Mrs. Sally Oppcnheim
I beg to move Amendment No. 44, in page 14, line 6, leave out from 'regulations' to end of line 21 and insert:'(2) The regulations in this section have effect—
- (a) for the purposes of section 4(5) of this Act and that paragraph as applied by section 5(4) of this Act; and
- (b) for the purposes of defining levels of profit which persons are not to be prevented from earning by virtue of any provision of section 7 of this Act.(3) The regulations for the purposes of the preceding subsection relate to the following levels of profit—
- (a) in the case of an enterprise either an amount of net profit equivalent to 90 per cent. of the net profit margin being corned at the base date or an amount of net profit
1533 equivalent to either 10 per cent. on capital or an amount of net profit equivalent to 2 per cent. on turnover, whichever is the greater; or
- (b) in the case of a product, either 80 per cent. of the net profit margin being earned at the base date or an amount of net profit equivalent to 2½ per cent. on costs, whichever is the greater'.
Mr. Deputy Speaker
With this amendment we may also take Amendment No. 55, in Clause 22, page 25, line 42, after 'Act', insert:'"enterprise", "net profit", "net profit margin', "base date", "product", "costs" "capital" and "turnover" have the meaning assigned to them by the 1976 Price Code Order (S.I., 1976, No. 1170)'.
§ Mrs. Oppenheim
We attach the greatest importance to this amendment. The Secretary of State's reaction to it will colour our final approach to the Bill.
I wish I had the confidence that on this amendment I had the flexibility that was deployed by my hon. Friends on earlier matters, but, perforce, this will have to be a long debate. It is a complex matter, and I must deal with it thoroughly. It is a matter that is crucial throughout British industry.
The purpose of the amendment is to ensure that new safeguards in Clause 9 are not lower than those that are in existence in the present Price Code. I want to make the situation absolutely clear. We did not table this amendment because we believed that the levels were adequate—but the levels are higher than those proposed in the consultative document published by the right hon. Gentleman the Secretary of State for Prices and Consumer Protection.
I should like to pay a tribute to the right hon. Gentleman. We discussed this matter at length in Committee and it engendered a good deal of anger, but eventually the right hon. Gentleman gave an undertaking to the Committee that he would produce this document before Report. Under considerable pressure, he proceeded to do that, and I am grateful to him for speeding up the various procedures at that time, because it has made this debate possible on a matter that we regard as important.
We want to preserve these albeit inadequate levels in the present Price Code because they are levels with which business and industry are familiar, and on 1534 which their forward plans have been based for some years ahead. They at least replace the uncertainties of the unknown quantities of the lower level of the proposed new safeguards. Indeed, it was the uncertainty associated with the new safeguards that has been causing much of the problem. I believe that that led the Secretary of State to ask at one point whether the problem was economic or psychological. It is bound to be a mixture of both, because we are dealing with an unknown quantity and the reason why it will be such an unknown quantity for business and industry is that there will be non-arithmetical criteria for the new safeguards, so it will not be possible to change the criteria into quantitative figures and to know precisely how this will affect certain companies until precedents have been created, and by that time it will be too late.
It will be impossible for many companies to tell in advance whether they will come within the safeguard provisions in the Bill. As a result of that, forward planning will be made extremely difficult for many and impossible for some. Furthermore, if the Price Commission gets its calculations wrong or exercises discretion in an unfair manner there will be no redress at all, even when a company has been found to be innocent after an investigation. That will happen because of the absence of the roll-back amendment that we moved in Committee and that was not accepted. That situation is created under the safeguard provisions.
The Secretary of State has said that he is unable to define what is a reasonable profit because of the variables involved. If he cannot define it, how can the Price Commission do so? How will companies know where they stand? I am sure that I do not know. We shall be interested to hear from the Secretary of State on that point. The existing safeguards now comprise a number of relaxations.
§ Mr. Burden
My hon. Friend the Member for Gloucester (Mrs. Oppenheim) has made an important point. In the fashion world, for example, a company may produce a number of articles and fix a price, only to find that one of those articles does not sell at all, and that must be compensated for by increasing the prices of the other articles in order to 1535 get back capital expended and a reasonable profit. How could the Price Commission assess whether an article such as that would sell, and at what price?
§ Mrs. Oppenheim
My hon. Friend the Member for Gillingham (Mr. Burden) is right. British industry will be burdened with such dilemmas as a result of the inadequacy of the safeguard provisions.
The existing safeguards comprise a number of relaxations most of which have been obtained during the last three years from the Secretary of State's predecessor because they were essential safeguards and not because the Secretary of State wanted to give them.
I am told that when concessions were made under the present Price Code last year—some of them affecting safeguards—a firm undertaking was given that any subsequent safeguards would not be worse. As a result, some companies invested heavily and those companies now feel that they have been tricked and cheated. This makes it all the more regrettable.
However, despite the weighty and informed representations that have been made to the Secretary of State, despite our pleadings in Committee—and, goodness knows, they were prolonged—and despite the deplorably low levels of profitability for British industry—50 per cent. of companies with profits so low that they are already in the safety net—the Secretary of State has seen fit to ignore all of that and to propose in his consultative document safeguards that fall short of the low levels already in existence. It is no wonder that the right hon. Gentleman was unable to produce his document until the last moment, because undoubtedly the investment that has taken place between the time when the Bill was first mooted and the publication of safeguards would not have taken place.
It is now impossible to estimate exactly how much investment will be lost, and how many jobs. That is likely to happen on an increasing scale as a result of inadequate safeguards.
What it is possible to estimate, however, is the difference in value between what is in existence and what our amendment would establish, albeit inadequately, and what is proposed in the con- 1536 sultative document. The assessment is that the proposed interim and final safeguards are worth, respectively, two-thirds and a half of the 1976 safeguards.
In addition, the valuable safeguards in the 1976 code covered the erosion of safeguards, with 1973 base dates. As margins have declined and the base dates for safeguards have been moved forward, their proposed equivalent has been considerably reduced in value.
Right across the country, British industrial companies will be significantly worse off than before—considerably worse off than if our amendment were accepted. Most of the ground that the Secretary of State has already conceded—and there is very little—relates to the safeguards during investigations rather than during the freeze proper. As I maintain that there should be no freeze during investigation, we consider this concession to be worthless. No account has been taken of the rapid rises in commodity prices—they are dealt with in a previous amendment. There are companies who total profits could be wiped out in three months during a commodity price rise coinciding with a period of investigation. Of course, commodity prices can rise rapidly. I shall later give the House examples of how certain companies could be adversely affected if our amendment is not accepted and the safeguard levels proposed in the consultative document introduced. I understand that the consultative period is seven days. That is absolutely ludicrous.
I want to deal with some of the principles involved and to discuss what the Secretary of State has declared to be his motivation for the body blow he has dealt to business and industry. The Secretary of State has said that the new lower levels are not a ceiling but a floor. What will cause many of the companies affected to fall through the floor is the inadequate level of safeguards affecting other companies.
If a market leader has a freeze on its prices that may not push that company below its own safeguard levels but it may force many of its competitors below the levels, so that they are unable to compete with the market leader without lowering the market prices. The lower the floor for the market leader, the lower still will be the floor for its competitors. This can mean bankruptcy in some cases, 1537 because that lower floor may well be below an adequate safeguard level.
It is not just the Secretary of State who should be aware of the situation. The Minister of State has boasted of it on a number of occasions. He has said that when a price for a certain company is frozen it will be the epicentre of an earthquake with a ripple effect throughout industry. That is true. Will the Secretary of State say whether it is his intention that that should happen and whether he is prepared to see companies pushed below the safeguard floor in that way? The Secretary of State's safeguard proposals are a charter to turn British industry into a whole paddle of lame ducks. I understand that "paddle" is the correct collective noun for lame ducks.
However, the Secretary of State claims that companies on low profits will have nothing to fear from the safeguards. It is companies with average profits that should have nothing to fear from the safeguards and nothing less than that is acceptable. That is particularly true at the time when average profits, as a percentage of capital investment, are already at an absurdly low level. Some companies would be better off to put their investment money in a bank deposit account. Many people are keeping companies open because they are patriots and for no other reason. There is also a need to take account of the cyclical nature of profits, and the new safeguards do not appear to have done that sufficiently.
If a company has a prolonged cycle of lower profits and a short higher-profit cycle it could find that the safeguards fail to protect it during an untypical period of short-term high profits. The Secretary of State gave as the main raison d'être for the lowering of the safeguard floor the need to catch companies that, according to him, had gained too much advantage from existing safeguards. These are companies that had an advantageous historic based rate and that have not been as adversely affected by the existing Price Code as have many other companies and whole sectors of British industry. If that is the reason, it is unnecessary and unfair.
In attempting to find the solution, the Government will impose the same lower 1538 levels, not just on those companies that they want to catch but on the whole of British industry, including the vast majority of companies that have had no advantages under the code. In order to catch a few companies the Secretary of State is whipping the lifebelt away from the whole of British industry, and that is unfair and unnecessary.
If some companies have had an advantageous base date, is there any evidence that they have been making excessive profits? I invite the Secretary of State to give us the evidence, because unless he has substantial evidence his proposals are nonsense.
The likelihood is that these companies have been subject to competition and that market forces have prevented their making excessive profits despite their advantageous position under the code. Even if such companies have been making higher than average profits, so what? The fact that they have been making profits that are higher than the norm, does not mean that the norm is acceptable or that there is any justification for jeopardising the whole of British industry to catch the few companies that have been making profits that are higher than an inadequate average.
I wish to give specific examples of how certain companies will be adversely affected by the difference in the safeguard levels proposed by the Government and those included in the amendment.
I start with company A, in the food industry. It is operating at an interim safeguard of 80 per cent. of base date margin. To operate at this safeguard level would mean a reduction in profits of 5 per cent. to 10 per cent. at an annual rate. Over the five months of the "semi-freeze" the loss would be proportionally greater. On the recommendation's safeguard of 50 per cent. of base date margin, the current margin on a product would be reduced by 40 per cent. after interest. The rate of return for a product before interest and tax would be reduced, on a historic cost basis, from 12½ per cent. to less than 10 per cent. In real terms, the rate of return would be nil and the likely effect of this situation would be a cutback in planned cash outflow of 25 per cent. for the product and most of the cuts would fall on fixed capital expenditure, with the result that the company 1539 would review its less profitable activities to see what activities could be phased out to preserve the overall level of profitability—and jobs would be lost too.
Company B is a metal manufacturing company. Let us say that it is operating at 85 per cent. of its reference level. The 3 per cent. on costs safeguard is equivalent to 33 per cent. of its reference level. The respective figures for the 80 per cent. and 50 per cent. of the base date margins safeguards are 60 per cent. and 38 per cent.
Company C is in the food industry. If all products were subject to investigation, the effect would be to reduce profits by £700,000 during the investigation period. If the Commission recommendation was to maintain the interim price increase, the total loss of revenue over the year would be £2.8 million, or 20 per cent. of forecast profit. If the company were forced to operate for nine months on the 50 per cent. of base date margin safeguard, the total loss of profit would be £5.9 million, or more than 40 per cent. of forecast profit. The loss of profit in the latter case would also be equivalent to 40 per cent. of the investment expenditure planned for 1976–77, and that would also mean more lost jobs.
§ Mr. Hattersley
Is the hon. Lady saying that these circumstances would occur in this anomalous, if hypothetical, food industry only if every price increase were notified and every price were frozen?
§ 6.15 p.m.
§ Mrs. Oppenheim
This would happen if every increase were subject to investigation and freezing during the investigation.
§ Mr. Hattersley
The words "subject to freezing" mean the same as "frozen". Does her case depend on every price being notified and every price being frozen?
§ Mrs. Oppenheim
If all products were subject to investigation, the effect would be, during the investigation period, to reduce profits by £700,000. That would be caused by the freeze during the investigation period alone and it could not be recovered if a company were found to be innocent.
§ Mr. Hattersley
This point is absolutely essential. The hon. Lady is saying that every product of this company would 1540 be pre-notified to the Commission, that every application would be investigated, and that during the investigation the price of every product would be frozen. That is a pretty unlikely situation.
§ Mrs. Oppenheim
I agree that it is somewhat unlikely, but the hon. Gentleman should remember that in the food industry many manufacturers, such as Guinness, make only one product, and others make only two or three. That is why I gave the example to the House.
Company D is a miscellaneous manufacturing company that was operating under the paragraph 50 safeguard of the Price Code. The 10 per cent. code caused an erosion of the enterprise's net profit margin. It knew that the code could not force the net profit margin below 11.5 per cent., but under the new controls the "guaranteed" margin is reduced by nearly half to 5.75 per cent. While it is recognised that the proposed safeguards are floors, the lower safeguards must mean that the risk is considerably higher.
The company was planning to spend more than £8 million on capital expenditure over the next five years, half of which is for expansion, involving 350 new jobs. If the profitability of the company is to be reduced by the new controls and the inadequate safeguards, the expansionary investment programme will stop and the 350 new jobs will not be created.
Company E is also a miscellaneous manufacturing company. If it is operating under the paragraph 50 safeguards of the code, it is guaranteed a margin on sales of 9.9 per cent. However, because it took its last price increase in stages, the proposed 50 per cent. of base data margin safeguard would yield a margin on sales of only 2.9 per cent. which is below the 3 per cent. on cost safeguard This level of profit represents a pre-tax return on capital of less than 5 per cent. on a historic cost basis—which is a loss in real terms. If forced down to this level, the continued existence of the company would be thrown into jeopardy.
Company F is in the food industry. Taking account of the fact that competitor companies may be subject to investigation, with consequent "knock-on" or "back-marker" consequences for other 1541 companies in the same industry, this company estimates that the profits that it earned could be reduced by 8 per cent.—equivalent to £2.8 million—by the interim safeguard proposals.
These are the sort of cases that will be put to the Price Commission. Examples have been given to me in good faith and I regard them as terrifying. If these situations develop as a result of the safeguard levels written into the consultative document, we must take a closer look at the Bill. From the examples that I have given it can be seen to what extent the Secretary of State intends further to erode profit margins at a time when the erosion of profits that has already taken place has probably killed the goose that laid the golden eggs and is killing the goslings that might have laid golden eggs in future.
The concern in business and industry was summed up in a letter sent to the Secretary of State by the CBI two days ago. It said:At our meeting of Council on 15th June we discussed the proposed level of safeguards you intend introducing under Clause 9 of the Price Commission Bill. The discussion was held against the background of the two meetings the CBI has held with you on this subject, and a report on the content of the formal consultative document which you issued on 15th June and which contains no significant change in your position.I understand there is no disagreement between us that your proposal for interim safeguards during the course of an investigation is equivalent in value on average to two-thirds of the level of the safeguards contained in the present Price Code, and, in the case of the safeguards which apply after investigations have been completed, the value on average is under half of the present Code safeguards.I made this point earlier. The CBI said to the right hon. Gentleman:In practice the position is even worse than these figures suggest, because only a very few companies—those earning less than 3 per cent. on costs, which is totally inadequate for most businesses—can be sure under your proposals that their current profitability will not be halved as a result of an investigation. In contrast, under the present Price Code, a significant number of companies know that their present profitability cannot be further reduced as a result of the operation of the Code.It went on to sayWe believe that industrial confidence could be undermined, with serious consequences for investments and jobs, if you continue with your intention to reduce so substantially the value of the safeguards for the investigatory 1542 controls. It is inevitable that boards in assessing investment projects are bound to ask what is the worst possible position that the company could find itself in under the new controls. This is bound to influence their final decisions. It is essential that you should be fully aware of this potential adverse consequence of your actions.The Secretary of State received that letter a couple of days ago. I hope that it made him think again. In all the years that his right hon. Friend, the previous Prices Secretary, was negotiating with the CBI she never once came away without an agreement. The Secretary of State has the unique distinction of failing to satisfy both the CBI and the TUC.
This brings me to one of the areas of even greater dissatisfaction than those I have mentioned so far. Under the old régime—we now look on it as the dear old régime, although we criticised it enough in the past—that we are attempting to preserve, safeguards could be based on the profit of an enterprise as a whole. The Secretary of State now proposes to do away with this and to apply safeguards to unit costs or to a range of products. This will mean that a company whose overall profit margins are below safeguard levels but who make one profitable item—which is one factor which may make the company economically viable—can, because the profit on that one item is high, have its overall profits reduced to bankruptcy level as a result of a freeze on the price of that one item. That is a ridiculous situation. I beg the Secretary of State to take notice of the advice he has been given that it is possible to draft safeguards that may apply to an enterprise as a whole, because I know that he tried to do so but found singular difficulty.
I hope that I have illustrated to the House the great dangers and unfairness inherent in the safeguards that are proposed—safeguards that go hand in hand with the totally imprecise criteria elsewhere in the Bill. I hope that I have demonstrated the urgent need for the House to accept the amendment, which seeks to write into the Bill a fall-back position beyond which companies cannot and should not be pushed. This will not prevent higher levels from being set in some cases if this proves desirable at a later date. It in no way impairs flexibility at the upper end. It merely provides for the continuance of an accepted familiar safety net.
1543 I emphasise that we do not believe that even this proposal is adequate—merely that it is better than what the Secretary of State proposed. We believe that the only way that profitability should be assessed is by the percentage real return on total capital invested.
If the House rejects the amendment it will condemn British industry to uncertainty. It will be condoning a situation that will make forward planning difficult and in many cases impossible. It will undoubtedly halt investment and cause considerable unemployment. I do not believe that that is what the Secretary of State wants. Not one hon. Member wants that.
Those hon. Members who do not vote for this amendment will have a lot of explaining to do to their own constituents when unemployment starts to rise and they are told by their constituents that the companies in which they work have informed them that the reason for unemployment is that the safeguards under the new Price Commission Bill are too low.
I urge the House to accept this amendment, which is moderation itself, like all our amendments, and which represents rock-bottom in relation to profits. We believe that without this amendment no part of the Bill will be viable or acceptable to us even in the context of phase 3 of a pay policy.
As Austen Walker, who is chairman not of the Price Commission but of Air Products, said of the right hon. Gentleman's proposals in the CBI Spring Review,This is a safety net for lame ducks, not an incentive for the entrepreneurial enterprise and investment which are essential for the success of the Government's industrial strategy.A journey with one foot on the accelerator and one on the brake is likely to be long, jerky and frustrating, and the vehicle may never reach its destination. I submit that if our amendment is not accepted that is precisely the journey to which this House will condemn the whole of British Industry.
§ Mr. Hattersley
I begin with some of the facts about which the hon. Lady asked me or on which she commented, so that we may be clear at first. At one point she spoke about the consultative document, which is the basis of this debate. She said that it would be preposterous if in- 1544 dustry were to be given seven days to consult about it. She is right. That is why, under paragraph 26 of the consultative document we invited industry to take 28 days to consult about it.
§ Mrs. Sally Oppenheim
Perhaps there is a mistake in the letter that was sent to me in the House today marked "Urgent". It reads:Dear Mrs. Oppenheim, I am sure you are quite right to complain about this Bill. I am sending you this copy of our response to the DPCP consultative document issued last week on a seven-day notice".
§ Mr. Hattersley
I am no more responsible for the hon. Lady's correspondence than I am for her inaccuracies.
Paragraph 26 of the consultative document, which this debate is about, says that industry has between 15th June and 15th July.
§ Mr. Sainsbury
Would it be of interest if I read the relevant section? The end of paragraph 26 of the document says that any comments on the propoals in this document which are received by the Department of Prices and Consumer Protection within the next seven days will be taken into account in the drafting of the regulations, but all comments which reach the Department by Friday 15th July—which I think would approximate to the right hon. Gentleman's 28 days—will be considered before the regulations are made. Therefore only comments which reach the Department within seven days will be taken into account in the drafting.
§ Mr. Hattersley
I went over all this ground in Committee. I explained that it was always our practice in a consultative period to offer industry not two courtesies but two advantages—advantages to the Government as well as to industry. We said "We shall construct a piece of paper. If you will help us in constructing it we shall be grateful. After that piece of paper is constructed we should like your comments upon it."
Paragraph 26 gives seven days to help in the construction of the piece of paper and 28 days in which to consult upon it. That is a simple statement of fact. It is an admirable statement of fact.
This is the second matter of fact which I must raise with the hon. Lady. She is right to say that in preparing the consultative document on safeguards I have satisfied neither the CBI nor the TUC, 1545 although I satisfied the TUC a great deal more than I satisfied the CBI. The TUC's view is that the safeguards are unreasonably protective to industry. It is not altogether reasonable for her to complain that one of my major failures consists of satisfying neither party when she wanted me to move towards one party's extreme position.
That is the third fact. I hope that if the hon. Lady is able to catch your eye again, Mr. Deputy Speaker, she will make her position clear on the previous policy, to which she has referred so often, and its safeguards, to which she now clings.
She called the old system of cost and margin control "the dear old régime which we are attempting to preserve". I hope, in the few moments before we conclude the Report stage and Third Reading, to make it clear that the old system of cost control and margin control is the dear old régime which we are attempting to preserve. That is a new development of Conservative policy.
§ Mrs. Sally Oppenheim
May I clarify the matter simply? The "dear old régime" is the present system of safeguards under the present Price Code, not necessarily the Price Code itself. The Price Code which the Minister has amended is singularly more popular with business and industry than is the Price Commission Bill.
§ Mr. Hattersley
I see. The hon. Lady describes it as the "dear old régime". It seems that she wants to extract bits of that régime to graft on to a new régime. I understand her position but I do not understand the logic of it.
I turn to some points on which the hon. Lady and I may agree. First, I agree entirely that the problem that we are facing this afternoon when talking about safeguards is as much psychological as financial and economic. None the less, I agree that it is important. Many of the most decisive issues in industry, especially investment decisions, are more concerned with psychology than finance. I hope that the hon. Lady agrees with me—this is an issue on which I think the CBI and I coincided—when I say that the psychology of industry is something that we all help to create. If there are speeches 1546 made in Parliament that show that that confidence is being undermined, confidence, to a degree, is undermined. It is the duty of us all to do what we can to preserve confidence.
§ Mrs. Sally Oppenheim
I agree entirely with what the right hon. Gentleman says, but does he agree that the same is equally true when distrust between management and labour is deliberately created?
§ Mr. Hattersley
Yes. I am against distrust between management and labour. That has no relevance to what we are discussing but if the hon. Lady wants me to say it, I am against it.
The hon. Lady was kind enough to say that I observed my obligation to the Committee in fulfilling my undertaking that before we reached this afternoon's proceedings the consultative document would be available to the House. I am grateful for the hon. Lady's thanks. It was wholly right for me to provide the document. It was equally right that I promised to do so. I do not believe that a meaningful debate could have taken place without a statement of the safeguards. It was our duty and our wish that the House should be in a position to understand our proposals.
The hon. Lady will understand that the document poses a certain difficulty. I said to the CBI on my second meeting with it—I meant this as sincerely as I meant the undertaking that I would publish the document before the debate—that it is a genuine consultative document. However, there are possibilities of change and alteration. I am sure that the hon. Lady and the House will understand that what I say about the document is by no means the last word. I stress that there are possibilities of change. I do not propose to hide behind the document.
I must tell the House honestly that nothing else would make a satisfactory and sensible debate. I do not believe that the changes that might be made could or should provide industry with a safeguard that is the equivalent of that which appears in the present code. I shall try to explain why that should be so, as I tried to do in Committee.
First, safeguards have two meanings in the Bill. When we first talked about safeguards when the Bill was written, we did not mean what we are now discussing. We meant a number of things deliberately 1547 written into the Bill to preserve industry's interests and to give it a degree of confidence. We meant the nature of the Commission, the possibility of interim price increases determined by the Commission during investigations, the Commission's independent right to make investigations and independently to decide levels of interim price awards, and the possibility that we discussed earlier that if the Commission were to go corporately crazy the Secretary of State could veto its proposals to protect industry. That is what safeguards meant initially.
Those are the safeguards that seem to be intellectually consistent with a selective prices policy that imposes on the Commission a great deal of discretion to decide which companies it investigates and which prices it freezes. They are intellectually consistent safeguards that I believe are generally adequate.
The other sort of safeguard is the term of art that has become the mathematical or arithmetical floor safeguard. It is something that we included during the consultative period. In fact, the Price Code is littered with consultative periods. We included the arithmetical safeguard at the wish of industry. We promised to include it and we included it as a statutory legal obligation within the Bill. We were right to do so, not because it is the sort of safeguard that has any real place in a flexible discretionary system but because by including it we did a great deal to assure industry that our policies were bound to protect it. We were bound to do so although industry's real safeguards are those that I have described.
If the House thinks about these matters it will realise that the hon. Lady's notion of the three deputy chairman chairing the investigations and inquiries and being in charge of a team considering one of the specific price increases is inconceivable. It is inconceivable that any of the three men will act in the arbitrary, destructive and economically illiterate way that is sometimes feared and implied. It is inconceivable that the deputy chairmen would behave in that way. That is the real safeguard.
As I have said, the hon. Lady is right to say that the problem is as psychological as it is financial and economic. We have tried to produce arithmetical figures to underpin and to give a degree of con- 1548 fidence that should be there anyway. I believe that that degree of confidence is wholly consistent with the operation of this prices policy. That is not the policy that comes to an end on the last day of July—the "dear old régime"—but the prices policy which is to replace it.
I remind the hon. Lady of the characteristics of the régime that comes to an end on the last day of July. It is wholly arbitrary. It applies in its arbitrary arithmetical fashion to 80 per cent. of British industry. It is based on historic performance and requires 80 per cent. of industry to respond in an arbitrary way that is related to historic performance. If we say to company A, B, C or D that it is required to charge prices that are a percentage of those that it charged in 1973 or 1976, that it is obliged to secure profit margins that are a fixed percentage of those that obtained in 1973 or 1976, we are placing an arbitrary and dangerous requirement on industry. We are placing that requirement on the good and the bad alike, on the profitable and the virtually bankrupt alike, on the near-viable and the far-from-viable alike. In those circumstances, we would be bound to provide a safeguard that underpinned even the least efficient of companies.
I have no doubt that the old safeguards applied generally to every company in industry. I accept that it was right that they were pitched at their previous level. Equally, I have no doubt of the result. For some companies teetering on the edge of viability, the safeguards were in one sense hardly enough while in another sense they were more than enough. Some companies did not produce margins that reached the safeguard levels but the safeguards related to historic performance and gave a certain sanctity to the profit levels that were made three or five years ago. There is no doubt that for some companies the safeguard levels almost sanctified the position that they had been in three or four years previously.
Stratifying British industry in that way and casting it permanently in its historic mould is the concept from which the new and flexible prices policy attempts to get away. The discretionary element of the policy is that the three deputy chairmen with a group of colleagues will be able to examine a company's price proposals without being required to measure them 1549 against the company's historical performance or against any arbitrary figures. That is why in one sense an arithmetical safeguard is wholly inappropriate. However, as I believe that it is in the interests of British industry to have its confidence bolstered by providing such a safeguard, I thought it right to write one into the Bill.
What I could not do, and what I do not think my hon. Friends would have voted for, was to write a safeguard level into the Bill that disqualified the Commission from examining the pricing policies of three-quarters of British industry. The fact is that if the hon. Lady were to write into the Bill the provisions that she seeks, at least 75 per cent. of manufacturing industry would automatically be excluded from the provisions of the Bill in so far as they involve price freezes.
§ Mr. Burden
The right hon. Gentleman says that we should be exempting three-quarters of British industry. That is an enormous span. Does he suggest that the examination can be properly and efficiently carried out by the Commission?
§ Mr. Hattersley
No. What I do suggest, and I have been suggesting it in the hon. Gentleman's presence and elsewhere for four months, is that the Price Commission will examine, on its own initiative, about 40 cases a year. What I said a moment ago, I am sure very inadequately, since the hon. Gentleman could not understand me, is that I do not believe the Price Commission should be prevented from choosing those 40 cases from 75 per cent. of British industry. I understand that there is a great distinction between the parties—perhaps doctrinal, perhaps philosophical—about whether the Government should be prepared, willing and anxious to intervene in these industrial decisions, but on the Government side of the House we believe that it should. I hope that the Opposition will see that since we believe that as a matter of principle it is unreasonable to expect us to apply that principle in such a way that 75 per cent. of British industry is excluded from these provisions.
§ Mr. William Shelton
If the present safeguard levels proposed by the Secretary of State did become law, what proportion of British industry would be 1550 precluded by them does the Secretary of State think?
§ Mr. Hattersley
A substantial proportion, but a smaller proportion, perhaps something like 20 per cent. or 30 per cent. The hon. Gentleman will recall that I said a moment ago—and in no sense was it an apology—that these were intellectually consistent industrial price arithmetic safeguards which have no real place in a discretionary system, but I thought it was right to reassure industry in this way and they appear for this reason.
§ Mr. Burden
What concerns me is that although they will undertake the examination of probably 40 cases in a year they cover a very wide and diversified range of British industry. Does the right hon. Gentleman really believe that there will be present on the Commission people with sufficient knowledge to cover that whole area, or will they be able to co-opt into their investigations people with particular knowledge of an industry where they do not themselves possess such knowledge?
§ Mr. Hattersley
The hon. Gentleman has asked an important question. Perhaps this is the right moment to tell the House something that I intended to say during my reply to a subsequent amendment. I propose to make an order, against which the House can pray, which would extend the membership of the Price Commission from 12 to 16 specifically to meet the hon. Gentleman's point. If we are to have people on the Commission who understand the interests of a wide section of industry, commerce and business, we need 16 members. I certainly wish that to be achieved and I promise the House that I shall attempt to do that.
§ Mr. Rhodes James
That would not be an affirmative order; it would be an order against which the House would have to pray.
§ Mr. Hattersley
Yes, it would, and the House will perhaps do so, but the House will then have to decide if a Commission is sufficiently representative with 12 members, who may not have the whole range of information that I think ought to be represented in the Commission. I hope I have convinced the Opposition; I like to explain what I am doing so that they can criticise my real policies rather than policies I have kept from them.
1551 I come now to the final and most essential point—whether the provision of safeguards at the level I propose, or round about those levels, since it is a consultative document, is going to be detrimental to industry. For my own part I have no doubt that it is not. I am conscious of what some industrial companies have said; I am conscious of what the CBI have said. I must say—and I am sure that since, very properly, the hon. Lady talks to the CBI as much as I do, they have reported this to her—that when the representatives of the CBI were last in my Department I thought it right to tell them that many individual companies, in consultations with the Department, had taken a different view about the safeguards and their detrimental effect from that taken by the CBI. Indeed, the later part of the letter from which the hon. Lady quoted ends with a paragraph which is a reference to our suggestions, evidence and assertion that many companies do not fear the arithmetical safeguard levels in the way the CBI do. I think those companies are right, for reasons with which I will conclude what I have to say at the moment.
If a company is contemplating an investment decision there are many things which influence the eventual choice made but I do not believe that the prospect of a Price Commission investigation in the terms the hon. Lady gave in her examples is remotely influential. First of all, as one contemplates one's investment decision one is conscious that only 40 of these decisions are going to happen each year, and there are not thousands but tens of thousands of notifying companies, notifying hundreds of thousands of prices. Therefore, simply as a matter of probability, the prospect of a frozen price is pretty remote.
Secondly, if it is a company of the sort the Bill intends to encourage it knows a bit about the Price Commission also. One needs to know a little about it to be as afraid of it as the hon. Lady suggests companies might be. One knows who the people are who are running it, one knows the legal criteria against which one is required to operate, and one knows what are the safeguards implicit in the Bill. If one knows all these things and still fears that an arbitrary, unreasonable and—I do not shy away from the 1552 expression—economically illiterate Commission is going to descend on one and drive down margins and profit levels in a wholly intolerable way—which for my part I would not begin to defend—one has the arithmetical safeguard as the failsafe, the fall-back, and a number of other mixed metaphors which the hon. Member for Cambridge (Mr. Rhodes James) will refer to when he speaks in this debate.
One has that final protection, and because of that I believe that the concern that has been expressed is unreasonable. Although it is unreasonable, I am nevertheless determined to fulfil my promise to prepare the arithmetical safeguards and look for adjustments in the consultative document, but they cannot be the 1976 safeguards, because that would make this policy unworkable. If we have convinced the Opposition of nothing else during the last I do not know how many hours I hope we have convinced them that the Government and Government policy intend to make the Price Commission an instrument of intervention in the economy and cannot possibly accept levels of safeguards which prevent that happening.
§ Mr. Sainsbury
One must admit that sometimes the Secretary of State sounds almost plausible; it almost sounds as if he cared for something other than his own personal position in the party and the advantage that he will be able to take of the mechanism he is asking the House to introduce. He showed a glimmer of wisdom not given to his hon. Friend.
§ Mr. Hattersley
Since the hon. Gentleman is making offensive personal implications I think he had better begin by stating his own personal interest.
§ Mr. Sainsbury
If the right hon. Gentleman had been here when I spoke briefly earlier in the debate he would have heard me declare my interest quite clearly at that time. I do not think it is the custom of the House to repeat such declarations. The right hon. Gentleman is in his place. If he does not care for anything that I say about him—if he thinks it is untrue—he is entitled to prove the reverse, and the best way to do that—which I would welcome and which would bring from me and from British industry a full-hearted apology— 1553 would be not to behave in the way that British industry confidently expects he will behave on the basis of his own past record.
He talked about psychology, and of course he is right. Confidence and psychology are very critical factors in investment. They are very critical factors in job creation. I cannot, as I said before, expect Labour Members below the Gangway to have much understanding of this, but I welcome the fact that above the Gangway there is some recognition of this point.
§ Mr. Loyden
I was very impressed by the hon. Gentleman's contribution earlier this morning, when he was talking about streaky bacon and back bacon. He impressed the House very much with his knowledge of that subject. I would rather listen to a further contribution of that sort than to the diatribe that he is putting out now about his knowledge of Labour Members below the Gangway.
§ Mr. Sainsbury
If I were to address my remarks to the amendment about which we were talking in the early light of this day, I should very properly be ruled out of order; therefore I return to the very important amendment which my hon. Friend the Member for Gloucester (Mrs. Oppenheim) has introduced.
I was referring to the fact that the Secretary of State has emphasised, very rightly, the importance of psychology and confidence in continuing investment, job creation and continuing innovation, without which our industry and commerce cannot expect to be successful. Having said that, I put it to the Secretary of State that a number of things that he said in his remarks on this amendment alone would be very damaging to that very confidence that he claims to wish to build up in British industry.
The Secretary of State, from what he said, seems to regard satisfying the TUC's view on economics more fully than the CBI's view as a sensible economic achievement. I find it very hard to believe that anyone who has pretensions to economic literacy could really believe that to be sensible policy, because this country has suffered too long from a Government who seem all too willing to give in to 1554 the latest crazy and damaging idea emanating from the TUC. We all see the damage now, unhappily, in the growing level of unemployment, which surely must be something to which even the right hon. Gentleman would have careful regard.
I put it to the right hon. Gentleman that if he thinks he is restoring the confidence of British industry by saying that he takes pride in the fact that his policy more nearly approximates to that of the TUC than to that of the CBI, he is profoundly mistaken.
The right hon. Gentleman seems to take pride in arranging for his publicity machine to refer to the Bill as one that is designed to prevent "unnecessary price increases." That is not a phrase which is to be found in the Short Title, the Long Title, or, as far as I know, anywhere in the Bill. I can tell him that British industry and commerce do not regard this Bill as a Bill to prevent unnecessary price increases so much as a Bill to threaten massive intervention, unjustified and unquantified, against very vague and loose criteria which could prevent the price increases which alone could ensure sufficient profitability to justify and support investment, innovation and job creation. The phrase "unnecessary price increases" may appeal to the right hon. Gentleman but it is a scandalously inaccurate description of the purpose of the Bill.
My next point to the right hon. Gentleman is that he not infrequently adopts the approach that anybody who is even so bold as to delay the speedy passage of this legislation through this House is against all forms of price control and is therefore quite beyond the economic pale. He might care to reflect for a moment on the effect of getting his Bill wrong. In some of his remarks he seemed to recognise that it could be possible to get it wrong. He thinks he has got it right but he has recognised that if it were to go wrong it could be damaging.
If the right hon. Gentleman would consider for a moment the consequence upon investment and upon employment of having damaging legislation of this type, at this very time when we have heard the latest appalling figures of the levels of unemployment, particularly of school leavers, he could perhaps afford the 1555 House the courtesy of allowing a very careful consideration indeed of the whole scope of the Bill and the amendments which are being brought before the House.
For that reason, if for no other—although I am sure that everyone in the Chamber is full of vitality and that our brains are as alert as ever, if not more so—I regret that we are having to consider this critical and vital matter after we have been debating for about 29 hours. Although we may be aware of our alertness, it occurs to me that outside observers, including those responsible for the conduct of our industry and commerce, may not be quite convinced that we are as alert as we might be. I think they would probably be reluctant to entrust their top management with critical decisions if the people concerned had been without much rest for some 29 hours. I certainly should if the matter were anything to do with my responsibility.
There is one other factor which compounds one's doubts about the right hon. Gentleman's approach to the Bill. Usually he is accompanied, at least on this matter, by the Liberal colleagues of the Labour Party. They are noticeably absent at this critical juncture in our deliberations. I suspect that it is not for the first time since we have been talking about the Bill. I feel that their ready acceptance to go along with the right hon. Gentleman's Bill really affects the abysmal record of the Liberal Party in matters economic, stretching right back to the First World War.
We are concerned here with safeguards for basic profits. That is what it says in the rubric of the clause. That in itself immediately raises doubts and uncertainties in the mind of anyone who is concerned in investment in industry or commerce. What is a basic profit? The implication must be that anything above whatever a basic profit may be is questionable. Perhaps, in the right hon. Gentleman's phrase, it might be an unnecessary profit. It is at least open to question. If we have stepped into the area of being open to question, obviously we should look at Clause 2 and examine the criteria to see whether they, by themselves, remove the worry that we might otherwise have about the inadequacies of the clause without the amendment which we are now discussing.
1556 I refer the right hon. Gentleman to an article, which I am sure he saw, in the Financial Times of Wednesday 23rd February 1977, which stated:Firms have a right to be able to make their plans with a fairly clear idea whether such and such a course of action will or will not set off a Price Commission inquiry into their affairs. Mr. Hattersley, therefore, has supplied a list of seven criteria to which he and the Price Commission will pay particular regard: but these are couched in such general terms as to be of little immediate practical value.I have heard nothing from any quarter since that goes any way to contradict that informed opinion from that informed journal. One cannot regard those Clause 2 criteria as of any real practical value in providing reassurance to somebody whose doubts might be aroused by the statements and, indeed, the actions of the Secretary of State.
§ Mr. Viggers
The Commission will take regard to profits only in so far as it considers profits to be relevant. This is the result of the substantive clause which the Government have insisted on, refusing our amendment. So profits should be taken into consideration only in so far as the Commission considers it relevant to do so.
§ 7.0 p.m.
§ Mr. Sainsbury
My hon. Friend makes a relevant point. I suspect that the closer that one examines every part of the Bill—I was not on the Committee—the more of these points one finds in which there is no substantial confidence-building factor. The criteria in Clause 2 against the background which my hon. Friend has pointed out cannot be regarded as likely to restore any confidence that might be eroded by the right hon. Gentleman's statements or behaviour.
Therefore, we are driven inevitably to Clause 9 and the consultative document where we read the words:provisions designed to reassure enterprises that the new powers cannot be used to depress the general level of productivity or to subject individual firms to restrictions which would threaten viability.This is a very strange use of language, to be told that new powers cannot be used to depress the general level of profitability. If they cannot be used for that purpose, I begin to wonder what it is that they could ever be used for. If they are 1557 used for anything at all, it must be to depress the general levels of productivity.
The Bill provides a floor, which is also referred to in the consultative document. But the lower one sets the floor—I am sure the right hon. Gentleman would agree with this—the greater is the area of uncertainty. One of the major areas of uncertainty is the problem of cyclical profits to which my hon. Friend the Member for Gloucester referred.
The right hon. Gentleman may not personally be aware of the problems which arose in the early days of the Price Commission, with the cyclical profits of companies within one year, but I am sure his Department is. In the early days of the Price Commission it adopted the suggestion—not as a statutorily enshrined approach—of looking at companies' profits on a period basis, not recognising, I fear, that this was a totally inadequate way of approaching the profit picture of most companies. There was also the drawback that perhaps far too many companies would not be able to provide sufficiently accurate figures on a quarterly basis to enable a judgment to be made because they would not be subject to audit.
For some time this problem of cyclical profits within one year was a matter of considerable contention between commerce and industry and the Price Commission. It was eventually resolved in the only sensible and logical way, namely, on a yearly basis.
It is equally true, as my hon. Friend the Member for Gloucester pointed out, that there are cyclical profits with a much longer time scale than one year. This is most true when one is developing investment situations, building up employment in new plants and new products.
I fail to see, anywhere in the right hon. Gentleman's consultative document or in the Bill, that this situation is in anyway taken into account. The right hon. Gentleman may well say that modifications can be introduced. I recognise that he can introduce modifications into the consultative document, but if one is talking about uncertainty I can think of no factor more likely to introduce and retain a massive level of uncertainty in British industry than a document which has such 1558 a wide area of uncertainty, which may or may not be the subject of investigation against these very grave criteria, and which is itself subject to modification and is proudly presented by the right hon. Gentleman as being so flexible.
Industry will have noted what the right hon. Gentleman said about not being able to get his hon. Friends to vote for something different. Industry is all too well aware of the Luddite attitude of all too many of his hon. Friends below the Gangway and, I suspect, one or two above the Gangway, in terms of profitability and investment in British industry and the growth of prosperity in this country, without which we shall not begin to overcome the problems of unemployment.
His hon. Friends, the right hon. Gentleman tells us, would not vote for adequate safeguards. If this is his attitude—if he is not prepared to fight for what he believes ought to be adequate safeguards—I suggest that that is another reason for being suspicious of his professed dedication to seeing adequate profits and proper rewards for industry.
The amendment writes safeguards into the Bill. I do not think that it writes in safeguards that are adequate. I regard them as somewhat unsatisfactory. They are not adequate in terms of figures and inevitably the profit margin provisions have to refer back a very long way to the base period. The longer we go on with these unwieldy and largely unnecessary procedures the more out of date becomes the base reference period. The most adequate safeguard of all to the consumer is totally ignored—the effect of competition.
My hon. Friend referred to the problem of the Price Commission investigation which compulsorily reduces the prices of the brand leader, the product leader, the major retailer or distributor in any area. If this is done, inevitably everybody else's prices will have to go down.
We can say firmly that the right hon. Gentleman has failed to reassure industry with Clause 9, and he has compounded his failure with the introduction of this consultative document. The best safeguard to industry is to remove altogether the risk of these totally indeterminate investigations, to remove from industry the suspicions that it must 1559 have that an opportunity has been provided for selective, politically-motivated intervention, short-term considerations which would be as damaging over the medium and longer term to the consumer as they would be to British industry.
The best safeguard would be freedom from the disastrous interference to which this Bill opens the way. If we cannot have that, I would accept this amendment as a considerable improvement. If by some mischance we do not get this amendment, we are told that this is a consultative document and I believe that it is still seven days, just, since it was published. Therefore, it is still open for comments to be taken into consideration in the drafting instead of being taken into consideration only in the issuing of the regulations.
I would put one plea to the right hon. Gentleman. If he does nothing else, will he look again at the figure-work relating to new investment? When one looks at the figures suggested in his consultative document and one sees that the turnover capital ratio produces a return on capital of 9 per cent. at the 3:1 area and 10 per cent. return on capital at lower figures, in the current situation of inflation, how can he possibly imagine that that would provide other than a positive deterrent to investment?
If nothing else, will he not find a way of providing a much greater return on capital, at least for those who are going to invest? No company in its right mind will invest for a 10 per cent. return if it has to pay more to borrow. I hope that we shall have the amendment instead of the consultative document.
§ Mr. William Shelton
A different view is taken of safeguards by the Secretary of State and by the Opposition. I understand the Secretary of State's position and that he had no alternative when he said that he could not increase the safeguard levels because that would exclude too many companies. I can understand his problems in his party and in different parts of the country. He says that he does not want to exclude 75 per cent. of companies.
We on the Opposition Benches consider safeguards, not from the point of view of the percentage of companies excluded from the supervision of the Price 1560 Commission but from the point of view of how effective they will be. I do not know what experience the right hon. Gentleman has had in industry, but companies do not say that they should be included because 75 per cent. of all companies are included. Instead, the chairman asks his company secretary to find out whether the consultative document affects the company. A little later, the secretary comes back with an ashen face and says that it will indeed include the company and describes its effects.
The examples given by my hon. Friend the Member for Gloucester (Mrs. Oppenheim) are just the examples that the company secretary would quote. As my hon. Friend gave her examples, I watched the Secretary of State's expression. He was obviously taken aback. I understand that the examples are factual. The right hon. Gentleman intervened to say that it was most unlikely that the Commission would simultaneously investigate and put a freeze on all the various products of a single company. But it is not unlikely to company directors, reading an analysis of the safeguarding document.
§ Mr. Hattersley
I am grateful for the area of agreement between us and I understand the hon. Member's point. But that did not take him to another point that I tried to make—relating to confidence. Confidence to invest and expand is in part what we make it, and if we do not believe that the companies will be treated in a Draconian way we have an obligation to promote confidence by saying so, rather than expressing fears that the Commission will behave absurdly.
§ Mr. Shelton
I accept that, and I do not believe that the extreme cases could happen, but the possibility, and the fact that companies are advised of it, must cause concern.
§ Mr. Burden
The Minister made a conciliatory reply to my point about the difficulties of investigation unless people were co-opted with particular knowledge of an industry which might not be very well known to those investigating a board of directors. We know that in a particular industry, firms operate in different ways and with differing powers. I believe that an industry, rather than individual firms, should be examined so that a true overall picture is gained.
§ 7.15 p.m.
§ Mr. Shelton
That is a very good point, but when it is impossible to examine one firm properly, how can a whole industry be examined?
This level of uncertainty is at the kernel of our argument. The document is designed to reassure. Any business man, however, would quickly lose his assurance. He would be happy to see the words in paragraph 2:for the great majority of enterprises, pricing decisions will not be subject to external rules and will revert to business judgmentbut would not be happy about the following words:under the surveillance of the new policy".I was interested in the distinction that the Minister drew between the arbitrariness of the old policy and the discretionary nature of the new one. In fact, the new one is more arbitrary, because there is no written guideline; it is the arbitrariness of individual judgments by the Commission.
We have established that the right hon. Gentleman's level of safeguards is pitched so as to include a certain percentage of firms. We say that the level is pitched regardless of what sort of percentage it includes, at a level which will be dangerous for business confidence and prosperity.
I had intended to remind the right hon. Gentleman of the number of bankruptcies last year as compared with preceding years, and the low level of profitability of business. The Bank of England Quarterly Bulletin for June 1977 says:As a whole, the figures presented do not suggest an encouraging outlook for investment. The rates of return are still extremely low, with little prospect of any marked recovery in the future.The Secretary of State admits that it is in that kind of business situation that these low safeguard levels are being imposed.
I agree that the CBI has calculated that the value of the interim safeguards are reduced to two-thirds of the old ones, and that the final safeguards are only 40 or 50 per cent. of the old ones. With the slight relaxation in the previous Price Code since last July, no doubt many companies have increased their forward planning, profitability and investment levels. I hope so, but they 1562 may render themselves liable to investigation by the new Commission, whereas they would not be liable at present. That must be damaging for them.
A company may make its forward plan for two or three years within the terms of the Price Commission and then find that, because of these changes, it moves into a vulnerable situation. Of course, the Secretary of State and others and I know that the Price Commission will use its powers in a discreet and delicate way, but those in the board room will not know that. Therefore, because of increased investment, the company may find itself moving into a vulnerable situation which it would not have obtained under the old system.
Mention has been made of the level of industrial profitability—only 4 per cent. in real terms as a return on capital. With such a low margin, how can we talk of using this kind of instrument in the guise of increasing competition?
Finally, I think that, rightly or wrongly, many companies will believe that pitching the safeguards at such a low level will allow the Government or the Price Commission to intervene in the case of a far larger number of companies than would have been the case had the safeguards been pitched at their present level. This belief, which I share to some extent, can only be damaging. I fear for the consequences if the amendment is not passed.
§ Mr. Shersby
I should like to draw the Secretary of State's attention to some points on the amendment dealing with safeguards. I shall be brief. However, I hope that he will be able to consider my points before dealing with the final draft of this important document. I think that my best course is to make the points and ask him to amplify and clarify them tonight or, alternatively, to consider them during the preparation of the final draft.
I should make it clear that I am raising these points because they have been drawn to my attention by the Food and Drink Industries Council, of which I am a member. These points have also been drawn to the right hon. Gentleman's attention in correspondence, but I know that he will not mind if I mention them briefly.
The first point concerns the base dates for price increases. It now seems clear 1563 that the Bill will probably not receive the Royal Assent, and therefore the regulations will probably not be made, until some time next month—in other words. towards the end of July. Therefore, I suggest that it would be right for the additional month to be taken into account in specifying the base dates. In other words, the base dates for price increases against which the margin over total costs for interim price increases will be calculated should be 1st August and 1st July, respectively, rather than 1st July and 1st June, as proposed in paragraph 13 of the consultative document.
Then there is the modification in some circumstances of the basic 3 per cent. minimum margin over total costs proposed in paragraph 12. Does the Secretary of State agree that that should apply in the post-investigation period as well as during the investigation? I hope that he does. The argument in the consultative document for confining it to the investigation period is rather weak, to say the least.
I turn next to the 80 per cent. of base margins safeguard proposed in paragraph 13. That seems to be too low and is not justified by the arguments advanced. I know that it is defended by the statement in paragraph 14 that the Government can make it as high as 80 per cent. because the Commission will haveinsufficient information upon which to justify any more severe reduction in the margin currently earned".As the information is insufficient to reduce the margin during the investigation, it seems to be unfairly prejudging the outcome of the investigation. I suggest that a 20 per cent. reduction seems unreasonable. I hope that the Secretary of State will have another look at that point.
I should also be grateful if he would look again at the proposed 50 per cent. of base margin safeguard against post-investigation erosion proposed in paragraph 14. Surely that is on the low side.
Finally, I should like to probe the right hon. Gentleman's intention regarding paragraph 10. For example, what does it mean when it states thatduring investigations the safeguard needs to relate not only to the product itself but also, if indirectly, to the circumstances of the enterprise".1564 I think that should be made clearer. There is need for considerable amplification of that paragraph. I feel that when a company secretary or director looks at that paragraph he needs to understand more clearly what is intended. We know that the regulations in draft form are complex. I appeal to the Secretary of State to put them, if possible, into a more easily readable form, so that people can grasp what is intended.
§ Mr. Giles Shaw
In view of the extreme importance of this debate I wondered whether we should have a summing up of approximately 45 minutes to go through all the points that have been made. I considered that possibility, but decided on the whole that it would be unwise in the circumstances, apart from the fact that I do not think that I am capable of handling it for that time.
The main difference outlined by the Secretary of State, which we fully recognise, is the emotional attitudinal view on how the Price Commission works. That is the major factor which divides us. The right hon. Gentleman sees it as primarily an interventionist organism.
When we discussed the safeguard levels for profits, it was clear that the Secretary of State was concerned about the number of companies which would come within the net and, therefore, would escape the possibility of price freeze and investigations. That we understand, but frankly deplore. We believe that it is crucial to protect the profitability and investment potential of British industry. It is for that reason that we have moved an amendment which seeks to relate the new profit levels to those presently being enjoyed.
The Secretary of State would be unwise to believe that the Bill will not have a difficult running-in period. It is clear that in the discussions so far between the Department and representatives of industry there has been the feeling that they have not been able to meet as much as they should in terms of agreeing on a new proposal. They have met frequently, but there has not been the meeting of minds on pricing policy which might have been hoped for.
Our situation is clear. We deeply deplore the view that price freezing should become the order of the day to satisfy 1565 the whims of those in the Labour Party who believe that outward visible signs of activity are a substitute for a prices policy.
We believe that the biggest single contribution is to increase the profitability of industry so that employment and investment can flow therefrom. It is for these reasons that we seek to increase the safety margin for profits. Therefore, I ask my right hon. and hon. Friends to endorse the amendment in the Lobbies.
§ Question put, That the amendment be made:—
§ The House divided: Ayes 233, Noes 252.
§ [For Division List No. 179, see c. 1673]
§ Question accordingly negatived.