§ Order for Second Reading read.
§ 4.15 p.m.
§ The Minister of Food (Mr. Strachey)
I beg to move, "That the Bill be now read a Second time."
The purpose of this Bill, which is another small Bill, is to meet a point made by the Public Accounts Committee in their Third Report of the Session 1946–47. The Public Accounts Committee expressed doubts as to the powers of the Ministry of Food to enter into commitments beyond the end of December, 1950. The significance of that date is that it is the date on which the Supplies and Services (Transitional Powers) Act expires. The issue was whether a commitment involving a financial commitment beyond that date was covered by the powers of the Ministry as they are today. This Bill seeks to put that beyond doubt by providing that money which will have to be used to pay for foodstuffs, for example, or any other suitable commodity brought into the country under a commitment extending beyond that date, shall be provided by this House.
The issue was really first considered in 1932 when the House decided, after some discussion I understand, that a Department exercising continuing functions which extended beyond the current year—functions which involved financial commitment—needed specific statutory cover. The Public Accounts Committee agreed that that decision, as it were, that understanding, was suspended, as I have said before, for the currency of the Supplies and Services (Transitional Powers) Act. But in respect of a commitment which extended beyond that it might not be covered, and it was therefore held by the Government that it would be only right and proper to bring in this short Measure to put the point beyond doubt. So much for the formal side of the Bill.
The only other thing I wish to do in commending the Bill to the House is to add a word or two on the non-formal issue, the issue of substance that these contracts run for a term of years—longterm contracts as they are sometimes called, though their length varies a good deal. We have entered into a good number of contracts, and as this Bill provides an opportunity to do that I think a word 354 of justification on the substantial score of the principle of the contracts is needed.
There are in existence today some 40 of these contracts of varying terminal dates; they vary from one up to 10 years. Their provisions also are very various. Many of them contain annual price reviews; others price variations within a given amount, say 7½ per cent. upwards or downwards in each year; some of them are for fixed quantities of produce; some are for the exportable surplus of the country with whom the contract is made and others for a fixed proportion of the exportable surplus, say 95 per cent., or something of that sort. However, varying as the actual terms of these contracts are, they can all be covered by certain general principles, and if I am asked what are the objects we seek to serve in making these contracts I should say they are mainly two.
In present conditions, the first object of these long or medium-term contracts is to increase the world production of foodstuffs. How do we seek to do that? We believe that these instruments do play today quite an indispensable and vital part in securing the increase which is needed in world food production by giving the primary producers a reasonable measure of security. We believe that that is profoundly necessary because of the particularly bitter experience of the primary producers, for example, in the British Commonwealth and all over the world for that matter, in the period between the wars, when the only effect of increasing their production was in many cases their own financial ruin. We do not believe that we shall get the primary producers of the world to increase their production unless we give them some reasonable measure of security.
The second purpose is almost equally important, and it is combined with the avoidance of what I would call the astronomical food prices today. We believe that it can be quite definitely shown that these contracts have prevented, and still do prevent, this country having to pay prices for its essential food imports which, in many cases over the past three years, it would have been quite ruinous to pay. In proof of that we would point to the rise in prices of foodstuffs which have not been covered by these contracts, and in many cases the prices 355 which have been paid by other producers for food which we have secured under these contracts.
Therefore, when we bring those two prices together, the aim and object of the contracts, or their pattern as it were, is always the same. It is the nature of the bargain entered into between producer and consumer and buyer and seller, with the seller getting a degree of security he would not get from a day-to-day transaction on the market, and the purchaser paying a lower price than he would by buying day to day on the market. We believe that is a reasonable bargain adjusted as I say, in very many different variations, but the fact of that bargain being struck in no fewer than 40 instances today is a profoundly satisfactory one to both parties in the present state of the world.
There is no doubt that the producer, if he is willing, as some producers have been, to forgo this element of security, can in some cases get a higher price if he does not mind the risk in a year or so when the price may come down to a ruinous extent He can charge whatever the traffic will bear today, but we have suggested, and with great success, to all these producers that that is really not in their interests as it is not in ours. It is not in our interests to pay the very high prices that the traffic will bear for two reasons—for the obvious one that we cannot afford it above all where dollars are concerned, and the more controversial reason, that the price the traffic would bear—the natural price at which a commodity would be sold today—in the present condition of supply and demand would not be the best price to induce the maximum production. If I turn for a moment from the language of the trader, the catchword which I have used "above the price that the traffic would bear" would in economic terminology be called the short-term equilibrium price—the price which would be reached by the present state of supply and demand with supply inelastic on the short term.
I for one was greatly struck and encouraged by a recent statement from a high economic authority on what would be the likely effect of holding the price below that short-term equilibrium price and nearer at any rate to what we imagine the long-term equilibrium price, based on 356 the real costs of production today. That in the opinion of important economic authorities, theoretically at any rate, is a sound thing to do, just as it must seem a sound practical thing to do. I am referring to the remarks made on this subject of the success of long-term contracts by Sir Hubert Henderson in his address to the British Association last summer. The passage I have in mind is:If it is a case of a large excess of demand over supply, the short-term equilibrium price may be very high indeed, much higher than is useful in stimulating additional production. For an exorbitant price does not stimulate production appreciably more than a good price; it frequently stimulates it less. Indeed it is a well-established paradox that an excessive price sometimes leads to a decline in output, because many classes of producers are disposed to work less hard when an accustomed income can be earned with less exertion. On the other hand, the disadvantages of an exorbitant price, or in more popular language, a profiteering price, may he very great.That seems to me a theoretical justification of the long-term contract between a reasonable producer and a reasonable consumer, by which the price is held somewhere between a short and a long-term equilibrium price.
No one can doubt that we have been and are still in a world situation with very great maladjustment between supply and demand, and it has been wise, wherever we can, to make a long-term contract which is holding the price between those two points. The long-term contract is not the only way of doing it, but it is the most useful and potent instrument for effecting that purpose. I was interested to note that, the British Government is not alone in taking this view and setting a value on these arrangements. I was very struck by a passage in the recent interim report of O.E.E.C. on the general European Recovery Programme, which was recently made to E.C.A. I will read a few words of that report to the House if I may:One factor limiting agricultural output is the memory of the economic uncertainty and the instability of agricultural markets in the pre-war period. The assurance of stable market may be a powerful influence not only in encouraging production, but also in directing it in accordance with the needs of the consuming public and of the economic situation. On the international aspect, as far as supplies in international trade are concerned, bilateral negotiations afford the most effective present method of implementing a policy of guaranteed markets; in return for its guarantee of a market the purchasing country should have 357 some assurance that supplies would be forthcoming to the extent required. The United Kingdom has already indicated that it is prepared to consider further contracts with participating countries for essential foodstuffs and it is expected that other countries will be prepared to enter into similar agreements. Guaranteed markets are of particular value in stimulating production and exports from overseas territories.In that useful and authoritative report we see that these instruments are recognised as thoroughly valuable in the present world situation.
Two criticisms have recently been made of them. I do not attach much importance to the first but the second is more weighty. The first is that a large number of private individual importers competing with each other could today import the supplies more cheaply. That seems to me a most inherently improbable statement. It might be different in a different situation but in one in which supply is markedly less than demand it can hardly be that a number of competing buyers will bid down the price. I will quote Sir Hubert Henderson on that. He writes:It is not monopoly but competition which forces up prices most in conditions of shortage.That must surely be obvious. When to a natural shortage of supplies is added the fact that in many cases the producers have unified their selling arrangements and competing private buyers face a united front of sellers, I tremble to think of the prices they may be forced to pay. In facing such a selling organisation as that of the Argentine, a multitude of unassisted buyers would not stand much chance.
§ Mr. Beverley Baxter (Wood Green)
Is not the right hon. Gentleman misleading the House a little? He is assuming that these competitive buyers all advance at the same time on the one country producer. Undoubtedly the competitors would then send the price up, but competitors who are able to buy in different parts of the world will surely bring down the price?
§ Mr. Strachey
I cannot follow the hon. Member. If we had buyers competing against each other for our meat, they would certainly have to go to the Argentine, perhaps not for all of it but at any rate for that portion of it which we buy from the Argentine. I cannot see how they could avoid tending to bid the 358 price up against each other. I call in aid there our experience with the European buyers who go to the Argentine and bid the price up against each other most severely to levels far in excess of those by no means low levels which we pay.
§ Mr. Thornton-Kemsley (Aberdeen & Kincardine, Western)
Would the right hon. Gentleman apply the same arguments to wheat? In that case, before the war buyers all over the world visited countries wherever a harvest was being gathered and picked up small parcels of wheat here, there and everywhere, so reducing the price, instead of having one or two large sources of supply only as at present.
§ Mr. Strachey
It is a question of the equilibrium between demand and supply. The hon. Member will no doubt recall the words of Sir Hubert Henderson:It is not monopoly but competition which forces up prices most in conditions of shortage.In a condition of shortage, a multiplicity of buyers, whichever market they frequent, tends to force up the price, but the geographical point of the market to which they go would have very little to do with that.
§ Mr. Baxter
Would the right hon. Gentleman say to the House that there are no foodstuffs in the world today which private purchasers could not buy at a lower price at the present moment than the Government pay by bulk contract?
§ Mr. Strachey
That would be a sweeping assurance. I should very much like the hon. Member to name one. There are certain commodities which it is much more suitable to leave to purchase by private firms. We leave many to purchase by private firms. The most recent example is that of lemons which we have turned over entirely to purchase by private firms. We do so in such cases where the commodity is a small one or is not suitable to bulk purchase in any case or in which the supply and demand situation has changed and competition between a multiplicity of buyers is much less dangerous. However, I cannot for a moment believe that in the present world situation of supply and demand a multiplicity of buyers would not tend to bid up the price. That seems to me to be the most elementary economics, and that is all I will say at this point, but I would 359 qualify all this by saying that in the long-term arrangements or the comparatively long-term arrangements with which this Bill deals, the making of such contracts is not necessarily imcompatible with using private buyers in various ways, and that is in fact done.
Cereals have been mentioned. Cereals are bought by private firms acting as the agents of the Ministry of Food or the Government. Sugar is another commodity bought in that way. There are degrees of freedom, as it were, which the private buyer may have under overriding governmental arrangements ranging from the arrangements with which the Government themselves actually buy on its own account to the use of private firms simply as agents, or on the other extreme, to fixing the total, which it may be necessary to fix for currency reasons, within which the private trader can act entirely freely. Therefore, the arrangements with which this Bill is concerned do not necessarily presuppose any actual method of buying. I would mention the point—it does not need elaboration because it is so obvious—that these arrangements are almost indispensable so long as there exists the imperative need to economise in purchases in particular markets. Thus where we have to pay dollars or other scarce or other hard currencies—and it is possible to divert purchases from those markets to softer markets, undoubtedly the long-term contract is a most useful instrument in that very necessary process.
I come now to the second criticism of these contracts, to which I attach great weight. It is said that although there may be a case, and may have been a case for these contracts over the last three years—if I had time I could make an overwhelming case in terms of pounds, shillings and pence for the savings those contracts have made to the British nation over those three years—yet we have reached the peak of world prices for foodstuffs and other primary products. It is said that there is now a chance of those prices turning downwards and it would be rash to enter into long-term contracts with, it is implied, large fixed prices which might involve us in later years in paying as much above the world market price as we have undoubtedly been paying below the world price up to now.
We must take that point into most serious consideration. I shall make one 360 or two brief comments on it. First of all, I do not take the view that it would be in the best or long-term interests, of the country to see a catastrophic fall in the prices of world staple foodstuffs and other primary materials. The price of wheat may again fall to 50 cents a bushel as it was before the war, but, attractive as that may sound in our ears today, if such a fall took place quickly and catastrophically I would not agree that it was in the best interests of the country. We imported wheat at 50 cents a bushel in 1938, but along with it we imported a great many million unemployed. Any catastrophic fall in primary producers' prices of that sort would inevitably react most detrimentally on great industrial and exporting countries such as this one.
It is true, of course, that long-term contracts on prices, and national agreements in general tend to prevent those sudden catastrophic falls in primary prices, but I believe that to be in the real and long-term interest of this country. It is precisely to safeguard against such catastrophic falls that we give a quid pro quo to the primary producer in return for his selling to us today below the price which he could get on a free market. On the other hand, a moderate and steady decline in primary producers' prices—above all, food prices—is to the great interest of this country, and it is most important that the long-term arrangements which we enter into today should do nothing to prevent such a steady and moderate fall in the prices of the primary foodstuffs and other primary products which we have to buy.
As the House can imagine, I am exceedingly anxious that no obstacle should be put in the way of such a process as that, and if the House will examine from time to time the contracts and arrangements we enter into, it will be seen that the greatest care is taken that they do not prevent such moderate and reasonable falls as that in world prices. They contain many safeguards. In some there is an annual price review clause but, as in the case of our contracts with Australia and New Zealand with regard to dairy produce, and in the case of New Zealand meat too, which we have just entered into, they contain a clause that the price shall not vary more than a certain percentage each way in any given year.
361 There are various methods by which we can safeguard, and must safeguard, against the effect of these arrangements being to stabilise the prices which we should pay for our primary products at what might prove in future years to be an unnecessarily high level. The House may rest assured that so long as I, at any rate, hold my present responsibilities, I shall always bear in mind as perhaps the greatest economic danger to which this country could expose itself would be to pin the price of its imports at a high and fixed level, while the prices to be realised by its manufactured exports were left free to find their own level. That, of course, would be a most hazardous thing to do, and one which we shall avoid at all costs.
Having said those words on the underlying substance of the Bill, and having explained to the House the occasion for it, I hope the Bill will be given a Second Reading.
§ 4.44 p.m.
§ Mr. Osbert Peake (Leeds, North)
This Bill deals in its terms with what is a narrow but an important matter. The position of the Ministry of Food in relation to long-term contracts has hitherto been unsatisfactory, and it is vitally important, if any proper Parliamentary control of expenditure is to prevail, that Ministers should only spend money with proper statutory authority for it. Otherwise, any Minister could embark upon any type of expenditure which appealed to him.
It was, of course, three centuries ago that Parliament acquired effective control over taxation, but it is only much more recently that Parliament has sought to achieve effective control over the expenditure of public moneys. The rules of practice in relation to this matter are now fairly well established and defined. The position is that where expenditure is both substantial and recurrent, express statutory authority should define the powers of the Minister to spend public money, and it is only where the expenditure of public money is either non-recurrent or not substantial in amount, that the procedure by way of estimate or supplementary estimate, followed by the ex post facto authorisation of the Appropriation Act should be followed by public Departments. The Public Accounts Committee, since 1932, as the right hon. Gentleman stated, has made it clear that 362 in its view, where long-term commitments for expenditure continuing over a period of years are entered upon, there should always be statutory authority.
In paragraph 12 of the Public Accounts Committee Report for the 1946–47 Session the matter is stated as follows:The Public Accounts Committee of 1932 … and the Committee of 1933 … considered cases of expenditure out of Votes of Parliament under the sole authority of Appropriation Acts. They expressed the view that, as a matter of general principle, where it is desired that continuing functions should be exercised by a Government Department, particularly where such functions may involve financial liabilities extending beyond a given financial year, it is proper, subject to certain recognised exceptions, that the powers and duties to be exercised should he defined by specific statute.We went on to say:The Treasury undertook to do their best to comply with the wish of the Committees that, when this power has been exercised to authorise continuing grants, opportunity should be taken to insert regularising clauses in any appropriate legislation which may be in contemplation.The views of the Committee were expressed in that year, in paragraphs 95–97 of their report, on this question of the long-term contracts of the Ministry of Food, and the Treasury—in their minute of January last year upon this matter—after there had been some discussion as to whether or not the Minister of Food had statutory authority under the Ministers of the Crown (Transfer of Functions) Act of 1946—went on to say:My Lords"—that is, my Lords of the Treasury—readily agree that the established practice referred to in paragraph 12 of the Committee's report requires that the powers of the Ministry of Food to incur expenditure on long-term commitments should be defined by statute at the first convenient opportunity; and as the Committee were informed, the Ministry are now engaged on the preparation of such legislation.So this Bill, in its narrow aspect, meets the wishes of the Public Accounts Committee and brings the position of the Ministry of Food properly into line with what has now become the established practice so far as Government expenditure and Government commitments on long-term contracts are concerned. It is a good Bill, not only because it validates what the Ministry of Food may do for the future in this connection, but it also validates what has been done in the past. Its single Clause says: 363Any sums required by the Minister of Food to fulfil any contracts or arrangements entered into by him, whether before or after the passing of this Act, in or in connection with the exercise of his functions as to food and animal feeding stuffs, including contracts or arrangements involving commitments extending beyond the financial year current … shall be paid out of moneys provided by Parliament.So, in its narrow aspect, this Bill is a good Bill.
We do not regard this as a very suitable occasion upon which to debate the larger issues connected with these long-term contracts, and we shall seek an early opportunity in the future for a discussion upon this subject. We were horrified to see the Press statement issued by the Ministry of Food yesterday in relation to the meat contracts with the Argentine involving a reduction in the meat ration from 1s. to 10d. per week, and I cannot share the somewhat complacent views expressed by the Minister upon these questions of long-term contracts when we get an example such as we saw in yesterday morning's newspapers. As I understand the position, we paid £100 million in advance for the supply of Argentine meat for the current financial year. We gave them a douceur of £10 million not relating to the price of meat at all, and, having paid in advance, we now find to our distress that the contract quantities are not going to be supplied.
When we look back to the Debate which took place on 23rd February last year, when the Chancellor of the Exchequer explained this agreement to the House, I must say that his forecasts have fallen very far short of fulfilment. The Chancellor of the Exchequer on that occasion, having explained that we were going to pay this £110 million down, went on to say:The net result is that we have promised the Argentine to use our best endeavours to facilitate the supply of this list of goods which they urgently require, and we have got from them the guarantee of delivery of the foodstuffs … which we urgently require."—[OFFICIAL REPORT, 23rd February, 1948; Vol. 447, c. 1684.]By paying in advance, the right hon. Gentleman apparently thought that we were getting a guarantee of a fulfilment of the contract. Of course, one of the great disadvantages of this system of inter 364 Governmental long-term contracts is that there is no authority who can enforce the bargain. Where private traders are concerned there is usually some court to which a case can be taken for breach of contract, but in the case of these inter-governmental contracts there is no authority, no court, nobody who can say that this contract ought to be and must be fulfilled. That is one of the outstanding disadvantages of this system of long-term inter-Government contracts.
At the same time, of course, we must recognise that some system of long-term contracts is an indispensable element in any effective policy for colonial development. It is quite clear that, though the contracts may not be for fixed prices over long terms, some form of undertaking to purchase on minimum quantity contracts and at prices subject to annual review must be an indispensable element in the development of the production of various foodstuffs in our own colonies. However, we shall seek an early occasion in the near future when we shall criticise the administration of the right hon. Gentleman and challenge the wisdom of some of these long term contracts which have been entered into. We shall also, of course, have something more to say about the right hon. Gentleman's regular refusal to give any details of the prices at which these contracts are negotiated at the time when they are entered into.
In point of fact, we find that these prices always leak out, usually from the country with whom the bargain has been made, and in the second place we often find that we can in fact deduce the prices at which the right hon. Gentleman has made these contracts by an examination of the Trade and Navigation accounts. We shall have many points of criticism to bring forward on what I think will be a more appropriate occasion, namely a Supply Day. As to the Bill, we welcome it because it regularises the position of the Minister of Food and it meets the wishes of the Public Accounts Committee.
§ 4.55 p.m.
§ Sir Waldron Smithers (Orpington)
I cannot let this Bill pass in silence. The Minister has referred to world shortages. I would remind him of the principle that to restrict consumption restricts production. The sooner we take off all these restrictions and controls, the bigger will 365 become the supply. Does the right hon. Gentleman really mean to say that if we gave a free hand to the traders in the Baltic, Mincing Lane, Manchester and Liverpool, they would not get more food at cheaper prices than he is getting under bulk purchasing?
My right hon. Friend the Member for North Leeds (Mr. Peake) has said that we shall have another opportunity to discuss this matter in greater detail, but I should like to warn the Minister that if he tries to break the law of supply and demand that law will break him. In the Explanatory and Financial Memorandum to the Bill it seems to me that we are asked to give carte blanche to a Minister for whom I have very little respect. It says:It is not possible to estimate the total amount of expenditure involved.I think it is a very serious step for this House to take to give an almost unlimited amount of public money to a Minister with the dreadful food record that he has got. As an example, there was all his rationing of potatoes last year; there was not a shortage, yet he rushed into buying swedes and turnips.
In case I shall be called to Order for calling a Minister names, I have taken the precaution to look this up in the Oxford Dictionary——
§ Mr. Deputy-Speaker (Mr. Bowles)
I must warn the hon. Gentleman that the fact that a word is in the Oxford Dictionary does not necessarily make it parliamentary.
§ Sir W. Smithers
I appreciate that, Mr. Deputy-Speaker. I have tried to find a suitable name for the Minister. I want to call him a mountebank. The Oxford Dictionary describes a mountebank as follows:An itinerant quack who from an elevated platform appealed to his audience by means of stories, tricks, juggling, and the like, in which he was often assisted by a professional clown.I apologise to the right hon. Lady the Parliamentary Secretary, but that is what it says. It ends by calling him "an impudent charlatan."
To give this almost unlimited amount of public money to a Minister Who has had no experience of economics or business is a very grave responsibility for this House to take. I hope that my right 366 hon. Friends on the Front Bench will take an early opportunity of bringing the Minister to book on the whole of his bulk purchase policy.
§ 4.59 p.m.
§ Mr. Selwyn Lloyd (Wirral)
I have been rather provoked into saying a few words by some of the things which the Minister himself has said. When I first saw this Measure I had considerable misgivings, but I agree entirely with what my right hon. Friend the Member for North Leeds (Mr. Peake) said about it. Personally, I dislike intensely these trading activities of the Ministry of Food and, subject to certain reservations, I dislike the Ministry of Food entering into long-term contracts. I definitely join issue with the right hon. Gentleman as to the advantages accruing to this country from many of the long-term contracts into which he has entered. There is an increasing volume of evidence to the contrary. I entirely agree with the forebodings which he has expressed about the present very high level of the prices of our imports of food. It seems to me that entering into too many of these long-term contracts will do precisely that which he professes to fear. There will be no hope of a substantial reduction in food prices until we return to a system of free commodity markets. However, I appreciate that this is not the occasion on which to debate that very much wider issue. I am prepared to accept this Measure as purely technical, and I hope we shall have a very early opportunity of debating at length what I think has been the disastrous handling of our imports by this Government.
§ 5.1 p.m.
§ Mr. Royle (Salford, West)
I had no intention of participating in this Debate, and I shall not take up the time of the House for more than a few moments, but I certainly do not think that the hon. Member for Orpington (Sir W. Smithers) ought to be allowed to get away with the statement he made. He used the word "clown." It would not be unfair to say that if there is one hon. Member in this House who is guilty of that kind of conduct it is the hon. Member for Orpington himself. I suggest to him, very respectfully, that some of the statements he has made this afternoon are lovely examples of clowning on his part.
367 I took a note of what the hon. Member said. He suggested that increased consumption would bring down prices by causing increased production. Is it possible to look at this question in that light, in present world circumstances? I wonder whether the hon. Member has ever heard about the reports of the Food and Agricultural Organisation of U.N.O. I wonder whether he has ever read a speech made in a Debate in another place by Viscount Bruce of Melbourne, who drew attention to the world situation in regard to food. To suggest that if we were able to increase our consumption in Britain that would automatically increase production throughout the world, and thereby bring down prices, seems to me to be an utterly ridiculous proposition.
I agree with the right hon. Gentleman who spoke from the opposite Benches that this is not an occasion for a Debate upon bulk buying, but I assure him that many of us on this side of the House can put forward very strong arguments for the policy of my right hon. Friend on this matter, and that when the occasion does arise for talking about it, we shall be able to adduce many arguments in its favour. I do not want to say anything more about it now. I feel that much of what the hon. Member for Orpington said was unworthy of a Debate in this House.
§ Question put, and agreed to.
§ Bill read a Second time, and committed to a Committee of the whole House for Monday next.—[Mr. R. Adams.]