HC Deb 05 July 1976 vol 914 cc941-4
5. Mr. Rathbone

asked the Secretary of State for Prices and Consumer Protection if she will estimate the amount of investment that will be generated by the changes she proposes in the Price Code.

6. Mr. Atkinson

asked the Secretary of State for Prices and Consumer Protection if she will make a statement about price control and investment in the manufacturing industries.

Mrs. Shirley Williams

The Price Code changes will allow firms an investment relief of 35 per cent. on factories, warehouses, plant and equipment, commercial vehicles and shop buildings. The relief does not extend to property companies or to investment overseas, and Price Commission monitoring will ensure this. The amount of investment generated cannot be directly estimated, but in the period December 1974 to February 1976, at a rate of 20 per cent., investment relief due against Category I and II firms' investment years amounted to £380 million, benefiting planned investment expenditure of £1,955 million.

Mr. Rathbone

Is the Secretary of State aware that the House will be very pleased to hear those figures quoted as an indication of what industry will now be able to do? Can she give an estimate of what investment would be generated by the complete abolition of price controls? Would not that work in the longer-term interest of the consumer?

Mrs. Williams

As I explained in my statement last week, my view is that the complete abolition of price control would lead to the complete abolition of pay restraint, which would not create an atmosphere of confidence for industry.

Mr. Atkinson

Does my right hon. Friend agree that the changes which she has announced in the Price Code amount to the imposition of an investment levy on all prices? If that is the case, does she not also agree that the imposition of such a levy can be morally justified only if the levy itself will contribute towards a reduction in unemployment? Will she therefore tell the House that within these changes the Government are prepared to introduce further measures which will ensure that the levy is used for stockbuilding or retooling which will provide more jobs?

Mrs. Williams

No, Sir. As I have said to my hon. Friend before, in my view the monitoring will ensure that both investment and depreciation will take place and that there will be no increase in prices based on them unless they do. It is not proper to refer to this as a levy. We are relaxing a code which would otherwise forbid any price increase in the light of the cost of investment. The rate of return has fallen from about 10 per cent. in 1965 to about 2 per cent. today across the whole front of industry. I hope my hon. Friend will accept that that is not a rate of return which is likely to encourage firms to invest.

Sir J. Eden

While I acknowledge my interest in these matters, may I ask the Secretary of State to what extent she expects the new Price Code to be able to change the disparity which has grown up between the price which can be charged in this country and the price that can be charged for similar goods manufactured in other member countries of the EEC? Does she expect the gap, which has caused considerable embarrassment, to be closed to any extent by these changes?

Mrs. Williams

Exports as such are not within the control and never have been. I think that the right hon. Gentleman is referring to components which pass into exports. He will see in the consultative document that a direct relief has been given for exports and the share of overheads of exports as against domestic production, which will deal with the problem he has raised. However, the right hon. Gentleman may like to raise it again in the debate later this week, if he has the opportunity.

Mr. Raphael Tuck

The hon. Member for Lewes (Mr. Rathbone) suggested the abolition of the Price Code. Can my right hon. Friend give the House any idea of the magnitude of price rises and inflation that would ensue if she abolished the code?

Mrs. Williams

My view is that the CBI's assumption that there would be very little effect if we abolished the code is not right, and that it is based on a short period in which all of us in the Western world have been passing through a recession. I believe that if it were abolished as we pass into a period of recovery we should see a substantial increase in prices.

Mr. Norman Lamont

Would not any effect on the RPI be minimal compared with the impact of the extent to which the pound will continue to fall if the profitability of British industry is not restored? Is it not the case that the right hon. Lady's miserable proposals will go no way to restore the return on capital and the alarming figures she quoted as the decline since the 1960s?

Mrs. Williams

The hon. Gentleman is perhaps rather less wise than some areas of the Press. I should like to quote one phrase used by the Investors Chronicle in its last issue. No Government could set the Price Code aside while asking the unions to accept their second, consecutive cut in pay rises and living standards". This is the dilemma that the hon. Gentleman may one day have to face, as do the Government. It is clear that the effect on confidence of the disappearance of the present counter-inflation policy would be disastrous for the country. The hon. Gentleman cannot pretend that that dilemma does not exist.