HC Deb 27 January 1976 vol 904 cc247-56
The Secretary of State for Prices and Consumer Protection (Mrs. Shirley Williams)

With permission, Mr. Speaker, I wish to make a statement on the Selective Price Restraint Scheme.

The House knows that the country is making good progress in the attack on inflation. The £6 pay limit is holding well and, despite a number of particularly unfavourable factors which have pushed up the Wholesale Price Index for industrial inputs in recent months, there are now encouraging signs of real slowing down both in this index and in the Retail Price Index as confirmed by the Price Commission in its Report for the period 1st September to 30th November 1975. Britain is already on course for the target of bringing the rate of price increases down to single figures by the end of the year.

Against this background, I have had discussions with representatives of manufacturers, retailers and others about the introduction of a scheme as promised in paragraph 33 of the White Paper "The Attack on Inflation". Our objective has been to draw up a list of products on which price increases will be held to a maximum of 5 per cent. both by manufacturers and be retailers for a six-month period starting 1st February and 16th February respectively—in short, to bring forward into the first part of the year, over a considerable area of consumer expenditure, the benefits of the lower rate of inflation which we now expect. I have also consulted the TUC and consumer organisations about the scheme.

During the discussions I have recognised that the profit margins of manufacturers, services and the distributive trades for the third quarter of 1975 were at very low levels and, in certain cases, at their lowest recorded levels, putting at risk both future employment and investment, and that not all the preconditions set in advance for the scheme to come into operation have therefore been met. Nevertheless, representative trade associations of manufacturers and retailers have, in the national interest, agreed to recommend their members to participate in the scheme over a considerable area, amounting to something in the range of 15 to 20 per cent. of consumer expenditure. In practice, as the rate of inflation continues to slow down, there are likely to be many other items in respect of which price increases during the six months concerned will not exceed 5 per cent.

The significant point about the scheme items is that the manufacturers and distributors are prepared to give positive undertakings that this will be the case, because the observance of the pay limit has made it possible for manufacturers to make clear estimates of forward costs. Obviously there are safeguards allowing a firm to withdraw from the scheme—if, for instance, there should be unforeseen increases in raw materials, fuel or taxation.

The undertakings given by United Kingdom manufacturers clearly relate to British made goods only. The scheme will cover some items which are not imported in significant quantities. In cases where imports form a substantial part of the market, the importers have indicated that, while they cannot give definite undertakings about price movements because of currency and duty fluctuations and other factors beyond their control, they do not expect their selling prices to move significantly out of line with those of home-produced items on the list.

The list of goods within the scheme in some cases covers whole categories of consumer spending, and in other cases particular lines or types of goods. With permission, I will circulate the final list in the Official Report shortly before the scheme begins in the shops. Copies of the letter which the sponsoring Departments have sent to trade associations, the text of which has been agreed between the CBI and myself, are available in the Library. Separately, food retailers dealing in fresh foods, which cannot be brought within the scheme owing to seasonal uncertainties, have agreed to recommend their members to keep margins down on one item of each of the following: meat, one other protein, a fruit and a vegetable during the period of the scheme.

A major publicity campaign will be mounted shortly before the scheme is launched at the retail level in order to make shoppers familiar with the scheme.

I am glad to tell the House that the scheme has the full support of the TUC and consumer organisations. In my view the scheme represents a useful step in our progress towards overcoming inflation. I am grateful to the CBI, the Retail Consortium and other manufacturing, service, wholesale and retail interests for their co-operation in this further stage of the battle against inflation. May I also apologise for the difficulty I have had in presenting this statement to the House.

Mrs. Sally Oppenheim

The House sympathises with the Secretary of State for the difficulty she is encountering in speaking through a heavy cold, and it appreciates the fact that she has felt able to come to the House in the circumstances to make a statement.

Is the right hon. Lady aware that although we accept that those who have participated in the scheme have done so in good faith, even though two of the preconditions have not been met, she has produced nothing more than a cosmetic compromise devoid of the significance which she attributes to it, and that it could perhaps be more effectively described as a selective price increase scheme? Unlike the French scheme, which cut prices by 5 per cent., the Secretary of State's proposals will allow prices to rise by up to 5 per cent. for goods which might otherwise have fallen considerably in price or might not have risen by as much as 5 per cent.

Mr. Mike Thomas

Which ones?

Mrs. Oppenheim

Sugar. To meet the need for flexibility, the Secretary of State has included a number of exclusions and escape clauses which will dilute the scheme considerably. A number of goods which are mostly sold in specialist shops will be excluded. Will the right hon. Lady say whether the list of items will include foods which are subject to subsidies and which are in any case subject to maximum price regulations? Does the scheme cover nationalised industry prices, which rose last year by no less than 44 per cent.?

How is the scheme to be monitored? Will that be done by the public? If so, whom are they to inform? At whose expense will that be done? The cost of a stamp or telephone call could well come to more than the increase in the price.

How much will the advertising campaign cost, and how much will it cost to issue the little kits to retailers containing the red triangular stickers with which they will proclaim the scheme? How are they to be told whether these have been stuck on the right goods, since in some cases—

Mr. Speaker

Order. The hon. Lady is abusing her Front Bench position. This is not the time to make speeches.

Mrs. Oppenheim

Does the Secretary of State expect us to believe that this is anything more than an insult to the intelligence of consumers and trade unionists whom it is designed to impress? What effect will the scheme have on the Retail Price Index?

Mrs. Williams

A scheme which has the agreement of the CBI, the Retail Consortium, the TUC and other manufacturing and service interests—but clearly not the support of the hon. Member for Gloucester (Mrs. Oppenheim)—is one that the hon. Lady ought not to abuse quite so readily. If what she said is true, those who subscribe to it must have done so in a very frivolous spirit. I can assure her that they showed no such spirit.

If the scheme was purely cosmetic, two things would be true. First, it would be likely that the Retail Price Index over the next six months would be at a level below 5 per cent., and I do not believe that anyone accepts that. Second, the scheme would have been very simple to negotiate—and it was nothing of the kind. It anticipates falling costs, and both the CBI and the Retail Consortium have made it clear that this is the only reason why they can participate in it. They believe that the £6 wage limit will now hold for the whole of the first counter-inflation year, and they wish to demonstrate their belief in the counter-inflation policy.

The hon. Lady was wrong about the specialist shops. They will be brought into the scheme, but for a maximum of 60 per cent. of their turnover. There will be a contribution to the scheme by the nationalised industries. Full details will be given as soon as the nationalised boards have been able to confirm it, and I can assure the hon. Lady that whenever a nationalised industry can contribute without the need for an increased subsidy it will do so.

The hon. Lady asked about the monitoring arrangements. The CBI has agreed that leading manufacturers will notify any price changes to the Government for items within the scheme. The Retail Consortium has agreed to provide periodic reports to the Government and to recommend to retailers that they keen a list of base prices immediately before the scheme begins so that inquirers will be able to know whether there have been price changes under the scheme.

On publicity, it has been made clear from the beginning of the discussions that the scheme must be made known to the consumer if it is to serve its purpose. There will, therefore, be expenditure on advertising and publicity, but these will both come within the money which has already been allocated for counter-inflation publicity, and no allowance has been made for an increase in that figure.

Mr. Ioan Evans

In spite of the sour grapes from the Opposition, is my right hon. Friend aware that housewives generally will welcome her statement? Does she realise that, in view of the tremendous response from the trade union movement on restraining wage demands, there has been an obligation on the Government to restrain prices and that this obligation has been fulfilled?

In considering price restraint, will my right hon. Friend examine the possible representations she will receive from the co-operative movement and the retail trade about a variable rate of VAT? In considering the list of prices which are to be kept down, will she taken another look at cigarettes? It seems illogical to keep down cigarette prices when the Government are trying to restrain people from smoking.

Mrs. Williams

I shall take account of what my hon. Friend said about VAT. He will notice that the trade has indicated that its coming into the scheme depends on there being no unfavourable changes in taxation. I shall bear in mind what he said. The scheme includes offers by manufacturers, and the inclusion of cigarettes reflects one such offer rather than an attempt by the Government to bring cigarettes within the scheme. The 5 per cent. limit will be sparked off only if there is a change in manufacturers' prices. If these do not change, there will be no change in the retail price either. Perhaps I should have pointed that out to the hon. Member for Gloucester when she attacked me.

Of course, 5 per cent. as a minimum is in direct line with the limit on wages, or perhaps it is slightly below it. Therefore, we are trying to bring the largest possible range of necessities into direct relationship with the restraint which people are showing on incomes and on which so much depends.

Mr. Donald Stewart

Is the right hon. Lady aware that this is a pudding which will be tested in the eating, and that that is when we shall pronounce upon it? There will be great regret that no ceiling has been fixed for electricity and other fuels. Since the trade unions were induced to accept a ceiling on pay increases as an alternative to mass unemployment, and since they now have both, how does the Secretary of State expect the scheme to work in the next round if the Prime Minister does not get the right answer he was talking about today?

Mrs. Williams

The hon. Gentleman would be wrong to assume that there will be no fuel contribution in the scheme. I am not at liberty to give final details until they have been confirmed by the nationalised industries' chairmen. Broadly, there is every indication that price increases in the nationalised industries during the coming calendar year will be far below those of last year. I cannot promise that every individual price increase will be within the 5 per cent. of the scheme, but we shall include in the scheme only three which we are reasonably certain will be below 5 per cent.

I am as conscious as is the hon. Gentleman or anyone any hon. Member of the great perils of high unemployment. The scheme often has to walk a delicate tightrope between doing nothing to encourage the redundancies which I am convinced would follow if we had a complete price freeze in a situation in which costs in the retail trade were still rising and doing everything we possibly can to soften the effects of inflation at a time of income restraint.

Mr. Richard Wainwright

I acknowledge the value of a voluntary scheme, but how does the right hon. Lady take care of the obvious risk in a minority of cases of taking the edge off competition, denying shoppers the benefit of price reductions in some commodities and, above all, establishing a climate in which a universal price increase at the rate of 10 per cent. per annum is considered wholly respectable and inevitable?

Mrs. Williams

There is no provision to move up to the 5 per cent. maximum rate of increase in most cases. There is one exception, which is, rightly, food. In no other case can retail prices move under the scheme unless there is an increase in manufacturers' prices. It is not true that the scheme establishes a minimum as well as a maximum of 5 per cent. There is no reason for some prices in the scheme to move, nor do I believe that they will do so. I have already said that there are a number of items outside the scheme which are likely to stay within the 5 per cent area.

We wanted to give the housewife the benefit of the assurance of stability over a six-omnths' period after a considerable period in which housewives and pensioners have been continually faced with rises in price with no assurance that they will ever come to an end. I do not want to claim more from the scheme than it gives. It gives us something which the previous adminstration sought but on which they were unable to get agreement.

Mr. Cledwyn Hughes

Is my right hon. Friend aware that her scheme will be widely regarded by all fair-minded people as a constructive and imaginative counter-inflation measure, infinitely preferable to the policy of the hon. Member for Gloucester (Mrs. Oppenheim) which is to sweep away food subsidies? Will my right hon. Friend confirm that the scheme will be uniformly applicable throughout the United Kingdom to areas such as mine which are peripheral and where there are difficulties about some items of food?

Mrs. Williams

Yes, certainly. We have not included any item which has regional variations in Great Britain which would take it outside the scheme.

Mr. Neubert

As the prices of services provided by the nationalised industries went up by 44 per cent. last year, does not the right hon. Lady agree that the House deserves more direct answers than she has given on this subject? What precise effect will the scheme have on prices in the public sector?

Mrs. Williams

As I have already explained, I am not yet at liberty to give this information, and I do not want to mislead the House by giving provisional information as if it were final. The commercial interests have said that the list is not yet completely finalised, and as soon as it is finalised it will be circulated in the Official Report. That will cover both nationalised industries and the private sector. It is the interests with which I have been negotiating which have said that at the moment they do not want to go beyond the provisional stage.

Mr. Mike Thomas

Is my right hon. Friend aware that, far from regarding the scheme as a cosmetic exercise, large sections of the retail trade, including the co-operative movement, whose interests I represent in the House, are seriously concerned about the way in which the scheme may undermine gross and net margins? What response has my right hon. Friend been able to make to representations on that ground? Does she accept that the co-operative movement—and, I am sure, the rest of the retail trade—is prepared to go along with the scheme in the national interest but must see some account taken of the difficulties it may create for it?

Mrs. Williams

I am pleased to say that the scheme has been welcomed by the co-operative wholesale and retail interests although emphasis has been placed on what my hon. Friend said about the level of margins. I emphasise how low are those margins in the retail trade. In both the retail food trade and the retail trade, overall the margins are now at their lowest level since the Price Code was introduced. By any standards that is a serious position. Nevertheless, I think the trade recognises, as I do, that the volume of demand in the retail trade is more likely to pick up if there is some assurance that we are moving into a period of relative price stability than if people continue to be frightened about the possibility of greater and greater inflation and, therefore, base their buying patterns on the most cautious possible exercise.

Mr. Giles Shaw

Does the right hon. Lady agree that the scheme will be judged largely on the food sector? Does she also agree that some of the food products she has selected are taxed? Would it not be more sensible for the Government to prepare for a direct reduction in tax on food rather than to produce the elaborate package which the right hon. Lady has presented this afternoon?

Mrs. Williams

The hon. Gentleman will recognise that the prime food items that are taxed are beer and cigarettes. Although they are not a food, cigarettes are often sold in food shops. One of my hon. Friends pointed out the special difficulties with cigarettes, but I must leave beer to my right hon. Friend the Chancellor of the Exchequer. We are not unaware that taxation affects the level of certain prices in the food and beer sector although there is no direct taxation on the bulk of food items.

Mr. Raphael Tuck

I warmly commend my right hon. Friend on her statement, but I urge on her the necessity either of containing the price of nationalised industries' services such as coal, electricity and gas or of subsidising those industries. An increase in the price of these services is bound to cause a spate of wage demands.

Mrs. Williams

I recognise how strongly my hon. Friend feels about this matter, but both the CBI and the TUC strongly support the gradual disappearance of subsidies for nationalised industries. Although problems have undoubtedly arisen from the return to viability, I think most hon. Members accept that, as an immediate exercise, it is better for nationalised industries to be viable.