so few that it is possible to fix a maximum price by a set figure. In the case of imported clocks, watches and movements, they vary. It would be almost impossible to fix a maximum price. One has to fix it on the basis of distribution margins and therefore we feel the method in this order is fairer than if we tried to adopt the alternative suggestion put forward. We feel that the fixing of cash maximums would only push up prices and allow unreasonable profit. Though reference has been made to traders who are not so respectable, the industry does attract the best types, and the order has been framed in this way because we have most reliable people to interpret and work it out.
The point was raised about the cost-plus system and it was suggested that this is bad. It is not always bad. In the war it did have some advantages, but I am prepared to agree that for the purposes of the order it is not desirable to have a cost-plus system. In fact we are not having it within the order. In the order what is happening is that within the distribution margin the wholesaler and retailer have to count not only the profit, but the expense as well. If distribution methods are 1166 made more efficient it means a higher net profit is made, and therefore there is an incentive to improve distribution methods. It cannot be said there is the same drawback as in the cost-plus system where there is a tendency to inflate prices and get a higher percentage of net profit.
§ Mr. Erroll
Surely the British manufacturer or the British caser of imported movements, can inflate the manufacturing cost just as he likes and get a bigger sum on each percentage margin at the wholesale and retail stages?
§ Mr. Bottomley
I do not think that can be done because there is this percentage margin and one must not go above that. That is the purpose of the order. If the House wishes, I will go into it in detail, but I do not think it is really necessary. We do fix a percentage figure and that tends to limit prices. There are two different kinds of distribution margins: in the case of high-grade watches and clocks the percentage is higher, and there are good reasons for that.
§ Mr. Erroll
Surely the percentage of something that is not fixed cannot be a fixed sum? When the costs of manufacture are increased, the total of the percentage margin allowed must accordingly be greater?
§ Mr. Bottomley
The cost price is where the question of supply and demand operates. It is true that the basis of the price of a clock or watch is the manufacturer's price, but this does not come into the order. This order operates only in the case of wholesale or retail distribution margins.
§ Colonel Hutchison
The manufacturer, according to the order, is the man who purchases the product uncased and then adds his own direct labour costs, and on that he is allowed a percentage.
§ Mr. Bottomley
He cannot add his labour costs for the purpose of bringing the article into the higher grade where a larger margin of profit on distribution is allowed. If we took into account the labour costs, it would inflate the price, but for this purpose it is not permitted.
We cannot accept the suggestion to annul this order. The trade did have an opportunity to put their point of view earlier, but have only now made two suggestions which we feel are reasonable and which we should try to meet in some way. Their first suggestion is in regard to the invoicing. They would like the 1167 system simplified, and as the industry is a reputable one, we think that we should allow this to be done, although it might lead to abuses.
§ Mr. C. S. Taylor (Eastbourne)
Even the Government are not allowed to amend an order any more than the Opposition. They can withdraw it and then bring it back amended. Would it not be much better to take this order back and produce a better drafted one?
§ Mr. Bottomley
We cannot do that, but we will try to find some means to meet the reasonable requests of the industry.
§ Mr. Bottomley
How the invoices are made out is an administrative matter.
The trade's second suggestion is in regard to the discount of 5 per cent. which is allowed. In certain cases, we have said that 2½ per cent. of that must be handed over to the retailer, but we think that a reasonable case has been made out for the 5 per cent. to be paid all round. We are prepared to do that and to make the 5 per cent. apply to all. I hope that, having met the trade to this extent, Members will accept the order.
§ Sir John Mellor (Sutton Coldfield)
The hon. Gentleman has said that the first point can be dealt with administratively, but would not the last point require an amending order, and as this order does not come into operation until 1st January next, would not the better course be to withdraw this order and make a fresh one, rather than have two orders, one amending the other?
§ Mr. Bottomley
No. If the matters can be dealt with administratively, well and good. If not, we will make an amending order which will become operative at the same time as the main order. In the interests of tidiness, I think it would be better to allow this order to go through and then, if necessary, to make an amending order later.
§ Colonel Hutchison
Before I withdraw the Motion, I want to say that I am not at one with the hon. Gentleman in thinking that there is any real risk in abandoning this order altogether. I think from the evidence and from what I have been told by the trade, we can see there is a sufficiency of these articles just now. We have been asked on many 1168 occasions by the Government what controls we would abandon. Here is one. The Government have for their part emphasised that they were not anxious to keep controls on for control's sake, but here is a case in which they are doing so.
However, the hon. Gentleman has shown a spirit of accommodation. He has been in touch with the trade itself. They have made certain suggestions and I ask him, when he is considering these, to consider what has been said from this side of the House. He has suggested an amending order to come into operation at the same time as this order. I think by far the cleanest and tidiest and most satisfactory way would be to withdraw this order and to substitute a new one altogether, giving effect to what we have requested. Having said that. I beg to ask leave to withdraw the Motion.
§ Motion. by leave, withdrawn.