HC Deb 09 August 1966 vol 733 cc1644-53
Mr. Biffen

I beg to move Amendment 28, in page 23, line 17, to leave out Clause 26.

Mr. Speaker

With this Amendment we are taking Amendment No. 32, in page 24, line 30, leave out Clause 27.

Mr. Biffen

Yes, Mr. Speaker. The purpose of the Amendment is to leave out Clause 26, which would have the effect of eliminating the provisions of Part IV as they relate to prices. The reasons which have impelled my right hon. and hon. Friends and myself to make this move are that there is a danger that the policy of the Government may work more effectively on prices than on incomes. That was the experience of the prices and incomes policy operated several months ago, when there was evidence that the exhortations of the First Secretary and the work of the Prices and Incomes Board had had a marginal effect upon prices, whereas it had had no effect upon incomes, so that the inflationary situation was to some extent worsened.

The danger of that situation developing now is greatly increased, because some price rises are undoubtedly necessary to maintain profit margins in order to enable future provision for manufacturing investment. This is not idle speculation on my part; the Board of Trade, in its latest survey, suggests that there is a downturn in manufacturing investment, and in the circumstances any further pressure on the profit margins of industry at the expense of manufacturing investment must be contrary to the longer-term aims of the Government.

Secondly, some price rises must have been necessary to reduce home consumption, because it was the burden of the Prime Minister's argument on 20th July that home consumption would have to be restrained in order to provide capacity for export. This argument used to be ridiculed when it was advanced by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), but I recall listening in rapt attention as the Prime Minister deployed that argument on 20th July. In substance this is borne out by the argument deployed in the editorial in yesterday's Financial Times, and that, also, might recommend the Amendment to the Government.

4.30 a.m.

The other point which I would argue as being in favour of the Amendment is that the elimination of the prices Clause would considerably reduce the load on Government Departments. It is not widely realised that it is the Government's proposition that no price or wage increase shall take place within the economy unless it has received written permission from a Government Department. The proposition is a nonsense, and it is, to some extent, rendered slightly less nonsensical if the Government will eliminate from their ambition the Clause relating to prices.

One could quote endless instances of manufacturers one has contacted, saying, "How do you imagine working this policy?". The immediate reaction has been that of a company which said, "We are in some difficulty because we put up the price of our product a short while ago, but some very large customers argued furiously with us and in the end we compromised. Whereas everybody else's price went up on 1st June, we compromised for our very large customers and put our price up as from 1st August." What happens now? If the Parliamentary Secretary could answer, how much easier it would be, because the company would then know what was Government policy. It would reduce the post-bag for Government Departments. Even if the Government cannot accept the Amendment, they might answer this point and give an interpretation which would be to the advantage of industry and those who are concerned to carry out in the voluntary spirit what the Government seek to do under Part IV.

It may not be fully realised, perhaps not even by the Government, that price increases are going ahead, certainly in the public sector. I have here a letter from the South West Gas Board dated 29th July, addressed to a firm of E. E. Lane & Sons Ltd. of Cheddar, which states: I regret to have to inform you that owing to increases in the prices of coal and other costs the Board has been reluctantly compelled to increase prices to you of packaged Gloco and Gloco nuts". This is a letter from a nationalised industry giving notification of a price increase to run from 1st August—none of this nonsense about these being summer prices and the Board reverting to a winter scale of charges. This is a straightforward price increase. What is the answer? If this is good for a nationalised industry—I am not arguing that there should not be a price increase—then there is a good case for price increases in the private sector.

These are arguments of economic prudence and administrative capability. Therefore, I hope that the Government will accept the Amendment.

Mr. J. Bruce-Gardyne (South Angus)

I agree with everything that my hon. Friend the Member for Oswestry (Mr. Biffen) has said; the validity of it is beyond dispute, particularly what he said about reducing the appalling administrative complications which will result if the Government do not accept the Amendment.

Clause 26 empowers the Secretary of State by order to apply this section to any prices for the sale of goods and to any charges for the performance of services …

There was considerable discussion in Committee on local authority council house rents, but this was exclusively in terms of the situation in England. It was pointed out earlier this evening that only one hon. Member from Scotland, the hon. Member for Glasgow, Maryhill (Mr. Hannan), was on the Committee. Although I have the greatest respect for the hon. Gentleman, his contribution in Committee was, for understandable reasons, a silent one. Therefore there was no vocal representation of the Scottish position.

Paragraph 12 of the White Paper said: In the period of the prices standstill until the end of 1966 the Government expect local authorities to take such practical steps as are possible to prevent or postpone rent increases including those already announced. This recommendation is already being acted upon. The Minister of Housing has appealed to Birmingham Corporation, where it looks as if his appeal will be unsuccessful, and to the Greater London Council, with greater success, and the Secretary of State for Scotland has been in touch with Glasgow and other local authorities in Scotland.

The Secretary of State told me last week, in answer to a Written Question, that he is advising local authorities in Scotland that he expects them to consult him if they think that a rent increase is unavoidable. Presumably, if a local authority refused to bow to this arm twisting the Secretary of State could assume the powers in Clause 26.

There is a particular problem in the case of the Scottish local authorities. The Allen Committee pointed out two years ago that the prime reason why rates were substantially higher in Scotland than in England was the low level of council rents and the degree of subsidisation of them. The Chamberlain of Perth recently calculated that about 17 per cent. of Scottish rates went on subsidised council housing, whereas the comparable figure for England was only 2.4 per cent. On top of this, several local authorities in Scotland, particularly those that are Labour-controlled, receive a reduced equalisation grant because of low rent income.

One local authority very near my constituency, Dundee, has received an equalisation grant reduced by £21,571 this year. Last month Dundee Corporation decided to raise council house rents to 90 per cent. of gross annual value. This increase has not yet come into effect, and it is presumably subject to the circular the Secretary of State addressed to local authorities in Scotland last week.

The effect of the increase which the Corporation has proposed would be to take 8d. off the rates, and this has been allowed for in calculating the city's rate, which has gone up by 3s. 3d. and will presumably have to go up by 4s. 1d. Even if this increase were rescinded, the 3s. 3d. rise this year will mean an increase for one particular firm, Jute Industries, which has been stated to amount to £55,000, an increase of no less than 80 per cent. This is a charge which the industry already faces, yet, according to this Clause, it may be quite unable to pass the unavoidable increase on. If the Secretary of State successfully intervenes to prevent the council from raising council rents, the increase for firms like Jute Industries and ratepayers generally in Dundee will be much more severe.

What are councils supposed to do if they postpone rent increases at the instance of the Secretary of State, the Minister of Housing and Local Government or, subsequently, in response to an Order under the Clause? Are they to raise the rates? Apparently, that is not what the Secretary of State expects them to do. In Circular SDD24/1966, the Scottish Office wrote to local authorities telling them that, in the Secretary of State's view, increases in the amount of money to be raised by rates this year should be made only where they are clearly unavoidable. The reasons for approving rate increases are set out, and they do not include any reduction in rent income in response to the Government's arm-twisting to discourage rent increases by Scottish local authorities.

The only guidance one can find for local authorities is to be found in an extraordinary answer which I received from the Minister of Housing and Local Government last week. I asked what local authorities were expected to do if they did postpone council house rent increases in response to the standstill, and specifically whether the Minister would advise them to increase rate poundages to compensate for loss of income or to cut back on housing and school programmes. The right hon. Gentleman's answer was: The first requirement is that local authorities should set an example in price restraint during the next critical six months. Whether they subsequently make good losses of rent income due to postponement of rent increases from rent or rates is for them to decide. The Government have made it clear that they do not want housing and school programmes reduced."—[OFFICIAL REPORT, 4th August, 1966; Vol. 733, c. 176.]

With that, the right hon. Gentleman washes his hands of the problem. But it is open neither to him nor to the Government to do that. Less essential expenditure has already, very sensibly, been axed by councils, so there cannot be any more economies there. They are not supposed to increase rents or rates. Plainly, they are driven to cut back on housing and school programmes, which the Government have all along claimed are exempt from the latest measures.

This is one instance of the confusion created by the Clause. The effect of a successful attempt by the Government to prevent rent increases in many local authority areas in Scotland will be to impose, probably, a double burden on ratepayers, not only the burden of deferred rent increases on the rates directly but also loss of equalisation grant because of the low rent income which will be maintained at a low level because of the Government's own actions. The right hand goes in one direction and the left hand in another. This is the sort of conduct we have come to expect from this Government, but it is one more example of Socialist injustice in action perpetrated on the ratepayers and industries of Scotland

4.45 a.m.

Mr. J. E. B. Hill (Norfolk, South)

In dealing with the standstill on a voluntary basis it is difficult for individual firms to interpret the White Paper as it affects the particular circumstances of their own business. They are apt to write to their Member of Parliament and say that they wish to co-operate with the standstill but at the same time they do not wish to be in an invidious position vis-à-vis their competitors. I should like to ask whether it is the desire of the Government that a thousand or more individual inquiries should be passed to the First Secretary for some detailed ruling which one hopes might lead to a uniform pattern.

I should like to cite a question put to me by a firm in my constituency dealing with the prices side of the standstill. Its letter says: As you will have noted, the White Paper applies a rigorous restriction to manufacturers prices, but for some reason lets off wholesalers and retailers with a curiously woolly exhortation not to increase their margins (Paragraph 7). As it happens the furniture retailers already had a move on foot before July 20th to get margins on furniture increased from 50 per cent. to 55 per cent. (which they justified at least in part by reference to SET). Now in the cases where manufacturers (including ourselves) publish recommended retail prices, in effect these operate as maximum prices, although retailers are of course now free to take reduced margins and undercut them. Therefore the retailers cannot have their increase to 55 per cent. unless they persuade us to publish an increased retail price list for them. Naturally we are under considerable commercial pressure to do so, as the retailers of course claim that they will direct their buying only to firms who do comply with this request. In terms of the White Paper, if we do publish such a price list, who is putting the prices up us or the retailers? We of course should still be getting the same price for our goods, although they would cost more to the public. That shows one of the difficulties of a firm wishing to co-operate but which does not want to worsen its position as compared with its competitors. Yet how am I to give guidance unless I get a clear explanation from the Government?

Mr. William Rodgers

The speech of the hon. Member for Oswestry (Mr. Biffen) was all the more gallant because he made it in the knowledge that his plea was unlikely to succeed. I do not think that at this stage right hon. and hon. Members opposite will expect us to accept this Amendment. The hon. Member made an interesting point on the question of holding prices down which might curtail profit margins, which would result in turn in the falling off of investment. Of course there is a genuine theoretical problem here. We recognise that if the holding of prices is not paralleled by sensible demands on the productivity side, there is the possibility of that consequence. As I have said on many occasions, and the Government have said throughout the Committee stage, we do not assume that this policy is without problems. Nor do we assume that there will not be some consequences which we would wish to avoid were that possible.

The hon. Gentleman then referred to the load on Government Departments. I remember when, last November, we were discussing the early-warning system, there were those who said that the system we were devising at that time would throw an overwhelming burden on Government Departments, but in practice that did not turn out to be so. We are now contemplating a new, more extensive, early-warning system and will be discussing it with the C.B.I. and the T.U.C. We will take into account not only their views on what they believe to be practicable but also our assumptions of how far administrative arrangements can digest the items of which we might require early warning.

Meanwhile, if there are firms which honestly want to work the policy and which have doubts, having studied the White Paper and having obtained the best advice available to them—from hon. Members and other sources—we will give further advice so that they may follow the policy, and the relevant Government Departments will be only too glad to help. Perhaps I should say in self defence that those inquiries should be directed to the sponsoring Departments, which were listed in Committee, and not to the Department of Economic Affairs. The sponsoring Departments will do their best to deal with any genuine inquiries, because we recognise that problems will arise and we want the policy to work.

The case for the Clause is a simple one. It would not be possible to operate this policy successfully merely on incomes. It would not appear just to do so unless, at the same time, we made strenuous efforts to hold prices, too. It would be unrealistic, whatever economic arguments there may be, to expect that we could hold wages in a period of standstill and have settlements afterwards which are consistent with a zero norm if, at the same time, no effort was made to hold prices.

That is why we have felt it necessary to try to hold rents. My right hon. Friend the Minister of Housing and Local Government made the position clear, and it is set out in the White Paper. The letter which he addressed to the hon. Member for South Angus (Mr. Bruce-Gardyne) was, I thought, an adequate reply although, of course, there will be consequences arising from the holding of rents. However, we are dealing with a standstill period to the end of the year and we must operate in whatever way is possible, even if some of the consequences are those which we would wish to avoid. We must hold them firmly. Indeed, remembering that I said that we were doing the same with productivity agreements, it must be realised that if we are being tough in one respect, we must demonstrate that we are being tough in the other respect, in relation to price increases of every kind, including not only rents but the prices of the nationalised industries as well.

The hon. Member for Oswestry (Mr. Biffen) referred to a letter dated 29th July. If he will give me the full details I will gladly look into the matter. As my hon. Friend the Parliamentary Secretary to the Ministry of Labour said earlier, we are anxious to hold the prices of the nationalised industries, and those industries have been given a clear indication of our views. If there are occasions when the standstill appears to have been infringed, we will gladly look into such matters and try to deal with them.

Mr. Bruce-Gardyne

The hon. Gentleman has not dealt with the position of local authorities, which are being penalised for not putting up their rents and which are having their equalisation grants reduced. Now they are being asked not to put up their rents. Is there not a complete contradiction here?

Mr. Rodgers

It is not a complete contradiction. The hon. Gentleman's intervention indicates that there is a real problem in that local authorities will be confronted with difficult decisions. Discussions will have to take place with the Ministry of Housing and Local Government about the consequences. However, there is no conflict of policy here. We have explained what should be done and we recognise that some consequences will have to be taken into account. We must operate on prices if we are to operate on incomes. One consequence of doing so will be an incentive to overcome obstacles to efficiency so that, by raising productivity, we will be able to maintain stable prices for a longer period than that of the standstill.

Mr. Biffen

The long nights of the Committee stage convinced me that the Under-Secretary of State and the Parliamentary Secretary to the Ministry of Labour would have distinguished careers in the Fabian Society. Nothing could be more typical than the Under-Secretary's dismissing as theoretical the concern over the levels of manufacturing investment. I have heard from some industrialists that they fear that their investment programme and those of their trading partners will be affected by the freeze.

The hon. Gentleman was not fair in quoting the analogy of the other early-warning system: it is totally different from Part IV. All increases, except those of firms with fewer than 100 employees and of certain foodstuffs, must be notified to the Government, whereas, with the earlier system not all the limited range of commodities listed were notified. For example, only one kind of soft drink was notified. The hon. Gentleman was not comparing like with like.

I thank the hon. Gentleman for his promise to consider my point about the charges of the South Western Gas Board: I will certainly send him details. I regret that he did not answer my question about the company which had raised prices to some of its customers from one date and was seeking to charge a higher price from a date after 20th July. I presume that they will have to go through the bureaucratic rigmarole of writing to them because the hon. Gentleman has not answered that question.

Mr. J. T. Price (Westhoughton)

On a point of order. Have you relaxed the rules of order, Sir Eric? Is it in order for an hon. Gentleman to make two speeches on Report?

Mr. Deputy Speaker (Sir Eric Fletcher)

It is in order. An hon. Member proposing an Amendment on Report has the right to reply.

Amendment negatived.