HC Deb 18 February 1969 vol 778 cc353-62

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

11.0 p.m.

Sir John Langford-Holt (Shrewsbury)

The complaint which I wish to put before the House tonight is of long standing and concerns a practice by previous Administrations as well as the present. It follows from that that it is not directed against the Minister whose job it is to answer the debate; nor is it directed against what I shall call the concessionaires at London Airport about whom I shall talk, except in so far as they have acquiesced in a system which I believe to be bad, and I am sure that not all of them have acquiesced.

I must first explain the system which applies to the duty-free shops at London Airport and a variant of it, which is the supply of duty-free liquor and cigarettes in aircraft. In simplification, the system is the deliberate creation of a monopoly and its exploitation. It is carried on not by one creature of Government, but by at least three—the British Airports Authority. British European Airways, perhaps British Railways on its cross-Channel Services—I have not looked into that—and probably, if it is is carried on by B.E.A., by B.O.A.C.

Briefly, the system is that the Airports Authority sells the right to run shops by putting it out to tender. With the tender goes a schedule of prices, which the concessionaires shall charge, which is not only attached to the contract but made clear to the tenderers at the time. If I am wrong in my interpretation of this system, I hope to be corrected. I hope that I am wrong, but I do not think I am.

For the consumer the results of the system are extraordinary. I take three commonly known examples. A bottle of Johnny Walker Red Label is, as I mentioned in the House last week, bought by the concessionaires at about 8s. 2d. a bottle and sold by them, on the instructions of the authority, at 22s. 6d. a bottle, a profit on cost of 175 per cent. Cartons of 200 Benson and Hedges cigarettes are bought at 8s. 5d. and sold, on the instructions of the authority, at 23s. 6d., a profit on cost of 179 per cent., Gordon's gin is bought at about 5s. 8d. a bottle and sold at 16s. 6d., a profit on cost of 191 per cent.

As one would expect, I have had several letters on the subject. I quote only one which comes from an importer and wholesale wine and spirit merchant. He says: With thousands of captive customers going by for at least 15 hours each day, the profits must be enormous. With that volume and a mark up of 20 per cent. … Remember that here I am talking of between 175 and 191 per cent. … it would be a simple matter to make a profit of over £100,000 and still give the customers a much better service. I said that there were three creatures. I should like to look for a moment at B.E.A. Until May, 1968, British European Airways bought cigarettes at, I estimate, about 8s. 5d. per carton of 200. It sold them at 20s, this being a profit of 138 per cent. on cost. But 138 per cent. does not appear to have been enough, because in May, 1968, slap in the middle of a prices and incomes policy, B.E.A. increased its prices by 50 per cent., so that cigarettes which presumably were still obtained at about 8s. 5d. a carton were sold not at 20s but at 30s., which represents a profit on cost of an astonishing 257 per cent.

When one looks at these percentages, one must realise that all these cigarettes and liquors could have been sold profitably at a margin on cost of 10 to 15 per cent.

Since I raised this in the House last week some comments have been made by various people. I see from one daily paper that an official of Fortes—I did not know that Fortes had officials, I must confess—made this comment about me he has not worked out his figures. Well, if I have not worked out the figures correctly, what are the figures? We certainly have not had them from Fortes. I have tried very hard to get the correct figures. I can only note that they have not yet been given, and await the day when they will be given.

A spokesman for the British Airports Authority—a spokesman this time and not an official—said There is absolutely no justification for describing the prices as exorbitant which I did.

Can one seriously say that a mark-up of 175, 179, 191 and, in the case of B.E.A., 257 per cent. is not exorbitant? I took the opportunity of looking up the Oxford Dictionary definition of "exorbitant" and it is exceeding ordinary or proper bounds; excessive. I believe that to describe these prices as "exorbitant" is absolutely true, and that no word could have described them better.

Now I turn to the attitude of Her Majesty's Government. Two or three years ago when I raised this matter the Minister speaking for the Ministry of Aviation, as it then was, said, and I hope I paraphrase him correctly: This is how we make the airports pay. My answer to this is, firstly, that this system obviously could be used as a cover-up for inefficiency, and, secondly, that the costs of the airports should be borne by all users, not one particular section of users of the airports. But even if one accepts that it is making money for the airports, this does not apply to B.E.A., which is the worst performer in this sphere. How does its profit of 257 per cent. help Heathrow, Gatwick or any other airport in any respect whatsoever? If the argument is that it has got to help the airports pay, can we be assured—I doubt this very much—that in every case the highest tender is accepted?

The hon. Gentleman who is to reply last week made a couple of quotations which I must mention. This is what he said in reply to me: These goods are sold only to people about to leave the United Kingdom. They are, in effect, therefore exports… That is a remarkable principle for the Board of Trade to put forward. In effect, it is saying that a monopoly can be properly created and properly exploited. It is saying also that with the encouragement of the Government a firm may squeeze what it can from anyone so long as he is a foreigner. I should hate to contemplate the export graph of this country if foreigners believed this official proposition from the Board of Trade. That reply was not in response to a supplementary question; it was given in the original Answer to a Question of which three weeks' notice had been given to the Department. This is an argument which the Board of Trade often uses in international matters. I wonder what would happen if every other nation adopted that principle?

The second statement in that Answer to which I wish to draw attention is that the arrangement is one which seems acceptable to private enterprise".—[OFFICIAL REPORT. 12th February, 1969; Vol. 777, c. 1316.] This is a strange doctrine for a Minister speaking on behalf of the Socialist Government—that if private enterprise likes it, it must be right. One cannot expect private enterprise to kick these concessionaires very hard when they are forced to make excessive profits by a Government agent and when they are forced to make the consumer pay for these profits. They have nothing to lose.

The attitude of the British Airports Authority is only just legal. It is quite clear that it is improper, and that it is against the spirit, if not the law, of the prices and incomes policy. Whatever the Minister of State, Board of Trade may say, all customers at duty-free shops are not foreigners, and this attitude is certainly against the spirit of the resale prices legislation which this House passed, somewhat agonisingly, some few years ago.

What should be done? In one word, I suppose, the answer is "Amsterdam". The hon. Gentleman may produce examples of airports where the prices are higher. All I would say is that in the last two airports that I visited—Amsterdam and Vienna—there was not a single price for British goods which was higher than the prices at London Airport.

Therefore, I implore the Minister of State to compare us with the best and not with the worst. At Amsterdam, which is certainly one of the best, goods are sold at the right price under the right conditions. One can only say that the poorness of the British Airports Authority's trading habits is matched only by the murkiness of the lounge in which these practices are carried out.

11.14 p.m.

The Minister of State, Board of Trade (Mr. William Rodgers)

When the hon. Member for Shrewsbury (Sir J. Langford-Holt) announced his intention of seeking to raise this question on the Adjournment I thought he had got his priorities wrong. Nothing that he said tonight has changed my view.

I cannot believe that the esteem in which Parliament is held will be enhanced by debaling the price of a bottle of gin. But I respect the hon. Gentleman's intentions, his persistence and the courteous way in which he has raised the matter. I am glad to know that it is no personal complaint against me. At least, he has given me an opportunity of answering him at rather greater length than was possible at Question Time last week.

I should like to make two important preliminary points, one which bears more on the form of the hon. Gentleman's Question than what he said tonight, though it is relevant, and one which bears on a good deal of the detailed discussion which he has introduced.

The first point, which I must emphasise, is that prices and incomes policy considerations simply do not arise. Methods of fixing these prices are neither against the spirit of the Act nor against the law itself. Whatever the hon. Gentleman may say, duty-free prices are essentially export prices. Sales earn foreign currency from overseas visitors and contribute in a small way to our balance of payments. No one has previously suggested that export prices should be controlled, and I cannot believe that the hon. Gentleman is seriously suggesting this now. It would be a peculiar irony for him to do so when the preference of the Opposition as a whole is for a much reduced rôle for the prices and incomes policy. I assume that he does not want the message to go out tonight that in future all our exports will be subject to his vigilance.

Sir J. Langford-Holt

Control is there already. It is control in a negative sense in that there is compulsion that the minimum price shall be charged.

Mr. Rodgers

There is no compulsion on anybody to buy. We are not dealing with things that anybody need buy. They are goods which are bought primarily by people going out of the country. The hon. Member should inspect the legislation. At no time has it been suggested that we could possibly apply the prices and incomes policy to our exports, and these are exports in every sense of the word, except insofar as some British citizens travelling abroad buy spirits at London Airport and on British European Airways aircraft. Generally they find this a pleasant and acceptable privilege, saving them around 10s. a bottle.

I should find it invidious and time-wasting on the ground of the prices and incomes policy—the hon. Gentleman suggested this—to exclude British citizens from this privilege, although no doubt it could be done and would please the Chancellor. Is that what the hon. Gentleman is suggesting? If he is seeking to apply the prices and incomes policy, it can be only to United Kingdom citizens, and the easiest solution would be to stop selling them spirits altogether. He can go down as a spoil-sport if he wishes, but for my part this is one area, and the only one, in which I should prefer to extend rather than to restrict privilege.

My second point relates to the nationalised industries. It is surely substantially agreed on both sides of the House that these industries will best serve the nation if they are not subject to day-today interference from Government or to detailed questions in this place. We are not equipped to make management decisions, and we should not try to do so. What is the point of finding distinguished and able businessmen to run these industries if we think we can do it better?

I will not try to give instructions to the British Airports Authority or British European Airways about the prices at which they or their concessionaires should buy and sell whisky, gin and cigarettes. If I did, I have sufficient faith in the chairmen concerned to believe that they would tell me where to get off. I cannot confide to the House tonight the terms of the contracts between the British Airports Authority and the concessionaires at London Airport. I do not think it would be right to ask for them. Least of all can I say whether the figures quoted by the hon. Member as the purchase prices of spirits to concessionaires at London Airport which I assume he can verify, are correct. Neither Fortes nor Hills nor anyone else can be expected to disclose commercial information of this kind. The hon. Member and his hon. Friends are often against disclosure. Why does he make an exception now?

The charitable explanation of the hon. Gentleman's interest, and it has been persistent—I do not complain of this—is that the concessionaires at London Airport are making a huge profit while at the same time reducing potential foreign earnings by charging too high a price; private enterprise should, therefore, be brought into line. This assumes that he does not understand the tendering procedure or is short in his knowledge of what happens elsewhere.

The duty-free shops at B.A.A. aerodromes are operated by two concessionaires, Fortes and Hills London Shops, both of which have shops at Heathrow. The system under which they operate—the hon. Gentleman was broadly on the right lines—is as follows. The authority nominates the duty-free retail price of tobacco and spirits, and gives guide-lines on other duty-free items. These nominated prices are obviously substantially in excess of what the goods could be sold for at retail when free of duty. There can be no disagreement about that. The would-be concessionaires tender for the concessions on the basis of these nominated prices by offering a percentage of the takings.

It follows from this that the concessionaires may or may not make a greater net profit than they would selling duty paid in the normal way. I do not know, and it would not be proper to ask, what the difference would be. Since competition for concessions is keen, the difference, if any, is probably small. The four airports owned and managed by B.A.A. taken together are unusual among major international airports in Europe in that they are not heavily subsidised. The revenue from concessionaires in this area and the income from other non-aviation sources help greatly to maintain this position as the published accounts of the B.A.A. clearly show. These are, of course, open to debate in this House at any time.

In other words, the difference between buying and selling prices contains a valuable element that goes to the B.A.A. and, therefore—I emphasise this—to the tax- payer. In the absence of this revenue the traveller would pay in some other—and probably less palatable—way for the services which our airports provide. I do not believe that the hon. Gentleman or hon. Members on his side of the House would accept the idea of continuing subsidies to the B.A.A. when these normal commercial means are open to it to supplement its income.

As for comparisons, I agree with the hon. Gentleman that we could certainly exchange prices across the Floor of the House. As he has mentioned Amsterdam, I should say that B.A.A. and B.E.A. both compare pretty favourably, on the evidence available, with other airports and airlines over prices. I do not claim that our prices are necessarily the lowest. I admit to not knowing the prices at Bangkok or Santiago or Perth, but by and large, B.A.A. and B.E.A. prices look competitive to me. If the hon. Gentleman is complaining about B.E.A. he should also do so about the municipally-owned airports at Manchester and Glasgow. They charge the same prices as B.A.A. for a standard bottle of gin or whisky and 200 cigarettes, except that Glasgow charges a shilling more for gin.

Mr. Speaker

Order. The hon. Gentleman must leave the responsibility for locally-governed airports to the local authorities.

Mr. Rodgers

As the hon. Gentleman has mentioned Amsterdam perhaps I can mention other airports abroad to which B.E.A. flies, and whose prices are relevant to any judgment whether the prices charged by B.A.A. and B.E.A. are excessive. The House should know that one pays more for whisky at Copenhagen, Montreal, Brussels, Zurich, Geneva and Cologne, and more for gin at Copenhagen, Montreal, Zurich, Geneva, Frankfurt and Orly. The position of B.E.A. is similar with whisky; it does not sell gin. One pays more for it if one flies with K.L.M., S.A.S., Sabena, Air France and Swissair, to mention only a few. Cigarettes sold by B.A.A. and B.E.A. are relatively more expensive than spirits, but not necessarily out of line with other airports and airlines. I mention this because if a case is being made against the British Airports Authority we ought to recognise that its charges are not out of line with what others charge, and the consumer has not a legitimate complaint on these grounds.

Incidentally, as the Consumer Association pointed out in an article in Which? some four years ago, one pays less for duty-free drink and cigarettes by air than by sea. Townsend Ferries, which boasts a ship called the "Free Enterprise", charges appreciably above B.A.A. and B.E.A. prices in almost all cases. I wonder whether it pays more for its goods, and what the hon. Gentleman thinks of that.

Sir J. Langford-Holt

That is just as bad as the accusation about British Rail. If all private enterprise firms join in a racket, this does not make it any less a racket.

Mr. Rodgers

I am glad to assume that the hon. Gentleman will pursue this view in all cases. I agree that this is a consistent view. I am assuming that they are legitimately charging more, but it is not reasonable to argue in any one case, whether public or private enterprise is involved, that a reasonable charge for these commodities should not be made if this contributes to the total revenue.

The plain fact is that the sale of duty-free spirits and tobacco is, and ought to be, a commercial operation designed to make whatever contribution the management considers fit to the revenue of B.A.A. and B.E.A. No one is obliged to buy these goods, as I have said. By no stretch of imagination, whether we like them or not, can they be called necessities.

The question of exploitation does not arise. During a six-month period last year B.E.A.'s net profit on the sale of duty-free goods amounted to 7½ per cent. This is one area in which the price should be determined simply by what the market will bear.

I am an occasional prospective purchaser and, like the hon. Gentleman, would be delighted to get even better value for money, but, looking at the situation objectively, I see no reason to depart from my verdict of Wednesday last. The consumer benefits because the goods are much cheaper than in the shops; our exports benefit because sales are primarily to overseas visitors, and they are rising; the general public ultimately benefits through the Exchequer because financially the British Airports Authority, which we all own, is better off; and private enterprise benefits, judged by its belief that the concessions are worth competing for. For my part, I am certainly in favour of a mixed economy. The hon. Gentleman has been complaining unreasonably. He should rejoice.

The debate having been concluded, Mr. SPEAKER suspended the sitting of the House at twenty-eight minutes past Eleven o'clock till Ten o'clock tomorrow, pursuant to Order.