HC Deb 13 February 1948 vol 447 cc757-68

Motion made and Question proposed, "That this House do now adjourn."—[Mr. Joseph Henderson.]

2.4 p m

Mr. Odey (Howdenshire)

I am very glad to have an opportunity of drawing attention to the working of the Leather Charges (No. 1) Order, 1947, dated 30th December, 1947. As is customary. I must first of all declare that I have an interest in this matter in as much as I am chairman and managing director of the largest group of tanneries in this country. I would have been glad, to take the opportunity of making some of these observations when the order was passed by the House, but partly owing to my inexperience of Parliamentary affairs I failed to do so.

Paragraph 4 of that order says that the amount of the charge payable by any person shall be due and payable on 1st April, 1948, to the Board of Trade or as the Board may direct. I wish to give the President of the Board of Trade, to whom I am most grateful for being here, the opportunity to make a statement as to what the Government propose to do under the powers they have taken. I will explain the circumstances which have given rise to this order. In 1942 the Government decided to subsidise footwear prices. This was done not by direct payment to boot manufacturers but by the Government taking over the purchase of hides—75 per cent. of which come from overseas—certain semi-tanned skins from India and, at a later date, raw goat skins.

Modifications were made in the prices paid to the Government by tanners for their hides and materials from time to time to allow for variations in the cost of production and to maintain the average marginal profit which tanners were allowed to retain. Owing to out purchasing arrangements with the United States, there was little Change in the level of hide prices until nearly the end of 1946. when quite suddenly there was a very steep increase. At the end of 1947, when the subsidy was withdrawn at very short notice it amounted to as much as 80 per cent. The question which is causing very great anxiety in the industry is what will happen now this order has been put through and the subsidy with drawn.

The order gives the Government the right to levy a charge which is equal to the subsidy on raw stocks and goods in process as at 31st December, 1947, and to order such moneys to be paid over to the Board of Trade as at 1st April, 1948. When I tell the House that it is calculated that there is a total sum of £8 million involved under these charges, it will be appreciated with what anxiety the industry is waiting to hear exactly what action the Government propose to take under the powers they have acquired under this order. It might appear at first glance that, in proposing to recover the subsidy, the Government are merely taking some money that rightfully belongs to the taxpayer. However, the money is not only needed by the industry in order that the industry can be financed at the very high rates at which raw materials are now obtainable but in actual fact as I hope to show, it undoubtedly belongs to the industry and—I hope the right hon. Gentleman will agree—in no sense "rightfully" belongs to the Government or to the taxpayer.

To illustrate my point, I have taken the trouble to look up one particular parcel of hides which at 31st December, 1947, was lying in one of our tanneries. It was a parcel of dry salted aracaju hides from Brazil. The very extensive schedule comprising part of the order contains over 1,000 varieties of hides, and I pay tribute to those members of the Civil Service who, at very short notice, produced this most voluminous and detailed schedule of prices. These hides were invoiced originally at 8⅜d. per lb., and they are now called upon to stand a further charge of 5¾d. per lb. In other words the original parcel which, incidentally, was invoiced up on the 18th July, 1947, at £1,492, is now called upon to bear an additional charge of £1,058 11s. 6d. The House will bear in mind that when the hides were invoiced on the 18th July last, the receiving firm had no thought that it might later be faced with an order which would call upon that firm to pay this further large sum of money.

Raw hides are purchased by the Government and at the same time corresponding quantities of sole leather bottom leather or upper leather were sold to the boot and shoe trade. The point of my argument is that the general public received the advantage of the subsidy at the time when the hides were invoiced, because the tanners in the country were called upon to sell to the Government at subsidised and fixed leather prices their total production, which corresponded to the quantity of the subsidised hides when received. It is quite fantastic, therefore, to suggest that, now the subsidy is terminated, the general public can hope to receive not only the cheap subsidised leather which they received at the time the hides were invoiced but that they might further expect to recover the subsidy itself, which has already gone into the subsidised leather that was supplied.

In order to convey this somewhat complex position, it is necessary for me to explain the basis upon which tanners trade. In normal times they sell on replacement; that is, when hides go up, they endeavour to advance their prices pari passu, and when hides go down, the industry reduces its leather prices simultaneously with the decline in the price of hides. This is an important point at the present time because hides are going down, at least in the North American market. I want to impress this upon the President; this subsidy, which undoubtedly belongs to the industry anyway, is ended and it is urgent that the industry should have it, first to continue to finance the purchases of raw material while the present high prices continue and, alternatively, to effect immediate reductions in price as, and when, hide prices decline.

We had yesterday an appeal from the Chancellor of the Exchequer to industry to lower prices. If, however; this subsidy is paid over by the trade as a result of this order, the industry will, in effect, cease to sell on replacement but will be forced, with the agreement of the Government on to a cost-plus basis. The net result of this would be that these dear stocks, which stand at an all-time high record for price, would have to be consumed before leather prices were lowered. There is every indication in the United States that the price will fall and that the unfortunate general public of this country will be continuing to pay high prices for leather when they would, in the normal way, have received immediate relief as, and when, the raw hide market declined.

I hope I have made it clear that this industry runs with a constant stock in trade. It has a large stock in process for the simple reason that it is a long process. By the time one allows for buying the hides, and putting them in the tanning pits for a process which takes, in tanning alone, three or four months, and when one has added to that the period taken for shipment of the hides, it is from six to seven months. If our tanning industry is to be forced into a position where it can no longer sell on replacement, what will happen to our export trade? We shall be in competition with the tanners of the United States as regards the products of all these industries, which rely upon leather as their raw material—the boot and shoe industry, the manufactured leather goods industry, the leather belting industry and many others of which leather forms an important part.

What is to happen to all those industries if the tanning industry, by virtue of this charges order, is unable to meet the competition of the tanners of the United States who are already competing with us strongly? I hope the right hon. Gentleman will find it possible to make a statement on this matter which will allay the deep and great anxiety of the industry. I am aware that negotiations on this matter have been, and are still, proceeding and I trust that, as a result of the statement which I hope the right hon. Gentleman will make, those negotiations will be brought to a successful conclusion, so that the industry may know exactly where it stands and can put its prices on to a proper and satisfactory basis.

2.20 p.m.

Mr. Attewell (Harborough)

The hon. Member for Howdenshire (Mr. Odey) has declared his interest in this subject, and I will declare mine. I am a trade union officer in the boot and shoe industry. I cannot anticipate what the reply of the Minister will be, but there are one or two observations which I think ought to he placed alongside those of the hon. Member for Howdenshire. I fail to see how the tanners have any right to expect that the subsidy the Government have paid on hides should be given to the tanners. If the tanners had borne the cost of the subsidy, they would have a case, but they did not bear the cost of the subsidy, and it is far better, surely, that the general public should benefit. The hon. Member said that it had been estimated at about £8 million. I have no firm figures, but I should think that to be a conservative estimate. I have heard estimates of £12 million. I can understand the smaller amount being more acceptable to the hon. Gentleman's argument, and I can also understand his plea that the money should be put back into the industry, but I do not think there is any justification for that. After all, private enterprise should stand on its own merits, and not be financed.

Mr. Odey

I think I have shown quite clearly that the money represented by these charges is undoubtedly the property of the industry. I did not think there was any doubt about that, and I hope that when the President of the Board of Trade deals with the matter, he will agree with my view. I want to make it quite clear that the industry do not desire to receive any money which belongs to the taxpayer, or the Government, or which in any way does not belong to them.

Mr. Attewell

If the Minister is able to inform the House that this subsidy belongs to the industry, I should not object, but my reading of the matter is different from that of the hon. Member. I do not think it belongs to the tanners. I agree that the statement to which reference has been made was at a luncheon, and probably statements at luncheons are different from those which would be made on other occasions.

I imagine that the reason why the industry desires to retain the subsidy is in order that that amount of money might act as a buffer to prevent the losses the industry suffered after the 1914–18 war. It is as well to remember what happened after that war, and compare it with what happened after the recent war. The hon. Member for Howdenshire stated that his own firm lost approximately £1 million. That is a terriffic amount of money for a firm to lose. It was also stated that the firm never paid a dividend for 15 years following the 1914–18 war. Because of the excessive losses of that period, it is suggested that the money now allocated to subsidy should be used by the industry as a buffer. As an hon. Member sitting on this side of the House, I do not think we should subsidise private industry at the expense of public money.

Is it not a fact that immediately following 30th December the prices of leather in stock were made higher? Prices jumped up overnight to the equivalent, as near as it is possible to judge, of the new prices. Different tanners made different prices. One can understand that, as there are a number of small businesses. It is estimated that the price of leather rose 50 per cent., 80 per cent., or 100 per cent. As a consequence, the price was increased to every buyer of leather, and I have seen costings which were increased 100 per cent. on the prices in invoices of about 15th, or 16th, December, thus proving that the tanners increased their prices to the cut sole manufacturers. There are also tanners who cut soles as well, and that part of the problem should he particularly watched by the Minister. The price of leather has been increased to the equivalent of the subsidy and the result has been that repairers objected to the amount of money which it was agreed should be scaled up.

I want to see the products of our industry "trodden under foot" just as much as does the hon. Member for Howdenshire, but I feel that although we should unite on both sides of the industry and on both sides of the House, in the legitimate demands, we have a right to expect the Government to see that public money is not paid to a body of manufacturers for any potential loss which may come in the future.

2.30 p.m.

The President of the Board of Trade (Mr. Harold Wilson)

In opening this Debate, the hon. Member for Howdenshire (Mr. Odey) has, I believe, just made his second speech in this House. As he knows, I have been wanting to apologise to him for some time for the fact that when he made his first speech it was in a Debate in which I was concerned and I had to be out of the Chamber and missed what I later enjoyed reading. He has been speaking today on a subject which he knows inside out; he has been speaking as an expert, and accordingly he would not expect, in relation to a subject he knows so well, any of the consideration which is certainly due to a maiden speech. I can assure him at once, however, that in view of the kind way he spoke about us, and in view of the facts at issue, I have no intention of disagreeing with much of what he said.

The Leather Charges (No. 1) Order which he mentioned, was made on 30th December last, came into effect on 1st January, and was approved by this House on 4th February. I would like to say a little more about it, to some extent repeating what the hon. Member said, but also filling in one or two gaps. The order imposes a charge which is payable on 1st April on stocks of subsidised cattle hides and skins and certain types of goat skins, sheep skins, tanning materials and extracts held at the end of 1947 by leather producers. These matters have been fully gone into by our officials and have been discussed on many occasions with the hon. Member and other representatives of the industry.

These subsidies, as the House knows, were introduced for hides, skins, tanning materials and leather at various times from 1941 onwards to keep down the price of leather for footwear and repairs as part of the general policy of stabilising the cost of living. The way in which it worked in general was that the Board of Trade bought these hides, etc., and resold them to the United Kingdom leather producers at a loss to the Board of Trade, but at such a level that leather prices should remain constant, while leaving a fair return to tanners, dressers and extract manufacturers. I do not think that the hon. Member has any complaint about the return during the war or since the war. The devastating things which happened to the industry have by no means occurred in the period during which this Government have been responsible for the welfare of this important industry.

I was much reassured on seeing the statement made by the hon. Member to his shareholders about the extent to which his company has been able, in common with the rest of the industry, to put itself on a sound basis as compared with the difficult position it was in, not only in the period immediately following the first world war, but in pretty well the whole of the interwar period, or at least until the years just before the war. I think it is true, in the case of the hon. Member, that he took over the direction of the company two or three years before the war.

I well understand his apprehension. Hide prices have certainly been soaring to fantastic levels in the course of the last year or two. It would be reasonable to expect, and indeed we all hope, from the national balance of payments point of view, that there will be a reduction, and we would hope in course of time a sharp reduction, in the price of these imported hides. As the hon. Member says, there have been one or two reassuring signs of that in the course of the past few weeks, and we naturally hope that it will continue. But with the industry working, as the hon. Member says, on a replacement basis, that causes problems, and in view of the past experiences the industry is naturally worried about the future. I will say a word or two about that a little later, but there is not much I can say at this present stage of negotiations.

I would first like to turn to the position which has operated since 1st January, 1948. Since that date the Board has been reselling the native and imported materials without loss, and the leather producers have correspondingly been allowed to charge increased prices for their leather to cover the increase in cost of the raw materials to them. This means that every leather producer's stock of hides, skins, etc., will appreciate in value to the extent of the increase in price on those hides, etc., compared with the previous period. When he comes to sell the resulting leather at the new prices, assuming they are still above those of the earlier period, and these new prices are in course of being checked and are operating at the moment on a provisional basis, this stock appreciation will be realised as an additional profit. I do not think that the hon. Member would disagree when I say that this stock appreciation is very much in the nature of a windfall. The hon. Member did not attempt to contest that.

There were one or two rather controversial passages in his speech, as for example, when he said that this £8,250,000 should be regarded as belonging to the industry. That is a debatable matter. He said also that we must think not only of the increase in price but of the decrease in prices which we all hope and expect may be coming. Certainly, what has so far happened has made a windfall profit for the industry from material which it is agreed was bought with public money and which was resold at a loss to the Treasury. I am quite, sure the House will agree that I should not be discharging my duty to the taxpayer if I allowed those windfall profits to be retained without question—profits which had been made at the expense of the taxpayer.

Mr. Odey

The right hon. Gentleman will bear in mind that at the time when the Government paid the subsidy on the hides the general public, through the Government, received an equivalent amount of subsidised leather? That is an important point.

Mr. Wilson

Yes. I do not in any way deny that. The actual subsidy was certainly passed on to the consumer of the footwear, but these windfall profits are coming, I agree, not from the payment of the subsidy, but through no virtue on the part of the industry. They are arising simply out of the fact that materials bought with public money are now commanding a higher price.

The only important point between us is what is to happen when these things have to be resold at a lower price than at present. I do not think that the industry has yet shown any signs of making a loss on the prices it is getting for the leather. Indeed, the increase in leather prices since the controls were taken off, if I may use a phrase which is not quite correct, is, in the case of shoe repairers, somewhat embarrassing to them. I agree with the hon. Member that the problem will come when, on the hides replacement basis, the price has fallen considerably, as both the hon. Member and I hope it will.

To deal with the present situation, in which prices are much higher than when these stocks were laid down, it was decided to collect the appreciation in prices by statutory order for the benefit of the taxpayer. We realise that the leather producers and extract manufacturers may need some protection against stock losses in future. Discussions are proceeding about that between the Board of Trade and the industry. It is an arguable question as to how much protection they will require. One of the things we have to argue about is how much we expect the price to fall. It is by no means acceptable as a first principle that the whole of this money will be needed to be set against stock losses.

All leather producers were requested to take stock on 31st December, and stock returns are now being obtained by the Leather Control to serve as a basis for calculating the liability of any individual tanner. This order does involve very big charges and it is only right that the House should go into the matter. The hon. Member quoted the figure of £8 million. Our own estimate is £8¼ million, but we do not need to argue about the odd quarter of a million pounds. Whether it is £8 million or £8¼ million, it is certainly a very big figure. I think I have made it clear that the money was raised as a result of the appreciation in value of stock paid for with public money.

I accept the hon. Member's point that subsidies have already been passed on to the consumer, but we do not feel that it is right that those profits arising out of stock appreciation should automatically accrue to the industry, the more so as it was realised as a result of the movement of prices during the period of national bulk purchase. What we do accept is that there will be falls, and it will be necessary to help the industry to get over those periods. There are discussions going on between the industry and the Board of Trade about these future stock losses, and it will depend on what happens in those discussions. It is possible that the full £8¼ million may not accrue to the Exchequer.

I think I have given a general interim report on the matter, and I hope that the general nature of the reply will satisfy the House as to the reasons why we are dealing with the order in this way. I entirely agree with the main points raised by the hon. Member, which cannot be dealt with until negotiations now going on are completed. I have no doubt that the hon. Member will keep in close touch with the negotiations, and that there will be opportunities for further discussion.

2.43 p.m.

Mr. Lennox-Boyd (Mid-Bedford)

The whole House will be grateful to the right hon. Gentleman for the very friendly and temperate way in which he has answered the hon. Member for Howdenshire (Mr. Odey) who is to be congratulated on having, in an entirely proper fashion, raised a matter of such considerable national importance. As the order has been passed by the House we are not in a position to draw attention to its merits. May I say, however, that it was because a Select Committee drew attention to the order, which involved limited retrospectivity, that some of us were interested in it and began to examine it. The full value of the subsidy has been given to the country in the form of cheap leather prices, but I would point out to the right hon. Gentleman, that, in the minds of many of us, the stock appreciation would have occurred anyhow, whether raw materials had been subsidised or not. It is not in consequence of the subsidy. That should be borne in mind. It is quite right to suggest that the appreciation in value can form a necessary cushion for future loss in price.

Mr. Attewell

I agree that the public have had it. What I am saying is that it was not the tanners who gave it to them.

Mr. Lennox-Boyd

It was certainly the skill and enterprise of the tanners which have provided the public with cheap leather goods at a crucial moment in our history. The main thing is that this order does introduce a strange and singular commercial practice of raising the price to someone who has already paid for it because of the rise in world prices and materials, which had nothing to do with the subsidy that has been paid. Yesterday we heard a speech from the Chancellor of the Exchequer in which he asked for co-operation between workers and employers and the general public. There can be but one answer from patriotic citizens to a speech of that kind, but cooperation is a two-way term. It demands, also, that the Government should take the industry into their confidence. It was at the height of negotiations, and without the knowledge of the trade, that this order was issued. I would suggest to the right hon. Gentleman that he reminds his Department and his colleagues that in what we hope may be a new spirit in industrial production orders of this kind should not be peremptorily presented to the House while there are negotiations with important firms, large or small.