HC Deb 17 April 1973 vol 855 cc261-9
Mr. Varley (by Private Notice)

asked the Secretary of State for Trade and Industry to what extent the industrial and regional policies of Her Majesty's Government will be affected by the recent increase in steel prices.

The Minister for Industry (Mr. Tom Boardman)

The forthcoming price increase will not affect the Government's industrial or regional policies. The concurrent move to the ECSC basing point price system will mean variations in the delivered costs of steel between one area and another, but the British Steel Corporation has sought to minimise the impact of the change by adopting a multi-basing point system.

The corporation's prices had fallen below an economic level and in deciding to raise them—from 30th April—by an average of 9½ per cent. the corporation has, I believe, struck a fair balance between the need to earn a return on its capital and the needs of the Government's counter-inflation programme, which it recognises as important, not only to the economy as a whole but also to its own business.

Mr. Varley

Does not the announcement made by the British Steel Corporation blow a hole right through the Government's counter-inflation policy? Will the Minister confirm that price increases of this magnitude would not have been permitted under phase 2 had they been subject to the Counter-Inflation Act? However desirable it may be—and however anxious the corporation is—for the corporation to increase its prices, would it not, like everyone else, have had to fall in line with Government policies if external considerations had not exempted it?

Can the Minister answer the following questions? How much will the announced price increase add to industrial costs? Are manufacturers expected to absorb these additional costs or pass them on in higher prices? What effect will the increase have on the retail price index? Is it not a fact that the corporation is to increase its prices by about an additional 7 per cent. at the end of phase 2, which will in turn further increase industrial costs? Does the hon. Gentleman recall that in the Prime Minister's "at a stroke" statement on 16th June 1970 he promised to break into the price-wage spiral by taking a firm grip on public sector prices, such as those for steel? Is this the firm grip about which the Prime Minister was talking? Has this promise now been dumped, along with all the others?

Mr. Boardman

Contrary to what the hon. Gentleman says, this certainly does not blow a hole in the Government's prices and incomes policy. There is nothing about it which is incompatible with the policy. I was asked whether the increase was inconsistent with phase 2 Had the Corporation increased its prices by its allowable costs it is unlikely that there would have been any lesser increase than that which is now proposed.

The hon. Gentleman also asked by what amount the price increase would add to industrial costs. He further inquired about the effect on the retail price index. It is estimated that the effect on the retail price index will be to add less than one-quarter of 1 per cent. to the index. The increase in industrial costs cannot be estimated throughout, but estimates suggest that it will add about 1¼ per cent. to the cost of motorcars and possibly about 1 per cent. to shipbuilding costs. Coming to consumer products, it will add six-hundredths of a penny to the cost of a 16 oz. tin can. I believe that the hon. Gentleman will feel that these increases are not likely to cause any disruption in the price pattern.

He said that he understood that there would be a second round of increases of about 7 per cent. by the corporation. I would ask the hon. Gentleman not to endorse everything he reads in the Press on these matters. What the corporation has said is that there will be a second increase of a much smaller amount at the end of phase 2. There is no authority for saying that it will be 7 per cent. The hon. Gentleman should not give credence to that figure.

He asked whether this move was compatible with what my right hon. Friend the Prime Minister said about controlling public sector prices in the price-wage spiral and taking a firm grip. He must recognise what has been done to hold down prices in the public sector. Steel prices were held down to a level which the Select Committee on Nationalised Industries criticised as being too low. The increases were held down to 4.6 per cent. last year and 7 per cent. in the previous year.

The price of electricity and gas and other things has also been held down. It is nonsense for the hon. Gentleman to suggest that the Government have not absolutely fulfilled to the limit the pledge which they gave.

Mr. Bruce-Gardyne

Will my hon. Friend not agree, in the light of the events of the last few months, that the existence of a massive nationalised sector in steel subject to arm-twisting by Governments and available for permanent subsidy from the taxpayer is becoming increasingly hard to reconcile with our commitments as a member of the European Coal and Steel Community? In view of that, and of the overriding priority which my right hon. Friends have always given to our European objectives, should we not now draw the appropriate conclusions?

Mr. Boardman

My hon. Friend is right in saying that it is our wish to follow the spirit of the European Community. We have done so and are doing so. In fixing its prices the corporation has set them at a level which will give a return on its investment so that the large resources employed in the industry produce a proper return. I am sure that my hon. Friend will think that is right. This is the pattern which he supports.

Mr. Lawson

Can the hon. Gentleman tell us how final and comprehensive is the list that appears in the Press showing the multiple basing point system? Does he not feel that Glasgow comes out very badly because of the small number of products which appear to be based there?

Mr. Boardman

The hon. Gentleman is wrong because Glasgow has more basing points than any other centre in the United Kingdom.

Sir R. Cary

Will my hon. Friend state clearly whether it is true that the present price increase will be followed by another in the near future?

Mr. Boardman

In its announcement the corporation said that a second but smaller increase will be made after the end of phase 2.

Mr. Cyril Smith

Is the hon. Gentleman aware that many users of steel in this country are as much concerned about delivery dates from the corporation as about the price of steel? Is he further aware that the delivery for steel now being quoted by the Corporation has been extended from four months to eight months and, this week, to 10 months? Is it not a fact that if the corporation talked less about closing steel factories and a little more about producing more steel to meet the needs of British industry the proposed price increases might not be necessary because of increased efficiency and production?

Mr. Boardman

The hon. Gentleman is quite wrong. The delays in the delivery of steel—and he quoted some very exceptional cases—are nothing to do with the proposed closures arising from the strategic planning of the steel industry. The price increase will have a contrary effect to that which he suggested. One problem—and it is only one because another involves the unfortunate strikes to which certain parts of the industry have been subjected—has been that the price levels in this country have been so much below the price levels overseas. This has had an effect on the availability and supply of steel here.

Mr. Biffen

Is my hon. Friend aware that one of the menaces of price control is that when one eventually has to catch up with reality it is a sharper and more disagreeable experience than would otherwise be the case? May I ask him to comment on the extent to which he was consulted by the British Steel Corporation about this decision? Did any discussions take place between himself and the corporation? Did he indicate to the corporation the Government's view about the preferred rate of increase? Above all, may I ask him to comment on the somewhat damaging assertion on the radio this morning by Mr. Dominic Harrod, the prestigious economics correspondent of the BBC, that the Government had asked the corporation to limit its rate of increase to 5 per cent.?

Mr. Boardman

My hon. Friend's last comment is without foundation. The price increases put forward are those of the corporation alone. There have been a whole series of consultations between the industry and the sponsoring Minister at regular intervals throughout the last 12 months. In such consultations and meetings, amongst other matters discussed was the possible price level, the pattern of the corporation's pricing, the pattern of its supply, and so on. The decision was made by the corporation alone.

Mr. Duffy

The Minister mentioned the return on capital as one of the Government's requirements of the British Steel Corporation. How far will the price increase enable the corporation to meet the Government's target of an 8 per cent. return on its net assets?

Mr. Boardman

The target is an average return on net assets of 8 per cent. on this year and the next three years taken together. This still remains the corporation's target.

Mr. Patrick McNair-Wilson

Is my hon. Friend aware that British steel is already artificially among the cheapest in the world, that these price increases are overdue, and that without them the precarious finances of the British Steel Corporation will suffer a disastrous downturn once again?

Mr. Boardman

I agree that the price increases are overdue. I think that the British Steel Corporation has struck a balance between making an appropriate increase to achieve the return and at the same time taking account of the Government's counter-inflation policy which it wants to support in its own interests as well as those of the national economy.

Mr. Douglas

May I ask the Minister to investigate the view held by many steel users that there has been a large stockholding of steel by producers in anticipation of these price increases and that this stockholding has resulted in the delay in producing equipment, particularly for North Sea oil use?

Secondly, may I ask him to comment on the effect that these price increases will have on the shipbuilding industry which has taken on board many contracts at fixed prices?

Mr. Boardman

I have no evidence that there has been any large building up of stocks by stockholders. Indeed, it is physically impossible for this to take place to a large extent.

I understand that a large number of shipbuilding contracts are supported by long-term contracts with the steel suppliers. They will, therefore, be protected to that extent from the impact of these price increases.

Mr. Edward Taylor

Is my hon. Friend aware that while Glasgow and the west of Scotland shipbuilders and engineers will be glad about the basing points allocation, there is concern that on the east coast, where we have a major North Sea oil and steel development, the new system will result in an addition to the price? May I ask my hon. Friend to indicate what percentage increase will be involved in steel prices in the east of Scotland compared with prices available in the West?

Mr. Boardman

I should not like to quote specifically for one area. I understand that only in exceptional circumstances will the increases relating to basing points exceed 4 per cent. I ask my hon. Friend to bear in mind, too, that when consumers study the price list and the impact of the basing points and at the same time look at their own mix of products and the possible variation in their ordering pattern, it might enable some of the impact to be minimised.

Mr. Atkinson

When steelworkers once again freely negotiate their own wages may I ask whether the Minister will welcome or regret their use of the figures that he has used in relating these increased costs to the effect on the price index? The hon. Gentleman is obviously not following the question that I am putting to him. He has a most perplexed look. May I ask him whether, when steelworkers once again freely negotiate their wages, he will regret or welcome their use in those negotiations of the figures that he has used between a 9½ per cent. increase in steel prices and its effect on the price index?

Mr. Boardman

In any negotiations we welcome all the true figures coming forward. The material figure that the hon. Gentleman may have in mind is the impact on the retail price index, which I have said will be less than one-quarter of 1 per cent

Sir G. Nabarro

Does my hon. Friend's statement mean that he proposes shortly to return to the pre-freeze arrangement whereby all the nationalised industries were required to show a certain return on the net capital invested and that there was no artificial holding down of prices? May we therefore expect an increase in prices for electricity, gas and all other nationalised industries authorised by the Department to bring the whole lot into line and resume the position which we had before the standstill in prices?

Mr. Boardman

I note what my hon. Friend said, but it goes a bit wide of the Question that was put to me.

Mr. Benn

May I ask the Minister to clarify the exact extent of his own or his Department's responsibility? First, did the British Steel Corporation consult the Minister, did he give his approval to the increase, and did he consult the Steel Consumers Consultative Council?

Secondly, did the Commission consult the Government and did the Government agree to a price recommended by the Commission.

Thirdly, did the Commission consult the Council of Ministers, and what view did the British Minister on that Council take? If the Minister is right that this responsibility belongs to the BSC alone, then is he not abdicating totally his responsibility for prices in this large nationalised industry?

Mr. Boardman

The right hon. Gentleman asked whether the BSC had consulted me, I refer him to the reply which I gave to my hon. Friend the Member for Oswestry (Mr Biffen) on that matter.

Regarding approval, the question which I considered with the British Steel Cor- poration concerned its overall corporate plan and pricing policy. It was for the corporation to say, as it did, what increase it proposed to make.

The right hon. Gentleman asked whether I or my right hon. Friend consulted the Commission and whether the Commission approved or recommended a price to the Government. It is not a matter for us to consult the Commission upon, nor did we. We do not require to ask for or to obtain the Commission's approval and it does not need to obtain ours. It is a matter for the British Steel Corporation to give the Commission notice that it is making an increase, and it will have done this. Some weeks ago the Steel Consumers' Consultative Council put forward its proposal for a two-tier stage increase, not dissimilar from that which has been put forward by the corporation. I read, as no doubt did the right hon. Gentleman, the Steel Consumers Consultative Council's comments upon this matter today. It is generally favourable to what has been done.

Mr. Benn

It is a matter of public record that the Commission approached the British Government about the freeze in steel prices under phase 1. What answer did the Government give to the Commission on its approach on steel prices?

Secondly, may I ask the hon. Gentleman to answer the question: what rôle did the British Minister in Brussels play when the BSC approached the Commission for its view on the proposed price increases?

Mr. Boardman

There is no effective consultation between the BSC, the Commission, and the Government on this matter. The corporation gave the Commission notice of the price increases which it proposed to make.

Regarding correspondence and consultation between the Commission and the Government, as the right hon. Gentleman knows, the Commission expressed concern that steel prices had not been increased before but had been held on 1st January under the standstill. The Commission has recognised the problems and the need for the country to deal with inflation. It has accepted the position and will now have received the proposals which have been put forward.

Mr. Benn

On a point of order. Mr. Speaker, may I seek your guidance? I twice put to the Minister a question as to the attitude adopted by the British Minister in the Common Market about the proposed price increases for steel. The Minister did not answer this question. This has happened before.

I wish to ask you, Mr. Speaker, on a point of parliamentary accountability, whether a Minister is responsible to the House of Commons for the vote or decision of British Ministers in the Common Market where these decisions affect domestic matters and therefore are of concern to the House.

Mr. Speaker

With regard to the first point raised by the right hon. Gentleman, I think, as he knows, that this is not a point of order. The Chair is not responsible for the content of ministerial answers.

The second point raises rather wider issues and I will consider whether it is necessary to make a ruling on that point.

Mr. Boardtnan

It might be helpful, Mr. Speaker, if I were permitted to comment on that point of order.

Mr. Speaker

I have ruled that the first was not a point of order. Perhaps it is to the second point of order that the hon. Member wishes to speak.