§ 4.52 a.m.
§ Mr. John MacGregor (Norfolk, South)
As I rise to open the debate at this late hour—although "totter" might be a better word—I become more than ever convinced of what I have long believed —that physical stamina is the first quality required of Members of Parliament. I ask the House to forgive me if I am not at my best. I used to be a night bird. Since becoming a little older I have become an early morning bird. But this is the twilight period between night and early morning, and I have never tested my qualities at such a time.
My hon. Friends and I wished to initiate a debate on these two Supplementary Estimates, in relation to tea and household flour, for two particular reasons. The first reason is that since June, when there was a very brief discussion on the household flour situation at the time of the debates on the Act 1811 dealing with prices, there has been no opportunity for the House properly to debate the order on household flour.
The second reason is that these two orders, like many others, raise issues in relation to food subsidies which go to the heart of the matters we have raised from time to time about food subsidies. But—and this is the significant point— much has changed in the situation since the original debates in which these major issues relating to food subsidies were fully discussed.
Perhaps I should get one matter out of the way at the outset. The Minister and several of his right hon. and hon. Friends have frequently argued that the Opposition's attitude to food subsidies since the General Election has been illogical. They have quoted from the Conservative Party manifesto, in which we said:With the urgent need to stabilise prices we accept that it will be necessary to retain these subsidies for the time being.I emphasise that we said "retain" not "increase".
The main reason for this was given by the Chancellor of the Exchequer himself during his recent Budget Statement when, in relation to the phasing out of subsidies to the nationalised industries, he made the point that with the very large sums involved it was difficult to unscramble the situation in a short period. In an inflationary period, the same thing applies to food subsidies. I hope, therefore, that the Minister will not retreat solely behind that defence this morning but will also deal with the other issues we wish to raise.
Perhaps I may elaborate the reasons why I think that since the original debates on the food subsidies there has been a change in the situation and, therefore, a need for clarification of the Government's intentions. First, there is the size of the increase—£21 million in the two Supplementary Estimates we are discussing and £72 million in relation to the Supplementary Estimates for the food subsidies as a whole. I am aware that there is provision in the Prices Act for subsidies as a whole to rise to £700 million and we have not reached that point, but we are seeing a situation in these estimates where there is a substantial rise in the total for food subsidies. It is right that Parliament 1812 should be able to express a view on the direction in which these increases are being made.
There is also a change in the economic situation particularly with the Budget of last month, and especially its revelation of the size of the Government borrowing requirement. There is also a new situation with wage increases which have a direct relationship to these subsidies, as I hope to show later.
Since the election, there has been no Government statement on the broad principles of food subsidies or their future attitude towards them, in relation to the changes to which I have drawn attention. It is right that Parliament should have the opportunity to query not only the direction of individual subsidies but also the principle, the extent and the expansion of food subsidies in general in these changed circumstances.
We have chosen these two Estimates because they are related to the latest orders. But the points arising out of them are relevant to the wider arguments on food subsidies and will serve to illustrate the growing worries many of us have as the subsidies are extended. The first argument is one we have often heard advanced, from the Government side, sometimes more strongly from one group but not fully advanced by others—namely that these subsidies are a particular help to those in need, to pensioners and those on lower incomes and so on. The Under Secretary, in a debate on tea, said that 53 per cent. of the subsidy went to those earning less than £50 a week and that for flour, the figure was 52 per cent. Those figures were given on 19th November.
The figures related to those earning less than £50 a week, but what we should like to know from the Minister tonight, in relation to tea and household flour, is the appropriate percentage for those earning less than £30 a week, which is much more relevant to need. These two orders will cost £21 million this year and we would like to know the position in a full year. We know that on tea it will be £29 million, but on both, it must be approaching £40 million. These are large sums, but to what effect?
I believe I am right that for old-age pensioners, for whom the case has been advanced by the other side, the subsidy effect is about £1 a year, and that for the average household the effect is about 1813 £1.60 a year. For household flour, from my calculations—and the Minister will correct me if I am wrong—it is at most 75 pence per annum for the average household and one assumes, rather less for the pensioner households because they use such flour less.
So this subsidy for the consumer is extraordinarily thinly spread and for those less well off, even more thinly spread. Many of us could make suggestions as to what could be done with that £40 million. For example, it could be used for special groups in need, or to aid pensioners who face problems of rural transport or to provide concessionary bus fares for old people generally, many of whom are unable to get them because their local authority does not give them through exercise of their discretion. Such ways of spending the £21 million would be much more directly relevant to those most in need.
One argument has been advanced by the Government on this question, namely, that because the subsidy is spread to everybody but the proceeds come from the higher taxes from the more highly paid, it is an effective way of redistributing income and wealth. That argument would stand up if there had been an increase in the higher rates of taxes directly to provide the £21 million for the subsidy, or alternatively if there was a proposal to reduce the higher rates of tax if the subsidy had been taken off. But there is no suggestion of that.
Therefore, we suggest that, since in any case there is higher revenue from the higher rates of tax amounting to £21 million, it would be much more effectively applied in other directions than on these subsidies. On the argument about the relationship to need and those who are less well off, we need a much stronger justification for the tea and household flour subsidy than any which the Government have yet put forward.
My second argument is a wider economic argument in relation to subsidies as a whole but is pertinent to the question of tea and household flour. It concerns the inconsistencies of the Government's subsidy policy. I make no apology for referring again to an extract from the Budget statement of the Chancellor of the Exchequer relating to nationalised industry prices. He talked first about subsi- 1814 dies being of two sorts and said that the second was compensation for price restraint. He stated:It is the escalation in this latter type of subsidy which we set out to reverse and, since our initial attempt has not fully achieved its purpose, we must continue a sustained assault on the problem until it has finally disappeared. In particular, as my predecessor fully recognised, to provide large subsidies for the prices of energy runs completely counter to our national objectives on energy conservation and energy policy generally".One could argue in relation to food subsidies that, whereas it may not be a question of energy, it runs counter very strongly to the need to restrain consumption and not to expand it in specific areas, and it runs counter also to general balance of payments economic objectives.
For as the Chancellor of the Exchequer later said in his speech:If we are to correct the large structural distortions which have affected our economy over recent years, with too much going into consumption and too little into investment and exports, it is inevitable that from time to time steps should be taken which will raise consumer prices."—[OFFICIAL REPORT, 12th November 1974; Vol. 881, c. 268 and 279.]If that is what the Government are doing on nationalised industry price and subsidy situations, it equally applies to food subsidies.
The only justification which the Government have given on this point since the election are two extremely feeble points raised by the Secretary of State for Prices and Consumer Protection, who said in the same Budget debate that nationalised industries subsidies were prime subsidies—that is, not directed to the domestic consumer alone. But the effects of the removal of these subsidies on a whole range of industrial products come through to the consumer, and there is also the important export argument.
The second reason which the right hon. Lady gave was that in a nationalised industry situation there was no discrimination in favour of the small consumer or less-well-off people. I have made it clear in relation to tea and household flour that that equally well applies to food subsidies. The point was well put in the debate on the tea order by an hon. Member who made clear that, assuming that there will be about a 15 per cent. increase in electricity prices, the extra that that will produce in order to heat a kettle to make a cup of tea will 1815 increase the costs to the pensioner at almost precisely the same level as the tea subsidy will reduce the cost of the tea bag. Therefore, there is a gross illogicality in the Government's argument. What is right in one area of Government policy should be right in another.
The third point concerns the effect of the distortions on the economy as a whole and on particular products as a result of subsidies. I accept that the argument is stronger in other areas of food subsidies, such as in the milk subsidies and their effect on cheese and butter and in the expansion of consumption of liquid milk, than to the particular products that we are now discussing. But there are distortions also in tea and household flour.
In tea, for the first time for many years, demand is beginning to exceed supply. I am told that the world price of tea in auction is now firming up. The Government are encouraging the consumption of tea, if only marginally, so this raises a wider question: if the raw material cost of tea is to rise, as seems likely, are we to increase the subsidy in place of a rising price? That is a question to which I should like to hear the Minister's answer tonight.
There are distortions in the way in which the subsidy on household flour is operating, which, although small, are nevertheless indicative of the wider distortions in other subsidies.
At present the subsidy applies only to 3 lb. bags. I am told that confectioners and many bakers normally use 56 lb. bags. I understand that now, to gain the benefit of the subsidy, many are going to supermarkets and cash-and-carry stores and buying 3 lb. bags in place of the 56 lb. bags. Packaging costs are rising all the time, and there is a great difference between the number of 3 lb. and 56 lb. bags that they have to buy in terms of packaging costs. Therefore, there is a distortion in the market here.
I turn now to another general argument, because I believe that so far there has been slim justification, in the various arguments, for tea and household flour subsidy. This, too, is a small, but significant point. I refer to the administrative 1816 costs involved in these subsidies, especially on flour. Because of the way in which the subsidy operates, the forms required, which firms are normally filling in weekly to improve their cash flows, create great accounting and administrative difficulties and increased paper work for the big firms, but even more for the small firms, of which there are many, particularly bakers in relation to bread subsidies. This comes on top of the many other strains on these small firms, small retailers, bread producers, and so on.
Therefore, I should like to put one practical point to the Minister which has been made to me by a number of people who are being affected by the subsidies. Now that the subsidies apply to practically all bread and flour, would it not be worth while making the subsidy operate at the miller's point where there are many fewer forms to be filled in rather than at the multitude of positions where they have to be done at present?
I conclude on two much more important matters. The first is the general argument whether the enormous sums that we are talking about are better concentrated on producer or consumer subsidies. At this late, or early, hour I do not wish to go into the whole argument, but it seems that month by month, when the expansion of home agriculture becomes even more crucially important, so much concentration on consumer subsidies is misguided. For in terms of home agriculture the effect of consumer subsidies is indiscriminate. Indeed, in many cases it adds to our balance of payments difficulties.
I accept that this is true more of other subsidies—the bread subsidy in relation to wheat and the cheese subsidy where, as no doubt the hon. Gentleman would say, only £2½ million is involved in subsidising foreign cheese, but £2½ million is a significant sum.
§ Mr. Deputy Speaker (Sir Myer Galpern)
Order. The hon. Gentleman at the beginning of his speech correctly indicated that he was confined to the subsidies on tea and flour, but he is now beginning to stray into the wider area in too great detail. I must ask him to come back to the specific subsidies on tea and flour.
§ Mr. MacGregor
I was about to say that although this point applies more to other food subsidies, the effect on the balance of payments here is not insignificant either. This aspect is particularly important, bearing in mind the National Institute for Economic Research view this morning, to which there was reference in an earlier debate, that there is a considerable likelihood that in the next year there will be an effective further devaluation of the pound. So we need much more justification of the Government concentration of these high sums—up to £700 million— at the consumer end rather than the production end.
Finally, the effect in combating inflation is one of the main arguments put forward by the Government for these subsidies as well as others. The NIESR report this morning more or less concedes that the social contract has failed and suggests that the likely rate of price inflation next year is 25 per cent. So if the food subsidies are meant to be part of the social contract, they have not been successful in their purpose. I have already referred to the miniscule effect of these subsidies on individual consumers and the retail price index. I could just see some justification for them earlier in the year in that they held down the index, even if only marginally, and had some effect on threshold payments. But that argument has now disappeared with the end of threshold payments and I fear that now these subsidies could act the other way and add to inflationary pressures.
This is partly because they may be financed through additions to the Government borrowing requirement, but also because of the effect on wage settlements. We are seeing a possible result of this kind in the baking industry, but it could spread to other areas. The Secretary of State for Employment said on 2nd December, about the bread question, that settlement at the rate then being discussed, of up to 66 per cent., would mean either a higher price or a higher subsidy. The Government, he said, have not yet said which. A higher price would bring home to the consumer the consequences of excessive wage settlements. A higher subsidy would encourage the unions in the industries to which food subsidies apply to seek high wage rises in the belief that the consumer would be protected from the results of their action.
1818 We all share the Government's objectives of protecting those most in need and of combating inflation, but we fear that food subsidies are doing neither. The Secretary of State for Prices and Consumer Protection said on 10th August that these subsidies could not be a permanent feature of the economy. As recently as 11th November, she repeated that in the long run the Government hope to be able to phase out subsidies in the interests of other kinds of social expenditure. The last part of that statement is crucial, for part of our case is that these other kinds are better ways of using the funds available.
As we see these extensions of food subsidies, with ever-mounting costs and ever-increasing distortions, conflicting with other economic objectives, and without compensating successes for the social contract, we fear that food subsidies are not working. That is why we are for a clear Government statement tonight.
§ 5.15 a.m.
§ Mr. Douglas Hurd(Mid-Oxon)
As my hon. Friend the Member for Norfolk, South (Mr. MacGregor) has pointed out, we have tried to choose the exact description of this debate with some care to fit into our general approach to the question of food subsidies. For some time we have consistently taken the view that a massive structure of food subsidies was pernicious but that it obviously could not be swept away overnight because of the hardship which would be caused. It was natural, in trying to define the subject on which we were seeking a debate, that we should concentrate our attention and anxiety on new subsidies, and not on those which simply increase existing subsidies.
The tea subsidy started in September. Perhaps it is a pity that we did not vote against its introduction. Maybe we can make amends for that by debating it now. My first point deals with the extraordinary contrast building up between the Government's general approach to public expenditure and their approach to spending on food subsidies, particularly those subsidies such as the tea subsidy. This is a subsidy which will cost £29 million in a full year.
There is a range of similar-costing items in the estimates. For example, hill farm grants total £22 million. We know 1819 of the hardships which many of our hill farmers are suffering. The total provision in the Estimates for artificial limbs and cars for disabled people is £22 million. For law-and-order protective services in Northern Ireland—that is, extra pay for the police, prison services and so on— there is an extra £32 million. These are all items which, anyone would accept, are of great value enabling us to pursue policies acceptable to us all.
I am sure that in pressing for these sums Ministers had to fight hard in Cabinet committees and maybe even in Cabinet itself. There is a complete contrast between that approach, which emanated from the chancellor's Budget speech—the cautious approach to public spending—and the blithe way in which these subsidies are multiplied almost, it seems, without thought of argument.
I can imagine the Secretary of State going to the Cabinet saying that she wanted to bring in a tea subsidy and being told, "Only £29 million? Are you sure you do not want more? After all, we have £700 million set out in the Prices Act and we have not nearly spent all of that yet. Could you not manage to find some new subsidy? Could you not manage to spend a little more on tea?"
That seems to be the approach to expenditure on food subsidies, in complete contrast to the frugal approach to other matters. The total of £700 million in the Prices Act comes into particular relief this week when we find that the Secretary of State for Defence is proposing to disrupt the Armed Services——
§ Mr. Deputy Speaker
Order. I have allowed a fairly wide debate but I must ask the hon. Member to return to the specific sub-heading of tea and flour.
§ Mr. Hurd
I bow to your ruling, Mr. Deputy Speaker. My point was simply that there is a difference. The tea subsidy is a completely new item of Government expenditure costing £29 million a year. When we turn to defence or other items of expenditure the whole approach seems to be much more restricted. Many more sacrifices are required on such items, whereas additional expenditure on this sector of public expenditure seems to go blithely ahead without proper control.
In the current crisis there is obviously room for intelligent discussion between 1820 people with different opinions about the claims of public expenditure, public investment, taxpayers, ratepayers and so on. Our criticism of the policy leading to these two sub-headings is that it is irrelevant, either to the arguments of those who believe in public investment as a first priority or to the arguments of those of us who believe that we must watch levels of tax and rates if we are to create real wealth. This policy, embodied in the Supplementary Estimates, is not investment in a true sense but investment in consumption, in distortion and in waste. It is cruel of the Prime Minister to ask the most intelligent of his colleagues to preside over the least intelligent of his policies.
The arguments for the tea subsidy put by the Under-Secretary of State in our earlier debate justify attention. He argued —and it is a continual argument—that it represented a saving on the retail price index of the magnificent sum of 0.1 per cent. He fits into a long tradition by this argument.
Successive Governments have paid too much attention to the retail price index as such. They all seem to have believed that there is some magic in it. But I have felt for some time that this is a fault in the general approach to prices. People do not eat the index or drink it or go shopping with it. It is something they read about in the papers, and they do not believe it or pay much attention to it. It had a real and practical significance when the Government of the day linked a wages policy, including threshold agreements, with the index, but that chapter closed last month. I hope the Under-Secretary of State will consider whether the Government are not still paying too much attention to the index as such.
In the debate on the tea order, the hon. Member for Ipswich (Mr. Weetch) made an interesting point about the psychological impact of the prices of particular foods. That is getting closer to the mark, and I do not think that tea comes into the category. My list of psychological foods, for example, would include meat, fruit, vegetables and bread.
The other main argument of Ministers for the tea and other subsidies is that they help the social contract and help to achieve restraint in wages. That argument is full of holes. My hon. Friend the 1821 Member for Norfolk, South referred to the report of the National Institute of Economic and Social Research, published in today's newspapers. It is a serious indictment of the social contract, as applied hitherto, as a political arrangement between the two wings of the Labour movement. It suggests that these subsidy arrangements have not had any perceptible effect in restraining inflation and may have had an opposite effect. That is a serious indictment.
Eventually, there is to be the phasing out—early, one hopes—of food subsidies. The Secretary of State has said that they should be phased out. What machinery exists for reviewing them? Is there a committee in the Department looking at the level of food subsidies month by month and asking how the Department can follow the Secretary of State's advice and phase subsidies out? For instance, does it ask, "Can the tea subsidy go down or be eased out?" We all know the machinery for increasing or inventing food subsidies. What is the machinery for carrying out the Government's policy that, where possible, they should be run down or phased out?
Authority for that approach comes in another passage in the third Budget speech of the Chancellor of the Exchequer, when, talking about fuel, he said:Fuel bulks large in old-age pensioners' budgets. But the best way to help pensioners is to increase pensions, not to sell fuel to everybody far below its cost."—[OFFICIAL REPORT, 12th November 1974; Vol. 881, c. 255.]What is true of fuel is true also of food, and by that statement the Chancellor blew out of the water the policy that he was expecting his colleague the Secretary of State to apply, and the case for these two subsidies was demolished at the same time.
I firmly believe that we are entering a new ice age as regards the resources of this country. We are only just beginning to grapple with the problem, and the Government and the Labour Party have been slow to grasp the implications of it. Over the next two or three years we shall debate over and over again how to keep minimum standards in our social services, education, and so on, and how to prevent rates and taxes rising to wholly unacceptable levels.
1822 In this new ice age there will be plenty of room for honourable and intelligent controversy, but a policy of scattering the resources of the nation in a haphazard system of subsidies is, in this new situation —whatever the original argument—a deception and a wasteful fraud.
§ 5.26 a.m.
§ Mr. Nigel Lawson (Blaby)
I shall be as brief as I can, and it will be easier to be brief because the heart of the matter that is raised by these two new subsidies has been put so admirably by my hon. Friends the Members for Norfolk, South (Mr. MacGregor) and Mid-Oxon (Mr. Hurd).
We have to ask ourselves and the Minister precisely what is the purpose of these subsidies. We are told sometimes that this is meant to help the worse off, the poor and the pensioners. It is rather strange to hear it said that this is to help pensioners because, as my hon. Friend the Member for Mid-Oxon said, the Chancellor of the Exchequer admitted that the increases in fuel costs, electricity charges and other energy price increases that will result from phasing out subsidies to the nationalised industries will bear particularly on the old. All the surveys and statistics show that although food represents a larger-than-average proportion of the budget of the non-pensioner poor, for pensioners it is in line with the national average, so there will be no specific benefit to them from these subsidies.
If we want to help pensioners, why not ask them how they wish to be helped? We are talking about a lot of money. The figure here is £21 million, and about £40 million in a full year. If pensioners were asked how they wanted to be helped, I am sure that many would say with transport costs, half-price television licences, and so on. Many more pensioners would like help with the TV licence, instead of just the few who get it in sheltered accommodation. The rest have to pay the full amount. I put down a Question to ask what would be the cost of half-price television licences for all old-age pensioners. The answer was £15 million, yet here we have an expenditure of about £40 million on just these two items, tea and household flour.
When we are talking about these figures, let us not forget that the cost of the Government's monstrous imposition 1823 on the self-employed is £21 million. That tax, which will cause so much hardship, could have been remitted completely for less than the cost of these absurd subsidies which will be dissipated so widely that nobody will benefit from them. There is no justification for these subsidies.
If the Government intend to subsidise food in this way, it is better to make sure that we subsidise home-produced food and sustain our farmers on whom we shall increasingly depend in the years ahead. Perhaps this is part of the social contract—that tattered non-document. We have already heard the verdict of the National Institute, which is that the social contract is likely to produce in the coming year an inflation rate of between 20 and 25 per cent.
The National Institute Report says that the social contract, with settlements anticipating inflation, is compatible with virtually any future rate of inflation. If that is the case, what is the value of the social contract? If the social contract is compatible with any rate of inflation, what is the value of attempting to get a social contract by having these subsidies on tea and flour? We shall require an answer to that question.
The purpose of the subsidies may be to do something about the problem of inflation. But how can it be said that holding prices down artificially is the answer to inflation, when the Chancellor of the Exchequer in his Budget speech said that putting nationalised industries' prices up is the answer to inflation? He cannot have it both ways. Suppressing the symptoms of inflation will never cure it. We have to get at the cause. These vast nationalised industries are already subsidised to the extent of £1,000 million. He said that we could not allow the existing state of affairs to go on, that costs had to be reflected more closely in prices, and that we had to avoid the uneconomic use of resources, the collapse of financial discipline and an unacceptable level of support by the Government.
Those same sentiments were echoed by the last Labour Government who introduced food subsidies. This is no new idea. It was tried and found to be a ghastly fiasco by the immediate post-war Labour Government. The food subsidies bill mounted higher and higher. There 1824 were new subsidies all the time like these subsidies on tea and flour. With the subsidies went shortages. I was reading in the Library last night reports of the debates on sugar shortages. Whenever there is a Labour Government there is a sugar shortage. Eventually food subsidies have to be limited because they get out of hand.
The late Sir Stafford Cripps in his 1949 Budget speech said:… that just cannot go on.It was projected that food subsidies would go up to £500 million, which by today's standards would be £1,500 million.We must call a halt … prices have got out of all relationship with realities …"— [OFFICIAL REPORT, 6th April 1949; Vol. 463, c. 2085].That is what Sir Stafford Cripps said about food subsidies in 1949.
There are two ironies in the situation. In fact, they are worse than ironies. First, food subsidies do nothing to stop prices rising. The only way in which the Government can hope to stop prices rising by means of subsidies is by increasing the subsidies and introducing new ones, and then we have this great burden on public expenditure. There is a once-for-all halt on the price increases which are going to take place, but the inflationary forces at work in the economy will in no way be abated by existing food subsidies. Any short-term dent can be made only by the introduction of yet another subsidy. May we know, therefore, how many more new subsidies the Government intend to introduce?
§ Mr. Deputy Speaker
The hon. Member occasionally takes a gulp from his tea cup but then he strays from it and lets it get cold. We cannot have a question about new subsidies. That is out of order.
§ Mr. Lawson
I shall try to keep the tea as warm as I can, Mr. Deputy Speaker. In view of the policy on food subsidies is this £700 million the absolute ceiling? May we have a guarantee on that? Are the tea and flour subsidies harbingers of further subsidies? I must not go into that point.
Another problem is one which was alluded to by my hon. Friend the Member for Mid-Oxon. It goes back to what was said by Sir Stafford Cripps. It is that the further we get into the situation in which prices bear no relationship to reality, the 1825 more people are isolated and insulated from the inflationary consequences of their action and the more they are insulated and isolated from the economic realities with which we have to grapple.
That is a dangerous and irresponsible course to follow—as dangerous and irresponsible as cutting VAT from 10 per cent. to 8 per cent. when the country is psychologically prepared for hard crisis measures which are necessary because of the borrowing requirement and so on. We cannot continue with a borrowing requirement of £6,300 million, rising for ever. We cannot expect to sustain our standard of living on borrowed Arab money. We have to pay our own way and to get to grips with reality. That will have to be achieved by telling the people the truth and by not making them imagine that by putting a subsidy on tea and flour and subsequently on something else our economic problems can be wished away.
The Government have had their two elections. There is now no need for the electoral propaganda saying that the terrible problem of food prices can be dealt with by putting subsidies on food. That may be a deplorable or morally unattractive practice, but these things sometimes happen in politics. Elections are won by bribes and by mis-statements of the economic truth. That has been known in the past. But the elections are over now. The food subsidies have served their purpose of helping to win the elections. Now may we get back to reality and abolish the policy?
§ 5.39 a.m.
§ Mr. Ian Gow (Eastbourne)
I wish to express my anxiety about the new subsidies on tea and flour, costing, as they do, in the current year over £35 million. I begin by expressing my sympathy to the Under-Secretary who has to reply to the debate because it is clear from what two Cabinet Ministers have said that there is a serious difference of opinion on the matter even within the Government.
My hon. Friends have quoted what the Chancellor said in the House on 12th November. I want to underline two of the remarks he made then and to refer to the remarks of the Secretary of State for Prices and Consumer Protection in the House on the previous day. Speaking about nationalised industry prices, the 1826 Chancellor of the Exchequer said on 12th November:I have set it as my objective to phase out these subsidies completely as fast as possible." — [OFFICIAL REPORT, 12th November 1974; Vol. 881, c.268.]Earlier in the same speech he had said:In general we must reduce and eventually remove subsidies of all kinds … the best way to help pensioners is to increase pensions, not to sell fuel to everybody far below its cost."— [OFFICIAL REPORT, 12th November; Vol. 881, c.255.]I emphasise the words:In general, we must reduce and eventually remove subsidies of all kinds.How can it be consistent with that commitment by one of the most senior members of the Government to have the two additional subsidies that we are debating?
That was not all. The day before the Chancellor's Budget statement, the Secretary of State for Prices and Consumer Protection said in answer to a question by my hon. Friend the Member for Barkston Ash (Mr. Alison):I have aways made clear that in the long run our hope is that we might be able to phase out subsidies in he interests of other kinds of social expenditure."—[OFFICIAL REPORT, 11th November 1974; Vol. 881, c.8.]We do not have to look only to statements by Ministers to find justification for our anxiety about these two additional food subsidies. The Labour Party manifesto had something to say as well:We have … Subsidised basic foods—bread, flour, butter, cheese, milk and tea——adding in immortal words—in a way that gives most benefit to the least well-off".With that quotation very much in mind, I have asked a Question of the Undersecretary, to which he replied on 19th November as follows:The estimated cost of food subsidies in the current financial year is £500 million … it is estimated that about 33 per cent. of this expenditure will be received by households with an income of less than £40 a week, which contains about 32 per cent. of the population. About 52 per cent. of the expenditure will be received by housholds with an income above £50 a week, containing about 52 per cent. of the population."— [OFFICIAL REPORT, 19th November 1974; Vol. 881, c.403.]That aspect, among others, causes me great concern. A month after the publication of the manifesto, containing the statement that subsidies had been arranged in a way that gave most benefit to the least well-off, the hon. Gentleman 1827 was saying that only 48 per cent. of the total spent on food subsidies went to households with an income of less than £50 a week.
The money spent on food subsidies— £500 million this year—would be much better spent if it were used to increase the rate of supplementary benefit or family income supplement. Indeed it would have been preferable to give a family allowance, which at least is subject to income tax and to the special rates of tax, for the first child, rather than to given subsidies in this indiscriminate way.
I next refer to the principle of subsidies in the light of the remarks made by the Chancellor on 12th November. Subsidies to the nationalised industries and on food encourage the British people to believe that somehow they and the Government can opt out of the real world. Subsidies in this form provide a positive incentive for us to believe, at a time when the harsh truths of economic reality should be uppermost in our minds, that we can opt out. However, we cannot opt out. The difficulty is that the Supplementary Estimates under consideration this morning will be very greatly increased by this time next year. The Government will discover that, once embarked on, a policy of food subsidies will prove to be an immensely difficult course from which to retreat.
It is relevant, when we are considering this sum of £500 million in the current year, to remember the overall economic situation in the country as well as the public sector borrowing requirement, which has increased from £2,700 million in March to £6,300 million in November. In the space of eight months the public sector requirement has risen to the astronomical figure of £6,300 million.
The economic crisis, as it is now called, will, I fear, be nothing when compared with the economic hurricane which will blow across Western Europe, and notably across these islands, in the coming months. Every item of public expenditure needs to be scrutinised with the greatest care. I hope the Under-Secretary will tell us that the new subsidies on tea and flour are not a portent of an ever-greater Government commitment to indiscriminate subsidies and an ever-greater inclination to flee from economic reality.
§ 5.48 a.m.
§ Mrs. Sally Oppenheim (Gloucester)
The lateness of the hour has in no way dimmed the eloquence of my hon. Friends or diluted the excellence of their argument. Perhaps it is in the cold, hard light of early dawn, and within the context of the cold, hard light of the present economic situation, that we should be considering the whole question of food subsidies, in particular the two food subsidies.
During the discussions on the Prices Act, we made it clear that we felt that subsidies were wasteful, indiscriminate and very expensive. The fact that we did not vote against the Act does not mean that we shall automatically give carte blanche to any and every subsidy (hat the Government might think of introducing in the interim period. All my hon. Friends have put forward alternatives to provide in each case more effective help for families than will be provided by the tea and flour subsidies.
My hon. Friend the Member for Norfolk, South (Mr. MacGregor) displayed a generous attitude towards the tea subsidy. I have worked out that the tea subsidy would be worth, in the case of pensioners, about 1½p per week, at the most about 78p per year, and, in the case of families, not very much more than that pro rata. This is based on the consumption rate of three ounces which the hon. Gentleman gave in the debate on the order. That is 78p a year to a pensioner family, at a price of about £29 million. But for about £9 million the Government could have given the pensioner another £10 bonus in six months, which is considerably more. The argument was also advanced that family allowance for the first child would have been much more helpful than all the subsidies put together, and that again is true.
In the case of flour, the subsidy is worth about 1½p a week to the average family of two adults and two children, so, in terms of help to poorer families and to pensioners, that is the significance of the two subsidies that we are discussing.
My hon. Friend the Member for Mid-Oxon (Mr. Hurd) referred in passing to the fact that the Secretary of State is limited in the number of items on which she can introduce subsidies. She can 1829 introduce them only on the demand in— elastic foods. Those items on which every family spends most—demand elastic foods such as fresh meat, fresh fish, fresh vegetables and fresh fruit— cannot be subsidised for that very reason, so that any food subsidy can be of only marginal benefit to poorer families and pensioners simply because it is not possible to subsidise the items which account for most of the food bill of the average family, as the Secretary of State has acknowledged from the outset.
I do not think that we have heard— and perhaps the Under-Secretary will tell us—to what level of expenditure in a full year the flour subsidy will amount. We have not been given that specific figure.
We come back to the tea subsidy and the administration of it which the hon. Gentleman said in the debate on the order would not be very expensive. He said that there would be some differential between qualities of tea and that this would not apply to higher-priced teas. But he gave no details. The Ministry of Agriculture Food Facts monthly survey gives three different qualities of tea. I am sure that the hon. Gentleman has studied the matter closely. Will he tell us which of these ranges of tea subject to the survey come within the subsidy and which do not?
I want to put on record that the Opposition object very strenuously to the subsidisation of convenience foods. This was made clear during our debates on the Prices Bill. For some reason, tea bags have been included in the tea subsidy. This is the most expensive, wasteful and unnecessary subsidised food among the whole range of subsidies introduced so far.
According to a parliamentary Answer given by the Under-Secretary on 2nd December, the subsidies have so far cost £221.5 million, before a single maximum price has been fixed. It was generally agreed that where foods were subsidised, a maximum price must be fixed. I appreciate that the Prices Act was not enacted until July and that consultation had to take place, but, for all that the Government know, there may have been no benefit so far from the subsidies. They do not know what prices have been charged for those foods which are sub- 1830 sidised. There has been nothing under the law to stop anyone selling these goods for precisely what he liked. There is evidence that the smaller size loaf has until recently been selling for more than what the fixed price will be.
It has been said by chief officers of trading standards that they will find it practically impossible in any event to enforce the price-fixing order because it is so complicated, apart from the fact that the maximum price lists which will have to be displayed will add to costs and may, in the case of tea and flour, add more to costs than the value of the subsidies themselves. So this is another very doubtful aspect of these subsidies.
My hon. Friend the Member for Mid-Oxon questioned the criteria that the Government use when deciding which foods to subsidise next. The impression can be gained that there is a morning meeting at the Department of Prices and Consumer Protection when everyone sits round a table and asks, "What can we subsidise next?"
Of course, before the last General Election it was announced with due pomp and ceremony that tea and flour subsidies were to be introduced. The Government were landed with them. Possibly they received them a little less willingly after the election.
I now turn to the important point which was raised during the debate on the tea order—namely, the four lost days with which the Minister will be familiar. The House will know that the order which was brought before the House lapsed between 16th and 20th November. Government money had been paid out without the approval of Parliament. The Minister may not think that that is serious but it is a serious constitutional matter. He airily told the House that there were precedents. He said that arrangements could be made for an ex gratia payment. But he did not tell the House the nature of the precedents. Apparently he did not know.
Later, during business questions, the Leader of the House said that steps should be taken. It is more than two weeks since the debate took place on the order and the House has still not received the courtesy of a reply from the Minister or from the Leader of the House as to what 1831 steps will be taken to put right this extremely unconstitutional matter of approving payments without the sanction of Parliament. I hope that the Minister will tell the House this morning. If he does not we shall have to call the Leader of the House to come here and to tell us exactly what will be done. Parliament will not be treated in this arbitrary way by the Minister. It is an insult. I hope that he will be able to provide this information when he winds up the debate. We want to know exactly what steps he will take to put the matter right.
§ Mr. Deputy Speaker
Order. I am somewhat disturbed by the remarks of the hon. Member for Gloucester (Mrs. Oppenheim). I am in some doubt whether her remarks whether certain action was constitutional come within the ambit of the debate. As far as I can conclude, we are discussing the worthwhileness of the tea subsidy. I doubt very much whether the question of constitutional procedure can be introduced.
§ Mrs. Oppenheim
I apologise. I must be labouring under a misapprehension. I have not seen on the Order Paper anything to indicate that the subject of the debate is the worthwhileness of the tea subsidy and the flour subsidy. I thought that in generally discussing the tea subsidy and the flour subsidy it would be admissible to introduce the fact that public money has been paid out without the authorisation of Parliament on the tea subsidy. I believe that that is an important constitutional matter. No doubt the Minister will provide the House with a full explanation when he winds up the debate. I hope that he will also answer the specific questions that have been put to him by my hon. Friends as well as their general arguments.
1832 In future we shall be looking carefully at the orders which come before us separately to introduce further subsidies. Whereas the bulk of the subsidies that have been introduced have been within the context of the Prices Act, the situation is now very different. We have a positive duty in the present economic climate to think hard about whether we shall allow the passage of any more wasteful, indiscriminate and socially unhelpful subsidies.
§ 6.0 a.m.
§ The Under-Secretary of State for Prices and Consumer Protection (Mr. Robert Maclennan)
This has been a useful debate in that it has allowed us the opportunity of considering the policy lying behind the subsidy schemes which the House has considered on a number of other occasions.
Running through the speeches of those hon. Members who have spoken in the debate has been something of a misapprehension, to which I ought to draw attention. A number of hon. Members have referred to the tea subsidy and the flour subsidy as being new. This novelty can scarcely be sustained in the light of the fact which the hon. Member for Gloucester (Mrs. Oppenheim) made plain —that both these subsidies had been announced some time ago. The flour subsidy was introduced by means of an amendment to the Bill which became the Prices Act, and that was fully debated by the House on 12th June. Therefore, this does not represent in any sense a departure from Government policy. Likewise, a tea subsidy was announced back in September.
Although we are debating these Supplementary Estimates tonight, the normal provisions have been made for the payment of these subsidies through the Contingency Fund arrangements. Therefore, it does not follow that in making the arrangements for the payment of these subsidies the Government are embarking upon any new course or are expanding the programme of subsidies. I hope that we can get that aspect of the matter clearly on the record.
The hon. Members for Norfolk, South (Mr. MacGregor), for Mid-Oxon (Mr. Hurd) and for Blaby (Mr. Lawson) all sought to suggest that a new situation had developed in the last eight weeks, as I understood them, which should lead to a 1833 complete reappraisal of the Government's policy on food subsidies. I take it that what they mean by that suggestion is that they must now find some way of parting company with their election manifesto, which recognised thatWith the urgent need to stabilise prices we accept that it will be necessary to retain these subsidies for the time being.The hon. Member for Norfolk, South quoted those words.
I do not know what their manifesto meant by the phrase "for the time being." But hon. Members have not made a case which suggests that the economic situation has so changed in the last eight weeks that this policy should be abandoned.
§ Mrs. Sally Oppenheim
Is the hon. Gentleman aware that it is not so much the economic situation which has changed so drastically in the last eight weeks as the fact that the Government are at least admitting it?
§ Mr. MacLennan
I beg to differ from the hon. Lady. Her hon. Friend the Member for Norfolk, South made the point that the economic situation had changed, as did the hon. Member for Blaby. They both tried to argue that case. The hon. Lady may not share their point of view, but that was their case. My case is that there has been no dramatic change in the situation, particularly in respect of the rate of inflation, which would lead us to abandon this policy at present.
§ Several hon. Members rose——
§ Mr. Maclennan
I hope that hon. Members will allow me to continue. They have made quite long speeches. It is only right that I should have the chance to develop the case which I know hon. Members are anxious to hear.
§ Mr. Maclennan
I must begin by reminding hon. Members of the reasons why the Government embarked on this policy and why we intend to continue it. We undertook to introduce a programme of food subsidies taken against a background of sharp increases in the prices of essential goods and services. At the beginning of the year food prices were rising at an unprecedented annual rate of 1834 20 per cent. This might be regarded as tolerable by the well-off, but to the old age pensioner couple it meant that an extra £1 per week had to be found to cover the additional costs of food as compared with the previous year. For the housewife shopping for her husband and two children the additional cost would be of the order of £1.50 per week.
It was increases of this kind which were compelling the lower income groups to seek higher wages. Otherwise they could not hope to keep their larders adequately stocked, still less to lay by a store for the future—which some people apparently regard as a reasonable precaution. I do not propose to discuss the merits of food hoarding. Whatever merits hoarding may have it is certainly not possible for vulnerable sections of the community, such as pensioners and large families with low incomes. These were the people we set out to help through food subsidies.
We do not pretend that we have stopped food prices from increasing. This would not be practicable. But what we have done is to hold down the overall increase. As a result of the measures we have taken, the typical pensioner couple are spending about £6.50 per week on food instead of nearly £7, while the family of two adults and two children are spending about £12 a week instead of nearly £13. Subsidies are therefore making a real contribution to maintaining the standard of living of poorer households.
§ Mr. Maclennan
I have hardly begun to develop my arguments. I have many questions to answer and there are other debates to follow.
A number of the hon. Members who contributed have asked the Government's intentions about the future of the subsidies programme. The Queen's Speech confirmed the Government's intention to continue to use subsidies to hold down the price of a range of basic foodstuffs. The detailed arrangements for implementing this decision will be announced soon, when we introduce a short Bill. We shall also take the opportunity to make a number of minor changes in the powers relating to subsidies and price regulation.
1835 A number of hon. Members have sought to imply that the flour and tea subsidies being, as they put it, new, we were in some way expanding the allocation of money. That is not so. In the March Budget, my right hon. Friend the Chancellor of the Exchequer made a total allocation of £550 million for expenditure on food subsidies in the current financial year. Of that amount we shall have spent about £500 million to keep the present scheme going. Next year we plan to keep the subsidy programme going at broadly the present level. At this stage I am not prepared to be more precise about the Government's longer-term proposals.
Several hon. Members, particularly the hon. Member for Eastbourne (Mr. Gow), saw some incompatibility between the objectives of my right hon. Friend the Chancellor of the Exchequer in respect of phasing out subsidies to the nationalised industries and our purposes in respect of food subsidies. Hon. Members fail to understand the different considerations which apply. The main point about the nationalised industries subsidy which has been made is that at this time we must discourage wasteful consumption of energy and bring home to consumers the immense drain on our resources brought about by the high cost of importing oil. With regard to energy, we have no option but to make the largest possible savings in expenditure. But food accounts for a large part— indeed a disproportionately large part— of the expenditure of low-income households, which are the main beneficiaries of the subsidy programme.
§ Mr. Gow
What the Chancellor of the Exchequer said about old-age pensioners and subsidies in the nationalised industries was this:Fuel bulks large in old-age pensioners' budgets. But the best way to help pensioners is to increase pensions, not to sell fuel to everybody far below its cost".—[OFFICIAL REPORT, 12th November 1974; Vol. 881, c. 255.]Will the hon. Gentleman try to understand that increased pensions are subject to tax and therefore the better-off pensioners pay the tax, whereas the Government subsidy benefits all alike?
§ Mr. Maclennan
My right hon. Friend the Chancellor not only made that point 1836 but announced the pension increases we propose to make. I accept and understand the importance of increasing old-age pensions at this time in order to help to offset the substantial increases in the cost of living.
The hon. Member for Eastbourne spoke of the commitment of the Chancellor of the Exchequer to the phasing out of subsidies to nationalised industries being implemented as fast as possible. My right hon. Friend the Secretary of State for Prices and Consumer Protection has made it plain that we do not regard food subsidies as being a permanent feature of the economy. They were introduced to meet particular circumstances, and when those circumstances no longer exist we shall do as the hon. Gentleman suggests and phase them out. But this would have to be done——
§ Mrs. Sally Oppenheim rose——
§ Mr. Maclennan
I have twice given way to the hon. Lady and I must make this point. At the moment, however, we do not accept that the economic climate is right for the removal of subsidies, and we shall continue to use them as part of our prices policy.
Having made those general remarks about the background to the tea and flour subsidies, I turn to some of the points raised about the two subsidies. We selected tea because it was of particular importance in the shopping basket of the elderly and the lower income groups. The highest level of consumption is found in those groups, and we recognised that after a long period of stability there had been increases in the retail price of tea this year and therefore it was an appropriate commodity to subsidise.
An hon. Member suggested that there had been some distortion of trade in consequence. If that is so, it is very marginal and as yet we see no evidence of a more than temporary trend. However, we shall watch this situation very carefully. The country is not at present experiencing any difficulty in obtaining normal supplies of tea.
The cost of the tea subsidy at the moment is £29 million. That is a considerable sum, but we believe that the scheme will be cost effective. The immediate savings will be enjoyed by all sectors of the population, but the well off, 1837 as hon. Gentlemen opposite seem unwilling to admit, will, in effect, bear the cost of the subsidy through increased direct taxation.
§ Mr. Maclennan
No, I will not give way again until I have developed my argument further.
I turn now to the choice of household flour for a subsidy. The House considered this matter on 12th June and accepted the introduction of the subsidy at that time. We have no evidence that this has affected the supply of and the demand for household flour. We think that it is of value again, particularly to the elderly members of the community and the poorer families whose consumption is substantially higher than that of people with larger incomes. We consider that that in itself is sufficient justification for choosing flour as one of the commodities to be subsidised.
I conclude by referring to the lapse in the statutory powers for the payment of the tea subsidy to which the hon. Member for Gloucester referred. As I explained to the House on a previous occasion when the tea order was being debated, there was an unfortunate misunderstanding in my Department about the method of calculating the period within which the order had to be approved by Parliament. As soon as the mistake was drawn to our attention by officials of the House, all further payments under the scheme were stopped.
The consideration in our minds at that time was whether it would be appropriate to cancel the payments made on that date. Only one day was affected. We took the view that it would have been unfair to innocent claimants of the subsidy to do that. There is no question of the payments being illegal. Payments, as I explained on the earlier occasion, can be and, indeed, frequently are quite properly made on an ex-gratia or extra-statutory basis in circumstances where statutory authority is not immediately available.
§ Mr. Maclennan
I will develop this point and then welcome an intervention 1838 by the hon. Lady if she is still in doubt about the position.
Expenditure on food subsidies up to a total of £700 million was provided for by Parliament in the Price Act 1974. The payments were clearly within the spirit and intention of the enabling legislation. The fact is that there was a minor—I emphasise "minor"—technical error. I cannot accept, as the hon. Lady asserts, that this is a matter of great constitutional importance or that legislation should be promoted to remedy the defect.
Certain hon. Members have asked, as did the hon. Lady, about precedents for this kind of action. There are a number, as I said in the debate on the order. If hon. Members care to look at any edition of the Appropriation Accounts, they will see that ex-gratia or extra-statutory payments are by no means unusual.
I do not want to weary the House on this matter at length, but, because I have been asked for a precedent, I will give one of several that I could give. In 1959, under a Conservative Government, a problem arose under the Marginal Agricultural Production (Scotland) (No. 2) Scheme. Offers of grants were made after the scheme had lapsed and before a new one had come into operation. The offers were technically invalid but it was recognised that it would have been unjust to deprive the payees of payment, and the position was covered extra-statutorily.
In those cases in which provision has been made, public faith has been pledged and innocent third parties will have been prejudiced if payments are withdrawn or cancelled as a result of a temporary defect in the statutory powers. It is the duty of the House to maintain close control of public expenditure but this control is in no way weakened by the reasonable exercise of discretion in particular cases.
This has been a useful debate which has allowed me to clarify the Government's position about continuation of the subsidy programme. Perhaps not all the many questions have been answered, but I hope I have answered the major ones.
§ Mrs. Sally Oppenheim
Is the legislation to which the Minister referred, in order to make adjustments to the subsidies, in reply to the question of my hon. Friend the Member for Mid-Oxon (Mr. Hurd) relating to the machinery which will be used for phasing out subsidies?