§ The Secretary of State for Prices and Consumer Protection (Mrs. Shirley Williams)
As the House is aware, I have been concerned since my appointment to take action to reduce the rate of inflation. To this end, I have introduced subsidies on certain foodstuffs. The cuts that have been made in retailers' gross margin reference levels—which will in practice mean considerably greater falls in their net profits—are exerting considerable pressure on prices, both of food and other household goods.
The Prices Bill, which is currently before the House, includes powers which would enable me to regulate the prices of food and other items which are of particular significance in the household budgets of those with low incomes. It will be necessary to use these powers in some areas—in particular, setting maximum retail selling prices for subsidised foods. Beyond this obvious purpose, however, I have made it clear that I would prefer not to have to make widespread use of these statutory powers, provided that my objectives could be achieved by voluntary means.
I have explored with the Retail Consortium and other representative bodies the possibility of achieving my objectives by building on such existing trade practices as lower than average margins on frequently purchased items, and special promotions. Without radical change in the conditions under which they trade, retailers with a turnover of £250,000 or above who are required to reduce their gross margin reference level by 10 per cent. will now concentrate that reduction on a list of basic items agreed between us. I am circulating this list in the 1616 OFFICIAL REPORT. I have also asked them to extend their reductions by concentrating promotional cuts as far as possible on this agreed list, and by further adjusting margins between these basic items and some other goods.
The Retail Consortium, which represents a substantial majority of the retail trade, has agreed to recommend my proposition to its members. The voluntary groups have also put proposals to me designed to meet my objectives, and I am grateful for their initiative. The special position of the small trader was recognised in the exemption of those with a turnover of less than £250,000 from the 10 per cent. cut in the gross margin reference level, and so the scope for making reductions is less. But I have the assurance of bodies representing them that they will ask their members to make reductions on this list, though they will not be able to include them all.
It is only fair to add that it has been represented to me very strongly that the 10 per cent. cut, coupled with increasing costs, is biting very deeply into the net margins of retailers, to the extent that in some cases their net margins are already 25 per cent. below the reference level. This was the safety net for net margins which I had agreed with the Retail Consortium and which retailers are entitled to take into account in their response to the scheme. Nevertheless, it is agreed that the scheme should run until the end of March 1975—which is the currency of the powers in Clause 2 of the Prices Bill—subject to earlier review if special circumstances arise.
I would like to pay tribute to the retail trade for its co-operation at a particularly difficult time. It does mean the sacrifice of some flexibility in its operations, and it understandably feels this to be commercially disadvantageous. Its response to my initiative is thus a measure of its concern to play a part in the battle against inflation. I have informed the retail trade that, as long as this agreement is working satisfactorily, it will not be my intention to operate the powers of Clause 2 of the Prices Bill, except in relation to subsidised foodstuffs, since the objectives of this clause will have been met by the agreement instead.
Food manufacturers have indicated their general support for this scheme. In 1617 the case of many manufactured foodstuffs, it is the manufacturers who largely determine the level and extent of promotional activity, and they have undertaken, as far as possible, to concentrate this on basic items in the household budget. I am circulating this promotional list also in the OFFICIAL REPORT. I appreciate their co-operation.
I believe this voluntary agreement will make a low-budget shopping basket of basic goods more widely available. This should help in particular pensioners and other low-income families for whom inflation is an especially severe scourge.
§ Mr. Channon
Is the right hon. Lady aware that all right hon. and hon. Members will welcome any sensible agreement which does something to help solve the problem of inflation but that what she has put before the House today verges on the ridiculous? How can she say, for example, that she has been concerned since her appointment to take action to reduce the rate of inflation when she and her Government have presided over the greatest increase in the retail price index known since the taking of records began, nearly all of which is due directly to the actions announced in the Budget? It is pure hypocrisy for the right hon. Lady to pretend that the Government have been concerned to try to reduce the rate of inflation.
Will the right hon. Lady admit to the House, as she has told the Standing Committee on the Prices Bill, that what she has proposed this afternoon will have no effect whatsoever on the retail price index or on the general level of prices? Is it not a fact that some prices will be kept steady and that the prices of equally basic commodities will have to go up to compensate for it? Is it not a fact that many firms which are already promoting all the items in the right hon. Lady's list will continue to do what they have been doing for the past few months and that what she has announced will have no effect on the price of food or of other goods in the shops? Is it not also a fact that many firms whose profit margins are at, or nearly at, the level of the safety net which she has given them will soon be asking for increased prices?
If the right hon. Lady pretends that the package which she has announced today will bring down prices, all she is engaged 1618 on is a cynical political charade designed to fool the British people in the short term without having any regard to the long-term consequences.
§ Mrs. Williams
I find the hon. Gentleman's remarks extraordinary, because his predecessor, the right hon. and learned Member for Surrey, East (Sir G. Howe) sought to achieve the kind of voluntary agreement which I have put before the House, and said on 17th October 1973:We have, in fact, investigated the possibility of it"—he was referring to a voluntary agreement—but we have not been able to secure sufficient agreement upon the scope and scale of that scheme to make it practicable"—[OFFICIAL REPORT, 17th October 1973; Vol. 861, c. 331.]Therefore, what I have announced today does exactly what the right hon. and learned Gentleman sincerely sought to do. The only difference is that he was not given by his colleagues the legislative support which my colleagues have given me.
I am making no claims that this voluntary agreement will reduce the retail price index. I am making the simple claim that it will assist the most hard-pressed families because we have asked for the promotions to be concentrated on the least expensive and most essential goods in the shopping basket. I make no claim beyond that. The purpose of the voluntary agreement—and the trade bears this out—is to attempt to hold down the prices of most essential foodstuffs. That is all I am claiming for it, and no more.
I say firmly in response to the hon. Gentleman's remarks that every month since the Government have been in office the rate of increase in the food index has fallen. It was 20.1 year on year in January, 19.1 year on year in February, 18.1 year on year in March and 17.8 year on year in April. We believe that this process will continue. Although I make no great claims to the House—and never have—about the effect that any Government can have on inflation, the facts indicate that the rate of increase in the food index is slowing down, and this is not unrelated to the actions that the Government have taken.
Finally, yes, the Budget did affect the April retail price index. Yes, one of the features of that increase in the retail price 1619 index was VAT and to some extent one nationalised industry's price. But my right hon. Friend the Chancellor of the Exchequer made absolutely clear in his Budget Statement that steps had to be taken to put right the effects of some of the financial policies pursued by the previous administration, and the Budget and VAT were part of the painful process of correcting them.
§ Mr. Faulds
Is it in order, Mr. Speaker, on this subject to spell out to the official Opposition spokesman the simple word c-o-b-b-l-e-r-s?
§ Mrs. Sally Oppenheim
Is the right hon. Lady aware that when I inquired in a well-known chain store whether it would have any difficulty in operating the voluntary code, it was pointed out to me that the store had already been offering 44 typical shopping basket items at reduced prices for the last three weeks and that it would have no difficulty in replacing those items by the right hon. Lady's 14 items? If all she can do for the housewife is to reduce the number of items on offer, would it not be better if she did nothing at all?
§ Mrs. Williams
No, I do not think so. I regard any action that can be taken to modify the effect of inflation on the less well off as a crucial obligation on the Government. I am reporting what the trade itself is saying, in particular the voluntary groups, who regard their willingness to continue with the agreement until March 1975 as being, to use their own phrase, "a contribution towards the battle against inflation". That is not my phrase; it is the phrase used by the trade.
§ Mr. Madden
In view of the profits of large supermarket chains, particularly those reported yesterday of nearly £40 million made by Fine Fare, does my hon. Friend agree that these arrangements are long overdue? Will she tell us what arrangements she is making to monitor the agreement?
§ Mrs. Williams
My hon. Friend will be aware that there is now a 10 per cent. cut in gross reference margins across the board on profits. In terms of net profits 1620 the effect can often be considerably greater for individual firms.
In reply to the second part of the supplementary question, the agreement is a voluntary one, and that is why it can come into effect almost immediately. I am relying on the promise that the trade has made to me that the great bulk of the trade will honour the agreement. I shall of course also expect shoppers to make sure when they do their shopping that the agreement is carried out.
§ Mr. Hooson
Will the right hon. Lady accept that at least those who take a more objective view appreciate that she is not pretending that she can cut prices at a stroke? In view of the outburst by the hon. Member for Southend, West (Mr. Channon), is the right hon. Lady surprised that the official Opposition did not vote against the Prices Bill but abstained? According to her statement she intends to introduce statutory maximum retail prices for subsidised foods. Is not that the start of retail price maintenance once again?
§ Mrs. Williams
The Opposition constantly attack with words but not with votes what I am trying to do on prices. If they meant what they said I would expect them to vote against the Bill, and I am suspicious of their reasons for not doing so.
We do not wish the maximum price to be the only price listed in the shop. We seek to indicate the price range, the upper end of which is the maximum price. We want shops to continue to sell well below the maximum price, as many of them are able to do.
§ Mr. Arthur Lewis
Does the Minister remember the statement made by the former Minister of Agriculture, Fisheries and Food, the right hon. Member for Lowestoft (Mr. Prior), and will she assure us that while she holds office she will not suggest to the housewives that if they cannot afford cod they should shop around and buy cheap caviar?
§ Mrs. Williams
I seem to remember some remarks that were made by the right hon. Gentleman on this subject—
§ Mrs. Williams
—but not those precise words. I have referred to the right hon. 1621 Gentleman as the Marie Antoinette of the Conservative Party, but he has also used abusive terms of me.
§ Mr. Cormack
Will the right hon. Lady accept that the people will naturally hope that this agreement will work out, but, if a voluntary agreement is good enough on the wages front, why does she need to have compulsory legislative powers on the prices front?
§ Mrs. Williams
The hon. Gentleman will recall that I try to learn from my predecessors. I have considerable respect for my predecessor, and I drew the conclusion that a voluntary agreement might be a little easier to achieve if there were some indication by the Government of their intention to bring it about. That intention in certain cases can be expressed only through legislation.
§ Mr. Arthur Davidson
Will my right hon. Friend say what items will be cut and, if the worst happens, what legislative powers she will take?
§ Mrs. Williams
The list of the promotional items suggested by the manufacturers and the list of permanent reduced margins agreed to by the Retail Consortium will be circulated in the OFFICIAL REPORT, and I am making copies available to the House this afternoon as soon as my statement is completed.
I should make clear again that the agreement will hold as long as it works, but that the powers in Clause 2 of the Prices Bill, if they are approved by the House and the other place, will be in operation should that agreement fail.
§ Mr. Silvester
What estimate has the right hon. Lady made of the number and value of promotions which will be available as a result of the agreement which would not have been available before?
§ Mrs. Williams
The hon. Gentleman's question perhaps displays a misunderstanding of the purpose of the voluntary agreement. Its purpose is to concentrate the promotional budget on those items which are regarded as essential necessities of life rather than to spread it across a wide range of retail items some of which are of a luxury or semi-luxury type. I want to make no claims that cannot be substantiated. I am not saying that the promotional budget itself will be increased above what it normally is.
§ Mr. Gwilym Roberts
Will my right hon. Friend accept that there is a genuine welcome for the agreement on the Government benches, and that we find the begrudging attitude of the Opposition extremely mean? Will she take this opportunity to assure the House that if there is any shilly-shallying either by retailers or by manufacturers she will not hesitate to use her powers under Clause 2 to control the prices concerned?
§ Mrs. Williams
I can only repeat to my hon. Friend what I have already said. The currency of the agreement, which is intended to last until March 1975, is the same as the currency of the Bill. That is because it is seen by me to be an alternative to the Bill but not necessarily a replacement of it.
§ Mr. Sainsbury
I declare an interest in this subject, an interest of which hon. Members on both sides of the House will be aware. Is the right hon. Lady aware that the term "promotional budget" is not one which is normally used by retailers, but is used by manufacturers and distributors? Therefore, to talk about a concentration of promotional budgets and special offers is not meaningful in the context of retailers. Is she further aware that to a large extent it would be normal practice for retailers to concentrate their special offers in those areas with the highest sales? It would be strange to make a special offer on something which had a small potential sale. Therefore, to a large extent she is asking retailers only to continue to do what they normally do. Is she further aware that by requiring special offers to be restricted to a given range she runs the risk of breaking down the connection between supply and demand, leading to the possibility of shortages and of goods disappearing from shelves? Was this not the reason why my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), when he was responsible for prices, did not proceed with this proposal when he look into its implications?
§ Mrs. Williams
I can understand why the hon. Gentleman did not hear clearly what I said, because there was a good deal of uproar at the time in the House. If he had heard what I said, he would have heard me clearly distinguish between the list of manufacturers' promotional items—the second list which is 1623 to be published in the OFFICIAL REPORT—and the list of items which retailers will have on continuous offer. The hon. Gentleman's point is borne out by my statement. The promotional budget refers to the list which manufacturers have submitted and not to a list submitted by retailers.
On the second part of the question, there are hazards in anything one does, but there are greater hazards in doing nothing in a situation of rapid inflation in terms of food prices. I welcome the willingness in the trade to endeavor to do something which it agrees is difficult. I am sure the hon. Gentleman will recognise that it has not been easy to get this voluntary agreement. There are difficulties but, in my judgment, this exercise is worth undertaking because the goal is a considerable one.
§ Mr. Bruce-Gardyne
On a point of order, Mr. Speaker. You will have heard the right hon. Lady say a moment ago that she was proposing to make available to hon. Members the items which feature in her shopping basket. Is it not difficult for hon. Members to proceed to the next business relating to the Prices Bill unless they have copies of the complete statement—a statement which was fairly detailed, even if its substance was less than its length?
§ Mrs. Williams
I hope, Mr. Speaker, that I shall be able to help the House on this matter. I was referring to copies of the complete statement. I do not think even the hon. Member for South Angus (Mr. Bruce-Gardyne) would expect that statement to be available before it was made to the House.
§ Mr. Silvester
On a point of order, Mr. Speaker. I have just been to the Vote Office and I must tell the House that copies of the statement promised by the right hon. Lady are not yet available. Could we have some clarification on this point?
§ Mrs. Williams
I am sure that the copies of the statement will be available within a matter of minutes.
§ Mr. Ridley
Further to that point of order, Mr. Speaker. Could we not adjourn the House until these papers are 1624 available? Since it is said that they will be available within a few minutes, is it not wrong to proceed with business until they are available?
§ Following is the information:
§ Items Retailers will have on continuous offer
§ Bread—Standard 14oz. and 28oz. white and brown wrapped.
§ Cheese—A low priced hard cheese.
§ Butter—Blended or other low priced butter.
§ Baby milk—Powdered.
§ Flour—White self-raising and plain, all brands.
§ Apples, Bananas, Oranges—One line.
§ Potatoes (main crop)—or One basic vegetable.
§ Beef—One cut.
§ Lamb (one cut)—or One weight range of chicken (up to 41bs.); or chicken portions.
§ Biscuits—One line of sweet, lower priced.
§ Electric bulbs—One standard line.
§ Matches—One line.
§ Toilet soap—One line.
§ Toothpaste and denture powder—Popular size, one line.
§ List of Items on which Manufacturers will concentrate their promotional activity
§ Sausages (standard lines).
§ Cooking oil, cooking fat and lard.
§ Tea (cheaper lines).
§ Breakfast cereals (standard lines).
§ Fish fingers.
§ Frozen vegetables.
§ Instant coffee.
§ Baby/infant foods (packets, tins and jars).
§ Baked beans.
§ Soups (canned).