§ 9.11 p.m.
The Minister of State, Department of Prices and Consumer Protection (Mr. Alan Williams)
I beg to move,That the Counter-Inflation (Price Code) (Amendment) Order 1976 (S.I., 1976, No. 71), a copy of which was laid before this House on 22nd January, be approved.We have two matters to debate which are incorporated in the substantive Order. The order deals with the Price Code investment relief and with certain aspects of the selective price restraint scheme.
I am glad to see here the Chairman of the Joint Committee on Statutory Instruments. He and I seem to spend a lot of time together. I commend him on the long hours he spends in the House, as he was in Standing Committee with me this morning. The Joint Committee on Statutory Instruments has rightly drawn the Order to the attention of the House, and I look forward to hearing the right hon. Gentleman's comments.
It will be helpful if I outline the purpose and effect of the Order and consider some of the comments made by the Committee. The provisions for a selective price restraint scheme were foreshadowed in July; this is not a new gimmick. The White Paper "The Attack on Inflation" states, in paragraph 33, thatCertain goods are of special importance in family expenditure.… Once it is clear that the pay limit is being effectively observed, the Government intend to ensure that the rate of price increase for a range of these goods will be held to about 10 per cent.That is, 10 per cent, a year, or 5 per cent. over six months, for the goods covered by the scheme.
From previous debates hon. Members will be aware that it takes between six and nine months for any cost change, be it advantageous or disadvantageous, to work through. That explains why we are seeing now the price reflection of the pay package that was worked out during last year.
Sir Campbell Adamson, of the CBI, has made clear that industry has been able to participate in the price restraint programme only because of changes in raw material costs and because it is clear that the unions are observing the £6 limit. Industry is thus able to predict its costs six months ahead and to give meaningful 1401 assurances. The package is, in a sense, the outcome of the success of the pay side of the counter-inflation policy.
On 27th January, my right hon. Friend the Secretary of State told the House of her successful discussions, and we had some interesting, if lively, exchanges. The hon. Member for Gloucester (Mrs. Oppenheim) managed to make her question nearly as long as the Secretary of State's statement. I do not begrudge her that. To be honest, I just envy her, because she was able to get away with it.
Last week my right hon. Friend gave details of the goods and the services covered. The House is very familiar with the fact that the aim of the scheme is to hold price increases over a range of goods to 5 per cent. over six months, from February to July, and that this will cover 15 per cent. to 20 per cent. of consumer spending and about 30 per cent. of nationalised industry spending by consumers.
It is a voluntary scheme, like the £6 pay scheme. I put it to the House that this is not a weakness; if anything, it is a strengthening of the scheme. Both major parties have discovered how difficult it is to have a statutory scheme that is being challenged continually. Therefore, in a democracy—if this is what democracy is about, and it is—if one can get a meaningful scheme, essentially this is the sort of consensus and the winning of participation by the people involved in our policies which demonstrates public support for the Government's objectives.
I am not suggesting that it is support for any particular party. However, the fact that one can arrive at a voluntary agreement on the pay side—which has been observed so far—and that one can also get voluntary agreement on the commercial side is a very creditable achievement in all the circumstances.
The Order in no way affects this voluntariness; indeed, if anything, it is intended to ensure that others who would wish to take part are able to do so, if by some marginal cross-subsidisation they now feel able to give commitments on certain of their goods. The Price Commission's Report for the third quarter of last year, with which hon. Members are familiar, indicated that some manufacturers' profit margins—hon. Members on both sides of the House have drawn attention to this— 1402 are at their lowest level since the Code was introduced. Therefore, the Order permits cross-subsidisation at a manufacturing and service level, where it was not permitted previously—with slight exception. I must apologise to the House. My memory is being served to me on pieces of paper alongside me. The Order allows cross-subsidisation, and where this is required the Secretary of State is to give a certificate. This is the point at which the Joint Committee becomes involved. I shall develop that a little later.
Incidentally, I apologise for the fact that my right hon. Friend is not present this evening. It is not, as Opposition Members may suspect, because she is busy signing all the certificates. It is because, as the hon. Member for Gloucester is aware, she is attending another function, which is important in terms of Government business and is going on fairly late. I am afraid that there was a degree of optimism as to the time at which we might be starting our proceedings.
The Secretary of State would give a certificate that would enable a firm to recoup any losses on goods which it contributes into the scheme from other lines, which without this certificate would be unrecoverable. The Price Commission will be giving guidance on this, because as yet industry is not fully aware how it will operate.
I understand that about 8,000 data sheets are likely to be distributed by the Price Commission. Those go automatically, I believe, to Category 1 and Category 2 firms and will be available on demand for smaller firms at the Price Commission's various offices. We shall also publish a list of certificates that are issued, so that hon. Members on both sides of the House will be able to see exactly what we are doing.
The Joint Committee on Statutory Instruments has drawn attention to paragraph 137(1) of the Code, which allows the identification of goods for which cross-subsidisation would be permitted by means of a certificate from the Secretary of State. If I read the Joint Committee's observations correctly, what it is saying is not that the Secretary of State has no power to do this but that it is somewhat surprised at the way in which the power has been used. Implicit 1403 in its comment, I think, is the thought that perhaps the full list should be written into the Code rather than allowing discretion, which must appear initially to be wide discretion, to the Secretary of State. I fully understand that concern and appreciate that Members of Parliament want to be sure that this is not an unlimited discretion. I hope to be able to allay any fears on that matter.
The House knows from previous debates on the Code that one problem is that it can be too rigid. That criticism has been made at various stages by almost everyone who has taken part in debates on the Code. On occasion we reach a situation in which flexibility is required in the nature of the policy being pursued and in which different rules may be required for different circumstances. We cannot always cover all contingencies by a form of words. The more tightly we draw the form of words, the more likely we are to exclude contingencies which both major parties want to cover. Therefore, it seems apropriate that sometimes special rules, when required, should be triggered by someone who is responsible and answerable to this House. Therefore, the Secretary of State can trigger these special conditions by the use of certificates.
I should immediately say that is not a precedent. Many hon. Members present are old campaigners on the Code. It is with some diffidence that I venture into this maze. However, the House will be aware that two certification procedures have already been approved to deal with special cases.
In January last year the House approved a special price rise regime to deal with possible or actual serious shortages. If I remember correctly, the Opposition welcomed that being done and saw the need for it. Indeed, they pressed for some such action in the period prior to the amendment's being brought in.
In June last year a similar certification process was introduced to guard against damage or a threat of damage to the balance of payments. I remember various questions being asked about this matter in the lead-up to this change. It is not a precedent; it had been done twice before, because the House recognised that there were situations in which flexi- 1404 bility was required. This proposal is in accord with that precedent.
Certification was needed in this instance because the Order had to be prepared and laid prior to the completion of negotiations. Hon. Members will be aware that the negotiations went on literally up to the last minute. Therefore, it was impossible to spell out in exhaustive detail in the Order any form of words which would not limit our capacity to accommodate people in the late stage of negotiations. It has the advantage of allowing desirable flexibility in the event of other firms indicating that they wish to come into the scheme on this basis part way through its operation. I am not anticipating a queue of firms offering to do that.
This is not a hole-in-the-corner operation. It is not being done furtively and out of the public eye. The certificates are notified to the Price Commission and to trade associations. Full details will be published in the Edinburgh, London and Belfast Gazettes and in Trade and Industry. We are trying to make this operation as open as possible, consistent with administrative efficiency.
This power will not be dictatorial. Hon. Members who have studied paragraph 137 will know that it can be applied only in circumstances in which a substantial number of firms—it cannot be applied arbitrarily to individual firms—can restrain prices in accordance with the policy outlined in the White Paper and where the products or services are, in the words of the paragraph,of special importance in family expenditure".There are tight limits on the freedom of the Secretary of State to give these certificates. When she has given them, the House and industry will know about them. I hope that that explanation goes some way to satisfying the Joint Committee.
I turn now to the other half of the proposal in the Order—the extension of investment relief. The House will recall that this Government made the first meaningful concessions on investment relief. Until we made our changes, there had been constant and legitimate complaints from industry that the Code was curbing investment. We made concessions not only because they would help the survival and growth of firms but also because they would help the saving of jobs at a 1405 time when unemployment was already causing enough difficulty.
As veterans of the Code campaign will recognise, paragraph 79 of the Order is basically all existing provisions plus existing amendments rewritten. It is substantially a tidying-up operation of which the right hon. Member for Crosby (Mr. Page) and his Committee should be in favour in view of the legitimate lecture he gave me this morning in Committee on the wording of one of the Orders. We hope that paragraph 79 is a gesture to that clarity and understanding which the right hon. Gentleman sought this morning. As he is smiling, Ihop that his benevolence will continue when he intervenes.
Paragraph 79A is new. When we reached stage 4 of the Code at the end of 1974 it was envisaged that the Code would probably end in March this year. Therefore, the investment relief at that stage was given as a one-off operation—a 12-month investment programme and a 12-month investment relief programme—but where the 12-month relief finished before the end of March, there were provisions for firms to run on with their existing price levels. At the time we indicated our willingness to accommodate this point, and industry, quite rightly, made it clear that there must be continuity if we talk in terms of meaningful investment because it is unlikely that new investment would be a one-year operation and there would have to be an assurance that any relief would continue into the future.
As the House will be aware, the Government took powers in the Remuneration, Charges and Grants Act to extend the Counter-Inflation Act to the end of July this year. That was completely consistent with the counter-inflation wage package proposals. I understand that an Order-in-Council has been made today to give effect to that. It is a Treasury Order rather than one from my Department. Therefore, we need a bridge to accommodate the commitment of continuity of investment from March to the end of July. It would be the same sort of bridge as a 12-month investment relief commitment which ended before the end of March, under which we allowed the relief to run on.
We offer two options. We are trying to be as fair as possible to industry. 1406 Industry can, if it wishes, continue as it is at present until 31st July. We assume that it will weigh the advantages between that and the alternative course, which is to submit a new claim—which it would do if it believed that that would raise more finance—based on the second year's programme. It is the purpose of paragraph 79A to provide that bridge. It has been welcomed by industry, and we are pleased to note that until now the rate of uptake on the existing investment incentive has been substantial. We hope that this will make it easier for industry to think ahead. I appreciate that there will be some uncertainty until it knows what will happen after July.
When we judge Orders which deal with the Price Code and the price check scheme we must be aware of the background of inflation prevailing at the time. I am sure that the House is encouraged by the fact that the annual rate of rise of the Retail Price Index has declined for the fifth consecutive month and that January saw the largest fall since 1962.
With respect to the hon. Lady who is muttering away, we are hardly responsible for what happens to potatoes when they are in soaking wet ground. The food index, less seasonal foodstuffs, has shown its eighth successive six-monthly figure fall. The wholesale price index, year on year, continues to fall. In January, the year-on-year figure was 18 per cent., whereas a year ago it was over 28 per cent.
This is the time for us to maintain our determination, and the price check scheme is helpful in this respect. It ensures that the benefit from the lower pay demand effect from the TUC package is passed on to the consumer and that the consumer can see that it has been passed on. It is important in real terms to those who have already settled to see that there have been benefits from their settlement. It is important to those about to settle that they should see that earlier settlements have helped to achieve the targets that both sides of industry want.
Although it is important to break into the mechanics of inflation, it is equally important to break into the psychology of inflation. We hope that the price cheek operation, by bringing home clearly 1407 to people the benefits of the counter-inflation policy so far, will help to break the psychological inflationary spiral.
§ Mr. Norman Lamont (Kingston upon Thames)
Is the object of the price check scheme actually to reduce prices or is it simply to demonstrate to people that price increases are becoming smaller?
We would not need the cross-subsidisation proposals if it were not going to help to keep prices down and we should not have needed the first part of the Order. It is important also that industry and the public should know that we are now getting a substantial island of price stability. I would not write this off as an insignificant achievement. I am sure that the hon. Member for Kingston-upon-Thames (Mr. Lamont), with his knowledge of the psychology of inflation, will appreciate the importance of the public realising that it is now possible for us to break the inflationary trend in which we have been trapped for too long.
I hope that the Opposition will realise that they cannot on the one hand condemn the price check sheme as cosmetic, as they no doubt will—they certainly have done so far—and on the other hand complain that it has an adverse impact on profit margins. It is difficult to proclaim that it is doing both.
It is hard to reconcile the attempts of the Opposition, judging from their comments which have been published, to trivialise the importance of the campaign with the genuine commitment which we have received from the CBI and the Retail Consortium. Negotiations would not have been so prolonged and difficult if the operation had been meaningless. I urge them to bear in mind that it is counter-productive to slap the CBI and the Retail Consortium in the face with their comments when these organisations are trying to co-operate in the brake into inflation.
On "The World at One" on 11th February, Mr. John Sainsbury—a name which is not unfamiliar to this House—the joint president of a firm of a somewhat similar name, said:I am optimistic that the rate of inflation is declining. Anything that we can do that encourages people to recognise this and that we are trying to unite behind the battle 1408 against inflation is a good thing and I support it.I agree with him.
I would remind the Opposition that they cannot be opposed to the scheme in principle. The hon. Member for Gloucester may chortle away there, but I would draw her attention to the fact that the Shadow Chancellor, her right hon. Friend the Member for Surrey, East (Sir G. Howe), has dirtied his hands in the past, as I gather she would see it, by trying a similar operation. The right hon. Gentleman, when in office said:It has been suggested…that we should contemplate the possibility of an agreement to hold stable the price of certain items in the housewives' shopping baskets for a limited period of time…We have, in fact, investigated the possibility of it, 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.]So, far from being against it in principle, the Tory Party when in government tried to achieve a similar scheme. The Tories tried and they failed. Now they are overcome with bitterness because someone else has succeeded.
The Tories may say that it was worth trying when they tried because margins were high.
I thought it was. So the hon. Lady is arguing that it was worth while trying at that time because the margins were high. However, it says little for the persuasive power of the Shadow Chancellor if he failed at a time when industry could afford it yet my right hon. Friend the Secretary of State has succeeded at the very time when, perhaps, industry can least afford it. That argument comes badly from the Opposition.
Indeed, over the past two years the Opposition—particularly the Opposition Front Bench, which has had a number of tenants, whose transience has been notable—have complained consistently at every move made by the Government to defeat inflation. The Opposition opposed food 1409 subsidies. We had a last-moment, death-bed repentance, just before the election, and the Opposition fell back into their "good old ways" immediately afterwards. They opposed the voluntary agreement on prices and the £6-a-week restriction on income rises.
Now the Opposition oppose the Price Check scheme. They oppose it on fundamental points, by contending that we are wasting 1p a head on advertising so that the public know about the scheme and that we are wasting £1 per shop to make available the display advertising that we are providing. This is the sort of extravagance that the Opposition object to, but it has nothing to do with the basic substance of the scheme.
The Opposition have howled at nationalised industry price increases. At the same time they howl for nationalised industry viability, conveniently ignoring along the route that if we had not had the Tory deficits on the nationalised industries the climb back to viability would not have been as steep and as unpleasant.
The Opposition are furious that the Government will attain their price targets. I urge the hon. Lady to recognise the importance to all parties of our defeating inflation.
§ Mrs. Sally Oppenheim
The hon. Gentleman is treating the House to some sanctimonious humbug. Will he acknowledge that when the Labour Party was in opposition it did everything in its power to encourage those with bargaining power to break and to destroy our counter-inflation policy? If it had not done so, we would not have the rates of inflation that we now have.
The hon. Lady's memory is vague. Speaking from that same Bench, members of the Labour Opposition did their best to offset the inflationary impact of the Tory Government's VAT proposals by keeping an eye on the way certain traders effected the changeover to VAT, thus doing the Tory Government's job for them in that respect.
The hon. Lady gets very het-up about these matters. It is possible to argue cases without getting het-up. We are dealing with two of the most important 1410 and urgent problems facing the country. The electorate will not forgive the Opposition if they trivialise the issue, as to some extent the hon. Lady did in her supplementary question when the statement on this scheme was made.
I hope that tonight we shall hear a statement of policy and some thinking from the hon. Lady. I hope that we shall not have the usual nit-picker's orgy to which she treats us every time she participates in our debates. I hope that, for once, the Opposition will rise to the occasion.
§ 9.39 p.m.
§ Mrs. Sally Oppenheim (Gloucester)
I shall try to lower the temperature of the debate after the provocative contribution of the Minister of State.
I start by expressing regret at the fact that the Secretary of State is not present. She has explained the reason for her absence, but this is the third occasion on which she has been prevented from being in the House. The first was at Question Time. The second was when she arrived rather late for a debate on the Gracious Speech. On this occasion she is absent, again due to an outside engagement. We understand that there are outside engagements which cannot be changed, but after all it is the Government and not the Opposition who arrange the business of the House. If there were a pressing engagement they might have arranged the business differently. It is not as if the right hon. Lady has a great deal of work to do on the Floor of the House.
Mr. Alan Williams
The hon. Lady is fully aware that the Question Time which my right hon. Friend missed was the first that she has missed in two years of Government. That is a commendable record for any Minister. The hon. Lady will equally bear in mind that it is a normal convention within the House for Orders to be dealt with by Ministers of State, and very often by Under-Secretaries of State. There is nothing unusual about what is happening this evening. Further, I should have thought that the explanation given by my right hon. Friend would have satisfied the hon. Lady. I am afraid that her opening comments lead me to suspect that the rest of her contribution will be as superficial as usual.
§ Mrs. Oppenheim
I am criticising the Government's business managers for not 1411 arranging things so that the Secretary of State could be present on this occasion. We believe that this is an important debate. There are a number of questions that we want answered and we should have liked them answered by the Secretary of State.
The Minister of State in his introductory remarks and throughout his contribution, and the right hon. Lady in launching her selective price restraint scheme, have made a great deal of the fact that the rate of inflation is now slowing down. However, I hope that they will not overlook that although the rate of inflation may be slowing down, prices are still increasing. The year-on-year rate of inflation is still a horrific 23 per cent., only slightly less than the appalling near 27 per cent. of last year.
Probably even more people are suffering hardship now than they were during the peak of inflation as a result of mounting unemployment, short-time working and declining living standards. Hardship is suffered by a great many people because of the excesses of a few and the negligence of the Government. Nowhere was that more clearly illustrated than in a statement from Age Concern in the Sunday Telegraph this weekend, which demonstrated that married and single pensions are now of less value than before the Government took office because of the rise that has taken place in the Retail Price Index. It will take a good a deal more than a rash of little red triangles to convince people that things are getting better or that they herald some great and significant achievement.
Perhaps the part of the Order relating to the selective price restraint scheme is best described as the neutralising factor, the means whereby certain prices can rise to compensate in some cases and in certain circumstances for those prices which have not risen by more than 5 per cent. under the scheme. That is a feature of the scheme which, curiously enough, the right hon. Lady did not find it necessary to mention in her official Press hand-out on 11th February when the scheme was launched. That is why the relief of cross-subsidisation has had to be given.
The other reliefs that are given in the Order have been given in conjunction with the selective price restraint scheme. That is because, as the hon. Gentleman has 1412 acknowledged, profit margins have been eroded at a serious rate over the past two years. As he has rightly said, they are now standing at their lowest recorded level, having fallen on average by about 40 per cent. This is a matter of great concern when we have regard to the damaging effect on investment and employment. The Government have driven themselves into an impossible corner in pursuing price control.
It is ridiculous for the Chancellor to bellow at industry and commerce to invest and create employment when the Secretary of State for Prices and Consumer Protection is preventing them from doing so because of the continued operation of the Price Code in its present form. When the right hon. Lady started introducing investment relief in December 1974 we were told that she had done what was necessary to preserve investment and employment. On 2nd December 1974 she said:…although we are willing to go a considerable way towards trying to guarantee employment and investment in so far as we are able over the coming couple of years, I believe that we have struck a difficult balance at about the right place."—[Official Report, 2nd December 1974; Vol. 882, c. 1153.]In that same debate the Minister of State made the position even clearer. He said:My right hon. Friend the Secretary of State made it clear today that her proposed amending of the Price Code was done with the primary object of safeguarding investment and jobs."—[Official Report, 2nd December 1974; Vol.. 882, c. 1195–96.]What has happened since then? According to the Department of Industry's estimates, the volume of investment in manufacturing industry in 1975 fell about 13 per cent. below the level of 1974, and a further fall of 5 per cent. to 8 per cent. is expected in 1976. If we look at net investment, after deducting capital consumption, the record is far worse. The real net investment of manufacturing industry is estimated to have fallen by 30 per cent. in 1975, according to the Economic Editor of The Sunday Times.
It is no good the right hon. Lady, or the Under-Secretary of State, in one of his new-style, ferociously declamatory winding-up speeches, shrugging off the problem of investment by repeating—as the right hon. Lady repeated in her speech 1413 last night—that the Price Code was introduced by the Conservative Government and that she has relaxed it on a number of occasions. The Schedule to the Order extends the existing investment reliefs because the Code itself is to be extended under the Remuneration, Charges and Grants Act.
It is true that the Price Codes was introduced by the Conservative Government, but against a very different background from the present situation. It is equally true that it has operated under the present Government against a background for nearly 18 months of no pay restraint whatever and for the last eight months against a background of severe recession.
The Minister of State boasted of reliefs and relaxations. The Secretary of State had tightened the Code in two significant ways in 1974 by establishing the three months' interval between price increases and by reducing by 10 per cent. the limit on distributors' gross profit margins. Let us have no more half truths from Ministers in the Department about their record. Let the House not underestimate the seriousness of the damage being caused by the operation of the Code in its present form.
The Minister of State referred to the beauty of the whole-hearted participation in the selective price restraint scheme. Let there be no misunderstanding that the right hon. Lady made commerce and industry an offer they could not refuse. She said that if they were not prepared to accept a selective or a voluntary programme, she would tighten the Price Code yet further. It would have been interesting to see what would have happened had they called her bluff. But it is true to say that the decision to participate was not embarked upon with unqualified enthusiasm throughout the retail trade.
I have a letter from a department store in which the correspondent wrote:I thought…you might care to know that there are many retailers who strongly object to the scheme—partly because we believe it to be a nonsense, and partly because we are utterly fed up with the spate of legislation which comes to us these days from so many Government Departments. The Retail Consortium has gone through the motions of supposedly supporting the scheme (our association, the Retail Distributors Association, representing all the department stores in the country, actually abstained) 1414 because we do not like to be accused of failing to be patriots, but many of us believe that on this particular issue we should have taken a firmer stand.
§ The Under-Secretary of State for Prices and Consumer Protection (Mr. Robert Maclennan)
For the sake of clarity, does the hon. Lady associate herself with those sentiments, and indeed does she agree with them—particularly the remarks by the Retail Consortium?
§ Mrs. Oppenheim
I am in no position to know about the inner workings of the Retail Consortium. I have a great deal of sympathy with the remarks made by the writer of that letter.
Mr. Alan Williams
It is a point of order, Mr. Deputy Speaker. The hon. Lady has quoted from an item of correspondence. We have no way of knowing who it is from or what is its origin. Are we allowed to ask the hon. Lady to indicate its source so that we can assess the merits of the comments, or ask for a copy of it to be made available to hon. Members?
§ Mrs. Oppenheim
I am not prepared to quote the name of the person who wrote the letter but I am prepared to send the Minister of State, on a confidential basis, a copy of it. My hon. Friends can also, on a confidential basis, have a copy of the letter, as can Hansard. However, I am not prepared to mention the name of the author of the letter in the House. In any case, the matter is academic because the right hon. Lady has now accepted that the Code, as the Minister of State has said, cannot continue to operate in its present form after the end of July.
As the Ministers in the right hon. Lady's Department have said on other occasions that the effect of removing it will add about 4 per cent. to the Retail Price Index—a figure, incidentally, which we do not accept and which I believe is not accepted by CBI—perhaps when 1415 the Under-Secretary concludes the debate he can tell us whether this means that the selective price restraint scheme is to be followed by a 4 per cent. rise in the Retail Price Index after July? That is an interesting point to which we should like to have a reply.
It is fair to say that the Order includes an extension of investment relief which is slightly, and only slightly, supplementary to that in existence by providing the new option which the Minister has put forward tonight. Apart from that, the main relief, to which I have already referred, constitutes the second of two—as I consider them to be—necessary safeguards to allow prices to be increased under the selective price restraint scheme.
The first safeguard is the escape clause in the voluntary agreement, which does not appear in this Order, whereby the price of items on the list may be raised if circumstances justify it. The second safeguard represented in the Order will, of course, allow price increases to be transferred to items not on the list but possibly of equal importance to poorer families. Indeed, no list whatsoever has been published of items sensitive to low income families on to which cross-subsidisation under this Order cannot take place.
Also, the method of calculation proposed for cross-subsidisation is both complicated and open to fairly wide interpretational differences, and not merely the excess over the 5 per cent. Any price increase entitlement on an item included in the scheme can, in fact, be transferred. There is no doubt that this was included, quite rightly, in order to avoid intensifying the distortion of demand and competition already inherent in the scheme.
I must congratulate the Minister and his right hon. Friend on the modesty of the low profile they have been able to assume in their statements on these reliefs, especially on 11th February when the scheme was launched. Also, as the Minister of State has made clear, the Joint Committee on Statutory Instruments was highly critical of the fact that although the Order refers to the selective price restraint scheme there is no official document in existence, and critical of the extent of the Secretary of State's power. 1416 Of course I accept what the Minister of State said that this is not unprecedented, but following a bad precedent is not necessarily a good thing. However, the inevitable consequences of attempting to link together a flexible voluntary agreement with a statute is to highlight just how much compromise and qualification has been necessary to secure agreement and to change the whole scheme since its inception.
As long ago as last October the Minister of State, in a widely reported speech, described the scheme as specifically designed to help low-income families—a feature notably missing from the right hon. Lady's statement launching the scheme on 11th February. He further claimed that the nationalised industries would be included. That claim has been substantiated only in a highly diluted form since it includes only gas, telecommunications and some postal rates. Indeed, it was not without irony as the Minister of State has already remarked, that on the day the scheme was announced the adjacent headline in most newspapers reported considerable increases in electricity and coal prices and rail fares during the period of the selective price restraint scheme.
The hon. Member spoke of the part that my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) played when in Government in trying to obtain a voluntary scheme. The Minister of State read a quotation from Hansard which I do not have, but I recall that the statement quite clearly indicated that the scheme was abandoned because it was found not to be practicable. That does mean not that my right hon. and learned Frend failed but that he found it impracticable to proceed in the circumstances.
Mr. Alan Williams
The right hon. and learned Gentleman said that he had not been able to secure sufficient accord on the scope and scale of the agreement. He made it clear that he could not secure an agreement, not that it was impracticable.
§ Mrs. Oppenheim
It was not a scheme like the one now before us. It was a much smaller scheme. It did not resemble, either, the ill-fated voluntary agreement by the Secretary of State which resulted in the biggest rise recorded in the price of the goods it covered in recent years. 1417 Perhaps, therefore, it was as well that my right hon. and learned Friend did not succeed in his negotiations.
Today we have heard about a staggering increase in rail fares—the fourth in 14 months. The Minister of State may claim that price restraint under the last Conservative Government is responsible for what is happening in the nationalised industries today. However, I remind him that that price restraint has been more than compensated for by repayments by this Government under various statutes. How much more helpful it would have been to consumers and everyone else if the Secretary of State had turned her attention from this jiggery-pokery to the degree of cost effectiveness in the nationalised industries and the effect any lack of it may have on price increases. The rail fare increase alone could almost neutralise any effects of the selective price restraint scheme, even if the scheme is entirely successful. No wonder the right hon. Lady's statement was more notable for its apologetic tone and its qualifications than for anything else.
At the Press conference to launch it, as I understand from an article in The Grocer, Lord Redmayne, representing the Retail Consortium, made it clear that no more could be done to hold back prices and margins beyond July. Does that mean that the floodgates will inevitably open on an unsuspecting public after the scheme ends? That is another ambiguity which has not been made clear. But this is not likely to happen, for a number of reasons which are totally unconnected with the scheme itself.
The Secretary of State will be disturbed at the number of price increases which took place on listed items just before the scheme started and which is indicated by the complaints I have had, if they are correct. In any case, whereas the scheme covers items which constitute 20 per cent. of normal family expenditure, four items alone—milk, beer, cider and cigarettes—account for 10 per cent., and a number of items included in the scheme have been the subject of fairly recent price increases. Milk went up by 21½ per cent. last November, bread by 4 per cent. last December, and several brands of beer went up as recently as last month. Laundry and dry cleaning charges went up by 8 per cent. just before November. I shall be kind enough not to set out 1418 the list of articles on which the Chancellor increased the price either by imposing a new tax or increasing the tax.
My modest criticisms of the scheme, which the Minister found so objectionable, were subsequently dwarfed by those of some newspapers. In fact, The Economist described the scheme as havingfinally flopped into the airwhile The Guardian, hardly a pillar of the Tory Press, saidAs a direct way of tackling inflation the scheme is pretty irrelevant",and it went on to say in its leading article that the scheme was no more than a red herring. As for the cost of publicising the scheme and the method to be employed, words failed me when it was announced, but I am glad to say that I have regained my power of speech. Words did not fail a number of correspondents from whom I have heard, however. I should like the Minister to see the view expressed by a number of correspondents, both consumers and retailers. One retailer was incensed at having received the kit when he did not sell one item listed in the scheme.
The choice of the little red triangle Lego seems, under the circumstances, to have been singularly unfortunate, since in the Highway Code it is used in a number of ways to signify "a hazard ahead", the most appropriate of which in the case of this scheme is one that signifiestwo-way traffic crosses one-way road.Would it not have been more honest, in view of the amendment that we have before us to the Price Code, if as well as issuing little red triangles to be displayed on those goods that are not to rise by more than 5 per cent. the Department of Prices and Consumer Protection had issued little labels showing arrows pointing upwards to be displayed on those items on which prices have been raised under the cross-subsidisation provisions in this Order?
As for the half-page advertisement that appeared in the newspapers over the weekend, I would have thought that it was in breach of several of the basic tenets of the advertising code, and a breach of the Trade Description Act itself, because it states categorically that the items on the list will not increase by more than 5p in the pound over the next six months. 1419 What of the operation of the escape clause specifically to allow them to rise, referred to in the right hon. Lady's statement on 27th January, at column 248 of Hansard? This is the escape clause whereby a retailer or manufacturer can withdraw from the scheme.
Under every little triangle in the advertisement, in almost invisibly tiny print there was a welter of ambiguity. There were such qualifying statements, as for example, in the case of biscuits, "some varieties", of light bulbs "60 watts only", of household textiles,some sheets, towels and materials",of shoes,some for adults and children",and so on. There was no mention under the triangles relating to beer and cigarettes that this was going to be 5 per cent. computed, for example, on a weighted average basis. That is hardly a shining example of the clear presentation of information to consumers.
What about knitwear? This was clearly included in the list issued by the Department on 11th February, but from the Daily Telegraph of 17th February I learned that the knitwear manufacturers had accused the right hon. Lady of misleading the public by including knitwear in this list and the president of the federation had called upon the right hon. Lady to make it clear that knitwear would not be included in the list without further redundancies being created. I have not heard of any announcement——
§ Mrs. Oppenheim
The hon. Gentleman does not have to ask to see the letter. It has all been published in the Daily Telegraph, and so far I have not seen it refuted by the right hon. Lady in any newspaper. No doubt the Minister will deal with this.
Mr. Alan Williams
The hon. Lady referred to the original document. If she reads it she will see that it says "lines of", and if she looks at what appears in the Press she will notice that the qualification "lines of" was omitted. Instead of being "lines of knitwear", what appeared in the Press was "knitwear", and, understandably, as it was only the Scottish Knitwear Association 1420 that had made the agreement. Knitwear manufacturers generally objected. The words "lines of" appeared in the original document.
§ Mrs. Oppenheim
I am so grateful to the Minister, because I have here the original Press statement issued by the Department. It clearly saysClothing, footwear and textiles. Lines of clothing including: women's and girls' dresses…men's…suits…infants'…dresses",and on a separate line, with no qualification, one finds the word "knitwear" and it then goes on to saySome lines of adults' and children's footwear.That is typical of the type of ambiguity that is associated with the Department. I am told to read between the lines, and that is just what consumers will do with this scheme. I have been justifiably right to deride the selective price restraint scheme for what it is—the tardy antics of a Government bereft of any options.
I take the slightly unusual step of praising the right hon. Lady for an achievement to which she has not attached significance and one on which, regrettably, she has not sought to build enough. It was a considerable achievement to gain the agreement of the TUC last July to a pay freeze, or the £6 limit, and at the same time its acceptance that it was not possible to tighten the Price Code further. On the basis of that acceptance and in the light of the present rates of unemployment, could she not gain the acceptance of the TUC that the Price Code, if it continues in its present form, will cause greater damage to investment, more unemployment, and that it is of residual relevance to prices? Could she not get them to accept that the shenanigans over the selective price scheme have no relevance?
Is there never a time for the simple truth to be told? Could the right hon. Lady not accept that people are ready to accept the inevitable and to understand that although pay is being restrained, although limits are being observed, prices will inevitably go up and living standards will fall? That is unfair to a good many people who have not contributed in any way to this situation. It is the price that must be paid for the fact that the Government have left themselves no alternative by pursuing political objectives.
1421 I submit that whether the right hon. Lady, the Government, the CBI and the TUC want to continue to deal in delusions or not, the people are no longer under any illusions. They can see what is happening, and they are sick and tired of the sham and chimera. I find it deeply depressing that the right hon. Lady, the TUC and the CBI and the Retail Consortium have so little faith in the common sense of the people of this country that, no doubt in good faith, they really believe that the people—consumers, trade unionists and everyone else—cannot tell whether prices are rising without months of negotiating a half-baked scheme and £1 million of their own money to convince them. As an exercise in so-called psychology it is naive in the extreme. As a form of communication it is flawed by imprecision and clouded by ambiguity. The right hon. Lady's earlier shopping basket was singularly ill-fated.
§ Mrs. Oppenheim
One can fill that shopping basket only two-thirds full today 1422 for the same money as that with which the right hon. Lady filled it.
§ Mr. Maclennanrose——
§ Mrs. Oppenheim
The hon. Gentleman will be able to speak and deal with that matter. He will no doubt make a trivial speech and will deal with a trivial point.
I hope for the sake of everyone concerned that that shopping basket's unpromising successor will not share the same fate. I also hope that this will be the last amendment made to the Price Code, and that it will be the last debate on the Price Code in its present form. Perhaps its most fitting epitaph was in The Guardian on Monday. In an article headedThe story of the great prices check bamboozle",Frances Cairncross wrote:When price controls were really biting, the United Kingdom had its fastest ever rate of inflation. In their wake has come the highest post-war level of unemployment and the sharpest drop in investment. What sort of a recommendation for a policy is that?
§ 10.9 p.m.
§ Mr. Mike Thomas (Newcastle upon Tyne, East)
I share the hope of the hon. Lady the Member for Gloucester (Mrs. Oppenheim) that this will be the last debate on the Price Code, because we would not then have to listen to the sort of claptrap we have heard tonight on what I regard as a serious matter. Nothing would give me greater joy, except perhaps if the hon. Lady moved over to other interests in the Shadow Cabinet.
If the hon. Lady looks with more care and does her homework on the figures to which she referred, she will find that precisely because those calculations did not take account properly of the uprating of benefits in July 1974, she has the figures wrong. I want to take a moment to give the genuine figures because, in the light of her assertions, they need to be revealed repeatedly and accurately by those who know them.
Since the Government took office, the spending power of the worker on average wage has risen in real terms by about 1 per cent.; the pensioner couple on State pension have seen their real income rise by about 13 per cent.; the single pensioner has seen his income rise in real terms by about 15 per cent. That is a record of which the Government are justifiably proud, and the hon. Lady does herself no service by accepting inaccurate figures and perpetrating the inaccuracy, as she has done tonight.
The only other feeling I have about the hon. Lady's speech is one of compassion for the hon. Member for Kingston-upon-Thames (Mr. Lamont). It must be galling to him that, unlike my right hon. Friend the Secretary of State, she is so anxious to get every headline, even in a short debate at this time of night, that she cannot resist the chance of putting a speech over even on such an occasion as this.
I was among the sceptics, as perhaps the hon. Lady will allow, when the Government produced their White Paper, "The Attack on Inflation". I was among those who said in the debate on it that I believed that there were many obstacles in the way of the Government achieving the price targets they had set themselves. Now, as a former sceptic, I have to say that many of my fears, and 1424 many of the fears expressed in florid language by the Opposition, have not been realised, and that the Government do now seem on target for a single figure rate of inflation by the end of the year. At least I am in a position to take joy in that, which the Opposition seem very much unable to do.
It seems to me that there are four possible problems on the prices front which may take us off target, however. They are the pipeline costs still working through, of which I do not think we have seen The last; the question of oil prices; the very serious question of the decline in the value of the pound, which threatens the prices policy far more than any other single matter we have to deal with: and the question of rising unit costs, because, with industry running under capacity, we are in the position where unit costs inevitably rise. I am concerned to know my hon. Friend's views on these matters.
I turn to the amendments to the Price Code that we are discussing and the price restraint scheme. Despite the hon. Lady's desire to prove that she is the only one in step and that everyone else is wrong and misled, the retail trade, the CBI and the TUC welcome the scheme. As one of those representing the interests of the co-operative movement, I am glad to make it clear that the movement also welcomes the scheme and will play its part in its implementation.
I want to make a critical note, however. We welcome the investment relief provisions and the provision for cross-subsidisation, but there is no possibility of cross-subsidisation if profits are not being made in any department. We are still running a grave risk of that being a substantial problem which affects the operation of the policy and affects the opportunity of the retail organisations to avail themselves of the provisions under the Code.
I want to quote two simple statistics. The food sector is running at about 30 per cent. of its reference level profits compared with about 50 per cent. six months ago. It is bad enough at 50 per cent. It is worse at 30 per cent. We need these profits to cross-subsidise. The Opposition cannot have it both ways by claiming the profit squeeze is terrible yet also saying that it is only cosmetic.
1425 Let me put the nail in the cosmetic coffin by quoting one sentence from last month's Investors Chronicle. Mary Goldring, advising her subscribers, as she is no doubt paid and honourably obliged to do, about where to put their money in stocks and shares, says:Watch for the manufacturers and/or retailers who stay out of the 'voluntary' scheme. They could be the firms to follow for 1976.If the advice of Investors Chronicle is to follow the firms which stay out of the scheme, even that journal cannot think that the scheme is cosmetic, that it will have no effect on profits or that prices will not be restrained.
I am concerned about the degree to which cross-subsidisation may affect the poor. I will not bore hon. Members with a reiteration of my views on this subject, but the alleged objective of this scheme is to preserve the position of those most in need in our society. I give the hon. Lady the Member for Gloucester credit for her good points—I hope she might sometimes give me credit for mine—and she raised a valid point when she questioned how we could be sure that cross-subsidisation will not work by the prices of essential products rather than non-essential products being increased.
The Minister might reply that competition will prevent this or that the general squeeze in the retail market will see that it does not happen. I still believe that it is a great danger and I am not reassured by the absence from the list of products to be included in the scheme of three or our subsidised products—butter, flour and cheese. If they are not within the scheme, we have cause for concern that the prices of some essential products will not be restrained to 5 per cent. increases.
It is severely damaging to the credibility of the scheme that nationalised industries, which are at the behest of the Government, have not been included. I very much welcome the inclusion, on a voluntary basis, of the gas industry, but there are some very big holes left. The increased postal charges are an important problem, and reference has already been made to the British Rail fare increases, which are an important area of expenditure. I am much more 1426 concerned about electricity where the equivalent of a 16 per cent. price increase is being sought and where prices have almost doubled in the past 12 months. Members of the Select Committee on Nationalised Industries were told by the chairman of the Electricity Council a few days ago that the Council and the industry "were not even asked" to join the scheme. I would like to know why.
Though the Opposition try to deride it, one of the most important aspects of the scheme is its effect on pay policy for the future. One sometimes feels that the Opposition want the pay talks to fail and for there to be no success or policy after 1st August. They seem to want the country to go back to the damaging free-for-all in wages which we saw before the £6 limit. If the scheme were cosmetic, if it had been introduced purely to influence pay talks—if all that were true, which it is not—I would still regard it as worth while.
In conclusion, I quote from a Sunday Times article which appeared last Sunday and which ended as follows:It may be true that the goods included would not rise much more than 5 per cent. in any case. But for once, the public has the assurance in advance that they will not. That is of no small value as the pay talks take place.That is the background to the Order. That is the real issue, and the Opposition spokesman failed to measure up to it.
§ 10.20 p.m.
§ Mr. Graham Page (Crosby)
I am sorry that the hon. Member for Newcastle-upon-Tyne, East (Mr. Thomas) has "cooled it" a bit. I thoroughly enjoyed the brilliant speech made by my hon. Friend the Member for Gloucester (Mrs. Oppenheim), and I wish that we had warmed up the debate on those lines.
I shall not address the House on the merits of the Order. As the Minister said, I am the Chairman of the Joint Select Committee on Statutory Instruments. The House will have noticed the rubric on the Order Paper underneath the item, which refers to the Committee drawing the special attention of the House to the Instrument on the grounds that it makes an unexpected use of the powers conferred on the Secretary of State by the parent statute.
1427 The Order is made under Section 2 of the Counter-Inflation Act 1973 which gave the Treasury—now the Secretary of State—power to prepare a Code for the purposes of that Act and stated that the Code and any change in the Code should be contained in an Order made by Statutory Instrument and might be varied or revoked by a subsequent Order so made. The point at issue in considering the validity of the Order is whether the operation of the selective price restraint scheme amounts to a variation of the Code which should be embodied in a Statutory Instrument to come before the House for debate whenever a variation is made.
The Order introduces several new paragraphs into the Price Code. I congratulate the Minister on the way in which the new paragraphs 79 and 79(A) have been introduced by rewriting them completely in the schedule to the Order, so making them easier to read.
New paragraph 137 is introduced by paragraph 3 of the schedule to the Order. It is a new paragraph in the Price Code which allows the Secretary of State to create the scheme. The scheme is not a particular document prepared by the Secretary of State; it is not even a list of products prepared by the Secretary of State. The provision is that the Secretary of State, if he is satisfied, can name certain products if they appear to him to have certain qualifications.
I am very grateful, on behalf of the Committee of which I have the honour to be Chairman, to the officials of the Minister's Department who were greatly informative in the evidence which they gave to the Committee. They maintained that the power given to the Secretary of State here was a power to designate by certificate the area of the Code and not a power to alter the Code. This is questionable, at least.
What the new clause says is that it is entirely at the discretion of the Secretary of State to state the products which come within this scheme and, therefore, the benefits which may be obtained by a manufacturer of certain products, and, on the reverse side of the coin, the manner in which perhaps the consumer will suffer by the cross-subsidising of products under this scheme.
1428 Looking at the power given to the Secretary of State by the parent statute, I must admit that it is a very wide power. It is a power to write this Code and even under the Code to operate in a very wide manner. However, when a Secretary of State is given that power by this House, I submit that he should be meticulous in seeing that the manner in which he exercises his discretion is a subject that comes before the House and for which he is responsible to the House.
The Joint Committee on Statutory Instruments learned from the Minister's officials that at that stage—and, I believe, even now—there was no list of these products to which anyone could refer. I think that the Minister said in his opening speech that there had not been time to prepare this and that he wanted it to be flexible. There is nothing for which right hon. and hon. Members can hold the Minister responsible, because they do not know what is contained in the list. I was pleased to hear tonight from the Minister that this list will be published and that in due course we should know what is in the list.
However, then we go on to the stage at which that list can change from time to time, and I think that it is in contemplation in this scheme that products shall come into and go out of the list from time to time. It is doubtful whether the power that is given to the Secretary of State enables him to rewrite this list from time to time. The Joint Committee on Statutory Instruments was generous over this and said "Very well, perhaps he has that power but he must use it in a way in which he can be responsible to the House of Commons". Therefore, there must be publication of this list from time to time.
I should have thought that the right thing to do was to publish the list at the start of this Order so that at least we and the public could know what we are talking about, and if there are alterations in this list, to make quite clear that those alterations are known to the public and particularly to right hon. and hon. Members.
When a parent statute gives the Secretary of State such very wide powers, as the Counter-Inflation Act 1973 did, they must be exercised in a way that will enable the public and Members of this House to hold a Minister responsible for 1429 the exercise of his descretion and will enable Members to question him on it so that he is entirely responsible to the House.
I think that the Joint Committee was eventually correct in deciding that there was this power, but this is a marginal case, and where such a wide power is given, the Secretary of State, through a Minister, should be prepared to take the responsibility of publication of the exercise of discretion and to be questioned on that discretion.
§ 10.29 p.m.
§ Mr. Michael Neubert (Romford)
Debates on amendments to the Price Code are becoming a fairly frequent feature of the parliamentary calendar. They are normally taken late at night and in a largely empty Chamber. Perhaps that is a measure of their significance—certainly on this occasion.
The Minister of State will forgive me for saying so, but he seemed unable to muster much conviction in his presentation of the proposals. Perhaps it may just have been, with his normal modesty, as he acknowledged, his diffidence in these matters. Whatever it was, he lacked conviction to the Opposition side of the House, because this scheme is certainly not very relevant to the fight against inflation of which it is said to be part.
As I came into the Chamber I saw shoot up on the television screens the term "counter-inflation". But measures, such as food subsidies and limiting price rises by this scheme, are not fighting and do nothing to solve the problem of inflation. They merely seek to mitigate the effects on certain categories of people. Therefore, we should not delude ourselves by discussing the two issues together as if they were one and the same objective.
My fear is not that the Government are engaged in an exercise of utter futility, but that in doing so they may become bemused as to the realities and come dangerously close to deception.
There is no mention in a quarter page advertisement in the popular Press put out on behalf of the Government that the effect of price rises on these limited products being kept down to 5 per cent. means that the prices of other products will have to rise more than they otherwise would. It is hardly fair trading when it 1430 comes to public money being spent on Government propaganda. The public have a right to know the true situation.
My right hon. Friend the Member for Crosby (Mr. Page) spoke with great expertise on the technicalities of this Order, which he finds unusual. I find the comment of his Committee very apt when it refers to the Order making an unexpected use of the powers conferred by the statute under which it is made. That is true in more than one sense. Who could have imagined that, given the Price Code's intention of controlling and, if possible, keeping down, if not reducing, prices, one of the two purposes of the Order would be to put up prices higher than they would otherwise be? The public have a right to know what the Government are about in putting forward such a proposal.
Over the whole generality of commercial transactions, this measure is not intended to make any jot or tittle of difference to the cost of living in the general sense. It may make some difference to people in certain categories of need who use these articles which are to to be restrained in price for six months, but it will not reduce prices in the totality because it specifically allows for prices to go up in compensation. That is why we are here.
If the Government are engaged in a political ploy, they should say so. Let us have none of this humbug and eyewash about how they are fighting inflation and bringing prices down, because it is totally irrelevant. It is, as the Minister acknowledged somewhat late in his lengthy speech, a campaign of psychology. It is the softening up of the trade unions in preparation for the much wider and more significant battle which is to come this summer. The Government may have had a legitimate purpose, but they should not cloud that purpose by presenting the Order as anything but a political stratagem.
We have reservations, but not so much with the scheme. It was a matter of bad luck, for example, that the Order should be introduced and a day later there should be an announcement that rail fares will go up by about 17½ per cent. It makes a nonsense when a fundamental factor in the household budget, such as a season ticket, is not included. For 1431 example, in my commuter constituency the impact will be 65p a week or about £25 a year—an increase of 15 per cent. That is what matters to my constituents who need to go to work in the centre of London and have to pay fares out of taxed income. It is not important to them that a glass of cider is to be restrained to an increase of 5 per cent. over six months.
The Minister may say that we are trivialising this major step forward in the campaign against inflation. However, it seems hard to trivialise the matter further than the issuing of triangular-shaped sticky labels to shops all over the country. We have come to a pretty pass when it is necessary to adopt such measures at public expense to achieve what is essential in the interests of the country at large.
Let hon. Gentlemen not claim that we fight every measure that they put forward to halt inflation. Their inescapable legacy is the year during which the social contract—that free-for-all to which the hon. Member for Newcastle-upon-Tyne, East (Mr. Thomas) referred so scathingly—was conceived. They will have that on their conscience to the end of their days. Inflation ran at 25 per cent. that year—five times the rate in West Germany and three-and-a-half times the rate in America. They let wages rip for a full 12 months. Let them not come to us tonight and say that we are trying to halt measures that will stop inflation.
Inflation should have been stopped last year. We know now that the reason for the welcome abatement in the rate of inflation was the halt of wage rises which averaged 35 per cent. last year. If that is so, it was within the Government's power to stop inflation before it got out of hand. Although the rate of inflation is decreasing, it is decreasing only from levels that were unthinkable to levels that are still outrageous in a modern society and that still causes tremendous damage.
My principal concern is not with the Minister's anticipation of our argument but with the fact that yet another set of amendments seeks to consolidate the Price Code, which is taking on all the stability and traditional appearance of the Albert Hall or the British Museum. In the long term that will be fundamentally damaging, because it deceives people about the 1432 true nature of the situation that we face. The CBI has estimated that to abolish the Price Code altogether would add only 1 per cent. to the Retail Price Index. The highest estimate that I have seen is 2 per cent.—2p in the pound. Is it significant to have this bureaucratic machine in existence merely to achieve that benefit against the background of an increase in the rate of inflation 12 times as great? It distorts the market and the different prices of goods. Similar measures, such as subsidies, have had to be put into reverse. I refer to the subsidy on cheese because, despite denials at the time, consumption increased and it was necessary to reduce the subsidy to offset that.
There are other defects. Principally, the Price Code inhibits investment, especially investment in industry. Not only does it remove the retained profits which are traditionally the source of investment in industry but it actively discourages people from thinking that it is worth-while to invest their savings in industry.
In all those ways it has an effect. To tamper with prices distorts in other ways also, as the Chancellor of the Exchequer will no doubt find when he considers his Budget. Last year for the first time revenues from income tax amounted to more than half the total revenues. Corporation tax is down to under 8 per cent. and excise duties are also dropping. Therefore, there is distortion of the traditional balance in the economy because of constant tinkering.
To the extent that profit margins are kept down by the present recession and competition, the Price Code is clearly irrelevant. To the extent that the Price Code limits some profits, it is damaging in the long term. It is a short-term expedient—a political move which is damaging future employment prospects. Without a sufficient margin of retained profits, there will not be the investment that creates new jobs. We understand that the Secretary of State is in a tight corner. She recognises that prices must be allowed to rise to create the investment opportunities that, in turn, will lead to more jobs, but trade unions, the Cabinet and Labour Back Benchers are against any increase in prices, on dogmatic principle. That is a plight with which we have some sympathy.
However, with each successive amendment, the Code becomes increasingly 1433 grotesque. It is not the finely-tuned, smooth-running, powerful machine in the fight against inflation that the Government wished it to be but a contraption of which, with each new device, Heath Robinson would have been proud.
The Code has been used, for example, to make a compulsory policy appear voluntary by the insertion of the sanction against employers last summer. It has been used on this occasion to make a compulsory price restraint scheme appear voluntary by the threat of the three-month interval, and it has been used, quite against the original conception, to allow prices to rise higher than they would otherwise have risen—all in the interests of a psychological strategy.
The next amendment which is brought before us should be the abolition of the Price Code. On that day I shall be prepared to welcome the Government's proposals.
§ 10.46 p.m.
§ Mr. John Wakeham (Maldon)
The Order is cosmetic, but the Minister will be pleased to know that I shall not attack it on those grounds. It might have a marginal effect on the next round of wage negotiations, and if so, well and good.
My concern is more fundamental than that. My worries are extended because the scheme has a voluntary acceptance. It seems to be generally accepted, in the House and the country, that profit margins are too low and already threaten employment and investment and that there is no room for a further squeeze. My worry is that, unless and until industry is more profitable, we shall not get the investment we need for the economic performance that this country must have.
So my sad commentary on these proposals is not that they are bad or wicked or cosmetic. Cosmetics, I suppose, play their part in these matters. It is that low profits mean low investment. Since the scheme appears to be voluntary, I reluctantly conclude that all the sad tales that one reads about lack of investment intentions in industry are probably right. Under a Labour Government, industry does not want to risk investing because there is no confidence in the future. Those concerned say, "Why take risks? Why stick our necks out? Let us stick with a voluntary scheme and try to sur- 1434 vive. This Government will give us no encouragement because they do not believe in profits or investment—or if they do, they dare not say so for fear of militant unions."
If the Government could look at their cosmetics again and find some way of persuading those who are against profits to encourage investment instead, that would be the best solution to our difficulties.
§ 10.44 p.m.
§ Mr. Geoffrey Dodsworth (Hertfordshire, South-West)
I want to draw attention to the collapse of the Government's policy on subsidies. We see tonight the evidence that the Government have learned the lessons of the debates on the Prices Bill in January 1975. We warned then that cash subsidies were an "up" escalator, that they were using cash to try to reduce increasing prices, and that that was a cost that they could not afford. So indeed it proved.
We said then that we were talking about limits of £1,700 million. It was then said that this was only a contingency level.
I want briefly to paint the picture of what took place in the Minister's Department. The reality was that there was a nudge. Somebody said "We shall get awfully short of money if we proceed with our subsidy arrangements as we planned. Let us look round for another way." Somebody else said "Why not let us dash off to the Treasury and have a chat with the chaps there? They are clever with figures and we shall probably get some expert advice on how to do our calculations." The Treasury, as is its wont, said "We have been doing this for years. It is called 'the rob Peter to pay Paul' system." That system has been outlined to us tonight. This system is designed to take from one section of the community and give to another.
My hon. Friend the Member for Gloucester (Mrs. Oppenheim) asked what will be the cost to the individual who pays increased prices. Are we to know exactly how much is involved? What is the quantum of the subsidy being paid to those on the restricted price product list? How are we to decide what are the items of special importance in family spending? We have decided to pay a subsidy from one consumer to another 1435 consumer. We have decided to take it, not out of the taxpayer's pocket, but out of the housewife's pocket. We have decided that one consumer shall pay to another and that these consumers will never know how much it is.
If there were any merit, which I greatly doubt, in the proposals for food subsidies under the Prices Act, it was at least that we had some element of control, that we had some knowledge of the amount of money involved. In this method we shall never know exactly what is transferred from one area to another.
I admit that the scheme has the merit of being voluntary, but we must recognise that any method of this sort becomes increasingly complex as time passes. In the interests of equity and fairness, we are seeking more complex mechanisms in order to be fair to all.
Tonight we are witnessing the dismal failure of the Government's policies of subsidies, a recognition now that one consumer must pay for another directly through the shopping basket.
I recognise, in addition, that there are other parts of these proposals, namely those connected with investment relief. I point out that there is no proposal to increase the allowable amount of relief. I have drawn the attention of the House on previous occasions to the fact that 100 per cent. of investment may be deducted to arrive at the tax payable. Surely we can increase the allowance for "relevant expenditure" from 20 per cent. to, say, 25 per cent., at a time when investment is at an all-time low and unemployment is at an all-time high.
This was a unique opportunity for the Government to grasp the nettle and to do something practical and realistic as evidence of their intention to encourage investment. The opportunity has been missed. It may not recur. I ask the Minister to explain why the Government have failed to take the opportunity of increasing the level of investment.
On those two grounds I suggest that tonight we are presented with clear evidence of the Government's failure to recognise the needs of the consumer and of industry.
§ 10.44 p.m.
§ Mr. Giles Shaw (Pudsey)
I, too, express my regret at the fact that the Secretary of State is not present, though I fully accept the explanation of the Minister of State that it is not customary for the Secretary of State to witness the approval of a Statutory Instrument.
Once again I seem to appear in the role of tail gunner on this side. This short debate has been well worth while in bringing out some of the reasons why the Opposition feel so sceptical about this whole matter. I know that Ministers are disappointed that we have not all stood and cheered like the ranks of Tuscany at the unveiling of this superlative weapon in the fight against inflation. The Under-Secretary of State must allow us a little charade. The Secretary of State, with her new doctorate—which I assume is in metaphysics from the University of Louvain—is fully qualified to deal in a little public charade. It is a public charade in which we are engaged tonight.
To take up the point made by my hon. Friend the Member for Hertfordshire, South-West (Mr. Dodsworth), these are complicated amendments to a Code which the Government told us on many occasions could not be amended in any substantial way prior to its dutiful expiry in January of this year. Yet here we are with the most major amendments. Additional clauses are being inserted. However, we are not varying the Code properly at the outset. Perhaps the Under-Secretary of State will cheer up when I acknowledge, as manufacturers have clearly done, that any measure which contributes towards the fight against inflation must be welcomed even by my hon. Friends and myself. Any measure of that sort must be welcomed in principle.
The amendments that we are discussing are seeking to bend the rules of the Price Code in the name of public relations. I do not have to crave the indulgence of the Under-Secretary of State. I merely have to quote the words of the Secretary of State. In her Press statement of 11th February she said:So we set ourselves to introduce as quickly as circumstances allowed a scheme which would give the public a positive assurance that some degree of stability was returning, not 1437 perhaps to all prices or even to all the most important prices, but to a wide range of the prices which are important in the expenditure of families. This is what the price check sceme aims to do.That is a communication to the public that the Government believe that there are indications that the rate of inflation is slowing down. It is a public relations exercise. Let us establish that principle.
I welcome the arrival of the Secretary of State. The right hon. Lady will at least be able to listen to the closing speeches. It is fair to examine the Orders in the light of the right hon. Lady's statement, in the light of the objective of informing the public that prices are returning to stability, making some assessment of the cost in financial terms and in other lights.
I remind the Government that the general principles of the code were referred to by my right hon. Friend the Member for Crosby (Mr. Page). I refer the Under-Secretary of State to Statutory Instrument No. 2113, in which the Price Code is attached to the schedule. There were three general principles in the Code, which were
Those were the principles around which the Price Code was to be enacted.
- (a) to limit the extent to which prices may be increased on account of increased costs, and to secure reductions as a result of reduced costs;
- (b) to reinforce the control of prices by a control on profit margins while safeguarding and encouraging investment;
- (c) to reinforce the effects of compensation, and to secure its full benefits in the general level of prices."
I concede that new paragraphs 79 and 79A are plumb along the line of the second principle, and especially welcome by my hon. Friends and myself. But new paragraphs 137 to 141 are clearly not within the first principle. They are concerned with the ability to increase prices where necessary, not to reduce them. They are clearly irrelevant to the second principle, which is about investment. The new paragraphs must relate to the third principle. I understand that by the "effects of competition" it is meant that the full benefit of competition in the market place is passed on, price levels being determined by demand.
1438 These alterations will allow the Government to distort competition. Indeed, they provide powers for the distortion of competition and not to reinforce its natural effects. It was in this respect that my right hon. Friend the Member for Crosby and his Committee were so relevant. They pointed out that it provided a new range of intervention procedures in association with the Price Code—and, what is more, procedures which, in my judgment, are alien to the three principles outlined in the original instrument providing the guidelines for the Code.
The ways in which these competitive principles are now to work in seeking to promote certain price restraint lines will involve in consumer advertising terms £1 million over a period of six months or £2 million per annum—one of the fattest consumer appropriations in the market today. The promotion of price restraint in this way must have a disadvantageous effect on lines that cannot, for fully legitimate Price Code purposes, be included in the scheme. There are many lines which unfortunately cannot be included because the cost pressures are far greater than 5 to 6 per cent. Therefore, they are at a disadvantage not only because they cannot be included but because a Government effort, amounting to £1 million, will draw the consumers' attention to price restraint lines. In my judgment, that is yet another distortion of competition. I must ask whether that amounts to fair competition.
Secondly, there is a further distortion in terms of the enormous amount of cross-subsidisation to be encouraged by the new provisions. I appreciate that first Ministers have to be satisfied in this respect and, secondly, that they will look whether the cost pressures rise above the 5 per cent level. But we must expect that cost pressures will rise above the 5 per cent level, otherwise there is no point in having a scheme of this kind, and it might come to be known as "Operation Hoodwink". Therefore, one wonders whether cost pressures could frustrate the intention of the new provisions and involve cross-subsidisation.
I remind the Minister that fair competition does not, in my judgment, include permanent distortion of the price relationship between goods. What is involved is more than just the holding down of 1439 certain lines and the allowing of the prices of other lines to rise disproportionately. However well this scheme will serve the average consumer, the fact remains that goods compete with each other, not only brand against brand within the market but often market against another complete market.
If help is to be given to the standard size loaf, what will happen to the purchasers of the small size loaf? What happens in the market for smaller size loaves if we have restraint versus restraint plus original-cost-plus? This is not the kind of distortion that can be turned over at the end of six months. It can have substantial long-term effects. If frozen peas are to be subject to price restraint, what happens to those who happen to grow beans or brussels sprouts or whatever the vegetable may be? The sales of restrained frozen products will escalate while the sales of the others will undoubtedly fall. Indeed, it may ultimately lead to shortages of certain products.
The Minister has embodied in the Code a major distortion of competition woefully against the principle around which the Code was originally built. Price distortion is not new and I accept that in many instances we have seen it working through the consumer market. However, when the Government introduce a scheme nominally to benefit consumers and when they talk about protecting low-income families, it should be made clear that some of the consequences of their actions may redound to the disadvantage of consumers and possibly result in prices being permanently inflated at levels which they would not have reached given the natural processes of competition.
Under the terms of Statutory Instrument No. 73, companies which supply returns to the Price Code are required to give separate and detailed information on price restraint lines. Is the Minister satisfied that the Price Commission is able to deal with the amount of detail which will be required if this measure is enacted? Does the Minister expect that there will be relatively few instances where certificates will be granted and that therefore perhaps the strain will not be great? I am sure the Minister knows of the extent to which the maintenance of detailed line-by-line records is a substantial drain upon manpower within in- 1440 dustry. In my view, keeping records for six months over a wide range of consumer goods will add to industrial costs.
I must declare my interest in the chocolate and confectionery industry. As the Minister knows, chocolates and sweets are included in the price restraint scheme. I ask the Government, through the Secretary of State, how they can describe these products as being of "special importance"—I think that was the phrase used—to low income families and include them within the price restraint scheme but at the same time tax these products? This matter requires examination. If, in the right hon. Lady's judgment, these foods are of special importance perhaps she will convey her view to her right hon. Friend the Chancellor so that he may withdraw the VAT, or at least return it to the zero rate which applies to all food. Such action would make a 1 per cent. difference to the food index, at modest cost to the revenue.
Therefore, we have some serious questions to raise about the new distortions which have been included. I concede that in general if this measure helps to create a better climate in which wage negotiations can take place, it will have made a contribution. However, it cannot be held up as being an effective way in which to handle prices at the point of sale. Nor can it make a major contribution to the situation of the average consumer at the end of the six-month period. In the light of that, we are to be involved in a massive change to the Code and in methods which, in my judgment, will have long-term distortion as one of their side effects.
§ 11.3 p.m.
§ Mr. Norman Lamont (Kingston upon Thames)
This has been a useful debate. However, the Under-Secretary and the Minister of State will have to forgive my hon. Friends and me if we remain sceptical about the significance of the investment relief and of the alterations in the Price Code which are necessary to bring the price restraint scheme into operation.
I shall deal first with the provisions for investment relief. In our view these will make little difference to the amount of investment that will take place because of the present overwhelming depressing business background to the economy as 1441 a whole. One cannot, towards the end of the operation of a relief, extend that relief for a few more months in the hope that it will have a dramatic effect upon the level of investment. As the Minister of State has acknowledged, these decisions are taken over a long period, which might mean three or four years, and therefore extending a relief for a few months will not make much difference.
Another objection is that investment relief is an extremely complicated matter and it is doubtful whether many industrialists can find their way around it. Above all, there is the point that was referred to by a number of my hon. Friends, particularly my hon. Friends the Members for Romford (Mr. Neubert) and Maldon (Mr. Wakeham). It concerns the uncertainty that is engendered about the future of price control. What will be the shape of Price Code Mark II? What will happen in July? That cannot be brushed aside with investment relief. The uncertainty is immensely damaging to investment. As long as the Price Code exists in its present form we cannot hope to see a significant rise in industrial investment. A number of hon. Members have dwelt on the harm that it is doing to profitability and investment. I very much agreed with the points made by the hon. Member for Newcastle-upon-Tyne, East (Mr. Thomas). I did not agree with his strictures upon my hon. Friend the Member for Gloucester (Mrs. Oppenheim), but I agreed with him about the effects on profitability and investment. He was right to draw attention to the effect upon margins—the fact that some manufacturing companies are operating at, perhaps, 40 per cent. of the level of profits at which, in theory, they could operate, and that under the Code the food industry is operating at less than 30 per cent. of its theoretical potential level of profitability.
The reasons for this have been mentioned in many of our debates. If a firm makes an investment that lowers its unit costs it is deprived of the benefit of that increase in productivity. Even if productivity is falling the productivity deduction is made. That has probably done more than anything else in the last six months to accentuate the shakeout in labour. That is why I particularly agreed with my hon. Friends about the effect of the Code on unemployment.
1442 I should like to return to a point made by the Minister of State when he said that we could not have it both ways. The hon. Member for Newcastle-upon-Tyne, East made the same point. It cannot be said that the Price Code is damaging investment but not controlling prices. I acknowledge that there is a contradiction there. But that gives rise to a question we should like answered about the price check scheme. Is it actually controlling prices and damaging investment and profits, or is it purely a cosmetic exercise? We are in the dark about this matter. The Government will not come clean and tell us what sort of exercise this is.
A few weeks ago I got into hot water at Question Time when, rather rashly, before the scheme had been announced, I suggested that perhaps it was a bit of a fiddle with the retail price index. I was rebuked for that. The list has now been published and I see why I was so wrong. It is not a fiddle. It has very little impact on the retail price index. Far from being a fiddle, it might more aptly be described as a confidence trick. I do not mean that offensively. It might be a clever or justifiable confidence trick, but it is a confidence trick all the same.
§ Mr. Mike Thomas
I think that the hon. Member has misunderstood me, or I am misunderstanding him. He cannot have it both ways. He cannot say that the object of the exercise is bad because it damages investment, because that is to concede that there is a genuine element in the scheme, a by-product of which is to damage investment. If he says that it will damage investment he cannot claim that it is purely cosmetic. That is what I meant by saying that he could not have it both ways.
§ Mr. Lamont
I accept the logic of the hon. Member's argument. The Price Code, operating rigidly in the past two years, has had an effect on investment and employment. But which way will the hon. Gentleman's logic lead? Is the price check scheme, with its built-in amendments to the Price Code, merely cosmetic, or will it actually depress profits? Is it reducing prices? When I asked the Minister of State whether this was a scheme to reduce prices, or one simply to convince people that inflation was coming under control, he said that 1443 it had an effect on prices because of the Dross-subsidisation element. That evades the point.
What is the effect on prices as a whole, after the cross-subsidisation has taken place? When the Minister, in replying, said that it gave people the assurance that there was at least an island of stability in the generally inflationary climate, we began to see what he meant. He meant that this showed that there were some prices that would not have gone up by more than 5 per cent. in the coming six months. That is why we have described this scheme as a cosmetic exercise.
The Minister let the rabbit out of the hat by saying that this was a scheme which would introduce an element of stability into the general inflationary climate. We have talked to some of the interests involved in the negotiations. We know as well as do Government Members that the prices of many of the items included in this list would not have gone up by more than 5 per cent. in the six months. That is how the list was compiled. That is why we think it is damaging. It is a scheme that will arouse false expectations. The public will not read the small print of the scheme. They will me misled by the propaganda—because at one time we were told that this scheme would cover about 25 per cent. of the cost of living of the average home.
We have long since gone away from that. We have long since seen that there are many other items that will go up sharply in the next few months. There was a sharp increase in rail fares only yesterday. They have risen by about 86 per cent. in two years. Commuter fares in the South-East are to go up by about 17½ per cent. We have the exclusion of electricity prices from the scheme, as referred to by the hon. Member for Newcastle-upon-Tyne, East. Electricity prices have almost doubled in two years. Food prices are going up faster than the general rate of inflation. Rates are excluded from the scheme. It is little wonder that many people will be sceptical about the scheme and wonder exactly what is the purpose of it. One will not be able to butter many parsnips with this thin list of items, and man cannot live by sliced bread and frozen peas alone.
My hon. Friend the Member for Pudsey (Mr. Shaw) referred to the cross-subsi- 1444 disation element. Here again, when one considers the items of groceries included in the list one sees that this will be of little significance. The provisions for amending the Code will be of almost no significance, because on most items of grocery the percentage involved is so small. The whole idea of cross-subsidisation on small grocery items is of no significance whatever.
We do not want to attack the scheme, but we are sceptical about whether it will have any real benefit—whether it can do anything other than postpone inflation or load some price increases on to other goods. The one thing that it cannot do is to reduce the rate of inflation, despite the publicity, the Press conferences, the accounts of smoke-filled rooms and detailed negotiations with the CBI and the Retail Consortium, and the expectations that have been aroused. The scheme is mere window dressing. As such, it may do no great harm, but it certainly will not do any good.
§ 11.14 p.m.
§ The Under Secretary of State for Prices and Consumer Protection (Mr. Robert Maclennan)
The hon. Member for Kingston-upon-Thames (Mr. Lamont), like some of his hon. Friends, oscillated uneasily between writing off the Price Check scheme as insignificant and condemning it for being positively damaging. Even after listening to the arguments tonight he has not been able to make up his mind which is the more powerful case.
The hon. Member for Gloucester (Mrs. Oppenheim) was in typical form tonight, with her usual brand of distilled negativism. She failed to deal constructively with the major problem of inflation. Although she ranged extremely widely, she did not offer positive suggestions about what should be done.
The hon. Lady complained about the absence from the debate, earlier, of my right hon. Friend the Secretary of State. Although my hon. Friend the Minister of State had fully explained why my right hon. Friend could not be here, and why it was unusual for Secretaries of State to take part in debates on Statutory Instruments, the hon. Lady chose rather pettily to devote a substantial part of the opening of her speech to the matter. She then gave the startling information that although the rate of inflation was falling prices were going up. If she can 1445 point to any period in history when prices have not gone up she will deserve commendation. If she suggests that it would be desirable to return to the 1930s, we shall listen to that suggestion with amazement.
The cross-subsidisation proposals in the scheme were described by the hon. Lady as the neutralising factor, and a number of her hon. Friends returned to that theme. Her suggestion was that the cross-subsidisation provision in some way deprived the scheme of benefit, because she believed that it would offset any price savings that might be achieved by price restraint. The hon. Lady has failed to understand the current position of industry and the retail trade, which is surprising for such a devotee of the market. Certainly those in industry and commerce who gave their wholehearted support to the scheme from the beginning, and who reiterated that support in public when the agreements were concluded, have left no one in any doubt that they see little scope for cross-subsidisation in the present state of the market. If the hon. Lady really believes that this will be a major factor, she is sadly out of touch.
§ Mr. Giles Shaw
Is the Minister suggesting that it was the opinion of manufacturers that should costs rise beyond 5 per cent. on restrained lines they would not be able to recover the margin?
§ Mr. Maclennan
That is not the point with which I was trying to deal. The hon. Lady suggested that the price check scheme's value in restraining prices was offset by the cross-subsidisation provisions. That is a complete misunderstanding both of the market situation and of the purpose of cross-subsidisation, which is to enable the price check scheme to be extended to include items which it might not have been possible to include without some such provision.
The hon. Lady then considered the impact of the Code on investment. I thought that she produced the canard that it was inhibiting investment. Whatever may be or may have been the situation in respect of the Code's impact on investment when the Conservative Government introduced it and in the months thereafter, few industrialists would now consider that it was having the effect that the hon. Lady attributed to it. In- 1446 deed, there are some encouraging signs that investment is beginning to turn around, and the investment intentions published by the CBI, the Financial Times and the Department of Industry show prospects for an increase in investment.
Whatever may be that situation, the inhibition of investment at present does not flow from the Price Code; it flows from the depressed condition of the market and the uncertain state of world trade. The hon. Lady must be as aware of that as anyone else. If she is so interested and keen to stimulate investment through the amelioration of the Price Code, it is odd that she has paid so little tribute to the investment relief provisions that have been introduced into the Code by my right hon. Friend and which have been substantially taken up, as was revealed in the last quarterly report of the Price Commission. This shows that no less than £1,806 million of investment has been forthcoming as a result of the utilisation of this relief.
The hon. Lady then went on to cry "Wolf" about what would happen after the price check scheme came to an end. She produced some figures, the origin of which I cannot guess at, to suggest that the retail price index would rise by 4 per cent. after July. That is a wholly erroneous prediction, based upon no official statistics. The hon. Lady's figure has no authority whatsoever. No Government have ever published official estimates of the possible effect on the RPI of abolishing the present price controls. There are far too many variables.
§ Mr. Maclennan
If I may finish the point, I shall give way—although, as the hon. Lady took so much time I do not have time to answer all her points, and she refused to give way to me.
So far as I am aware, there is no reason whatever for believing that the hon. Lady's alarmist figures have any substance.
§ Mrs. Sally Oppenheim
I am grateful to the hon. Gentleman for giving way. This is clearly on the record in the words 1447 of the Secretary of State herself, as recorded in Hansard for 28th April 1975, when the right hon. Lady said:What we can say clearly is that the annual rate of increase, where there are neither food subsidies nor a Price Code, would be about four or five points higher."—[Official Report, 28th April 1975; Vol. 891, c. 18.]
§ Mr. Maclennan
That was in an entirely different situation, at a point in time when the market was depressed, and when competition was substantially less effective than it will be in the months ahead. It was in an entirely different scene. That was not a prediction; it was a statement related to a particular point in time, and it had nothing whatever to do with any future abolition of the Price Code.
The hon. Lady complained—this was a serious point, and it was taken up by the right hon. Member for Crosby (Mr. Page)—about the list not being published. It was a somewhat different point that the right hon. Member for Crosby was making. The hon. Lady complained that the list of items on which cross-subsidisation might take place had not been published. The fact is that a much more general requirement has been expressed by my right hon. Friend, to both the Retail Consortium and the CBI, that the basic household necessities which are not included in the scheme ought not to be the subject of cross-subsidisation. By way of example, my right hon. Friend specifically mentioned in her letter that forms part of the agreement with the CBI and the Retail Consortium, some of the subjects mentioned by my hon. Friend the Member for Newcastle-upon-Tyne, East (Mr. Thomas)—butter, cheese, all items of children's clothing, and footwear. The Retail Consortium, the CBI and the trade associations have undertaken to observe that request.
The hon. Lady made some remarks about the knitwear industry, on the basis of an article in the Daily Telegraph and quotations from the trade association. That report stemmed from a misunderstanding that has now been corrected. Some lines of clothing, including some knitwear, are included in the scheme as the result of an undertaking given by the Scottish Knitwear Association and a number of companies which are not members of the Association.
1448 The hon. Lady concluded by referring to a quotation by Frances Cairncross that when price controls were really biting, the United Kingdom had its highest rate of inflation. That is almost a truism. When the rate of inflation is at its height the need for price controls is most acute. It was something of a dying fall for the hon. Lady to sit down with that quotation.
My hon. Friend the Member for Newcastle-upon-Tyne, East made a thoughtful and constructive speech, as usual, and referred particularly to the impact of oil prices on inflation, the undercapacity in industry which leads to inflation of unit costs, and the value of the pound. These are all valid points. They make it impossible for us to extend the scheme to items that many of us would like to include. My hon. Friend mentioned electricity prices, but recent oil price increases have made it impossible to include electricity prices in the nationalised industries contributions to the scheme.
It is important to realise that 30 per cent. of consumer expenditure in the nationalised industries has been brought within the scheme. The Post Office has been taken to task in the debate, but the items it has included in the scheme form by far the largest part of consumer spending with the Post Office. The exclusion of parcels accounts for only 0.2 per cent. of the RPI.
The debate has been worth while. It has revealed a shift in the attitude of the Opposition from outright hostility to a kind of grudging acceptance that the scheme might conceivably have a useful effect on the present difficult situation. However, the Opposition have still not grasped the essential feature of the scheme—that industry and the retail trade have got together with the Government and agreed to hold prices on a substantial range of goods—amounting to 20 per cent. of consumer expenditure. They have done this because the counter-inflation policy of the Government is working and because they are able to see the costs in the pipeline which they will have to bear. They are prepared to bring forward the savings to the consumer which they anticipate can eventually be made as a result of the universal adherence to the pay policy agreed 1449 at the beginning of August. This is a novel and remarkable agreement.
§ Question put and agreed to.
That the Counter-Inflation (Price Code) (Amendment) Order 1976 (S.I., 1976, No. 71), a copy of which was laid before this House on 22nd January, be approved.