§ Order for Second Reading read.
§ 4.38 p.m.
§ The Secretary of State for Prices and Consumer Protection (Mr. Roy Hattersley)
I beg to move, That the Bill be now read a Second time.
In moving the Second Reading, I ask the House to provide the Price Commission with substantially increased powers, yet in doing so I seek no more than to restore to the Commission the powers that the House intended it should have when the parent Act was passed two years ago.
The House will recall that the Price Commission Act 1977 had two essential features. The first was the abandonment of attempts, begun by our predecessors in 1972, to influence overall price levels by general, rigid and therefore unenforceable arithmetic formulae.
The Price Commission Act 1977 replaced those complicated cost and margin controls by a system of individual price investigations and the prohibition of specific price increases. The new policy was, and remains, essentially a selective policy. Under its provisions the Price Commission, governed by the principles set out in section 2 and influenced by the experience of its members, judges the necessity, propriety and desirability of specific price increase proposals, agrees them if they are consistent with the criteria in the Act, and disallows them if they are not.
The 1977 policy has three constituent parts. The first is the investigation of individual price increase applications, the second is the postponement of those increases whilst the investigation is carried out, and the third is the prevention of those increases taking place or their compulsory modification if the investigation shows the increase to be unjustified. I hope that the hon. Member for Gloucester (Mrs. Oppenheim), who will be replying to what I say, will listen, because it might just help her to understand the Bill.
§ Mr. Hattersley
I accept the hon. Lady's correction—it will not help her to understand the Bill.
The rules that I have described were not meant to apply invariably to every price increase, but they were intended to apply whenever the Price Commission, using its descretion, believed that the price increase ought to be prohibited. Section 2 of the Price Commission Act prescribes the rules by which the Commission must operate, but an essential feature of the parent Act, which I seek to amend today, is the discretion of the Price Commission, within those rules, to approve increases that are compatible with the criteria set out in the Act and prevent those price increases which are not.
Since its creation in its new form the Commission has never really possessed the discretion to prevent price increases which, according to the principle of the Bill, should not have been allowed to go ahead.
§ Mr. Roderick MacFarquhar (Belper)
I am sorry to interrupt my right hon. Friend so early in his remarks, but can he say whether the powers that he seeks to introduce will help in the situation currently experienced by many housewives in the country, whereby, as a result of some shortages of foodstuffs, prices have been increased by shopkeepers? Will he be able able to prevent that happening?
§ Mr. Hattersley
The brief answer is that it will not. I believe that there are only two ways in which that can happen. One is by bringing our present discontent to a speedy end and the other is by the continued operation of competition in the retail trade. As my hon. Friend knows very well, however, one of the objects of the Price Commission Act, passed 18 months ago, which we now seek to strengthen, is to ensure that when prices are held artificially high because of an absence of competition steps are taken to bring that sort of competition about.
In the present circumstances the Price Commission is unable to exercise the discretion that the House chose to give to it. The exercise of that discretion was limited by the House by the inclusion in the Bill—which I recommended 1060 at the time—of rigid safeguard limits which provide in many circumstances that the Commission is unable, irrespective of its judgment about the necessity or propriety of a price increase, to prevent a price increase being applied.
In one-third of all the investigations carried out by the Price Commission since August 1977, the discretion that the Commission should have possessed has been completely removed. Imperial Tobacco, Lever Brothers, and Cadbury Schweppes are three of many examples of companies that were able to say to the Commission "This is the price that we choose". They were able to say that in the knowledge that there was nothing that the Commission could do to prevent that price increase automatically being applied. For those companies and many more—some of which I will describe to the House—since the safeguard regulations came into force, prices policy has, in a very real sense, not existed.
§ Mr. Giles Shaw (Pudsey)
In the cases that the Minister has quoted, can he tell the House the result of the investigation into the price application that was made? How many of them were not agreed in full?
§ Mr. Hattersley
I know that the hon. Member for Pudsey (Mr. Shaw) understands the Bill. Therefore, he bewilders me by asking that question. The price increases were accepted in full, because the Commission had no opportunity to do anything other than accept the increases in full. That is the nature of the safeguards that I have just described. The three examples that I gave to the House are of companies where the increase was 100 per cent. safeguarded.
The implication that the Price Commission would have accepted the price increase anyway is not, I think, justified. It is possible that it would have done. I have never advocated a policy under which the Commission would prevent every price increase submitted to it. But the essential feature of the policy—which in the cases of Imperial Tobacco, Lever Brothers and Cadbury Schweppes was lacking—is that had the Commission wanted to suppress those price increases it would not have been able to do so.
I am not suggesting that we need, or ought to have, or can afford, a policy under which the Commission prevents 1061 every increase. I want simply to see a policy under which the Commission can prevent those increases that seem to it unreasonable. On too many occasions over the last 18 months the Commission has been unable to prevent those increases which seemed to it to be outside the terms of the policy and, therefore, suitable for prevention and for a prices freeze.
I believe that the time has come to restore the Commission's discretion to enable it to agree a price increase or to prevent a price increase according to the judgment that it makes about the individual price application. That will be possible only if we remove wholly the limitation placed on the Commission's action by section 9 of the parent Act—the limitation of safeguards as they apply to proposals for individual price increases.
§ Mr. Ron Thomas (Bristol, North-West)
Does my right hon. Friend not think that there will still be a danger that the Price Commission will stick to the same philosophy of safeguards and that therefore this Bill will not bring about the change that he would like to see?
§ Mr. Hattersley
Even if my hon. Friend the Member for Bristol, North-West (Mr. Thomas) is right, this Bill is much more likely to produce the result that both he and I want to see than if the Price Commission continues to act under its present powers. However, I do not believe that my hon. Friend is right. It is common knowledge that the Commission itself has been critical about the way in which its work has been handicapped in terms of safeguards.
There is one famous case in which the Commission published a statement saying that it would not even investigate a price increase proposal because, were it to find it undesirable, the Commission still could not do anything about it because of the safeguards. I think that I can assure my hon. Friend that many members of the Commission regard the safeguards as an unjustifiable limitation on the discretion that Government told them it should use under the Act.
§ Mr. Tim Sainsbury (Hove)
The Minister referred several times to the Price Commission's acting reasonably and looking at price increases on a reasonable basis. Does it follow from his earlier 1062 reply to his hon. Friend the Member for Belper (Mr. MacFarquhar) that where there is sufficient competition it would not be reasonable for the Commission to hold back a price increase pending investigation? We gather from what the Minister has said outside the House that he is concerned that the Commission's powers to investigate competition are themselves limited by the safeguard clauses.
§ Mr. Hattersley
Certainly—and I will come to that in a moment. I believe that the Commission's work is most valuable and most important when it looks at prices in sectors that are less than perfectly competitive and says "Perhaps your price would be lower were you competing with somebody, but since there is no adequate competition you do not have the stimulus that we are sure competition provides". Some of the examples that I propose to give in a moment are in areas where I shall say—I anticipate my own phrase—that the cold wind of competition was not blowing very fiercely. Therefore, I want to see this power exist so that it can bring some of the effects of competition—by the Commission considering what is a reasonable price—to areas where they do not exist at the moment.
I shall explain to the House why section 9, the safeguard clauses, was included in the parent Act in the first place. It was added to the Bill to provide reassurance to industry about the behaviour of the Price Commission during its early life. From the start, the Government knew that the nature of the policy and the character of the members of the Commission made it inconceivable that the new policy could be applied in a dangerous or destructive way. But the CBI was anxious—or, perhaps, was affecting anxiety—about the way in which the new policy would operate.
Because of that—I describe our reaction frankly—we introduced the safeguard in an attempt to combat unreasonable fears about the way that the Commission would behave, and we introduced it as a temporary measure for the time that it might take to demonstrate that the Commission would not behave in a destructive fashion.
Many of those fears stemmed from total ignorance of what the new Bill proposed. I regret to say that there is still—whether it is through ignorance or 1063 malice, I do not know—the tendency to complain about Commission powers which the Commission does not possess, and the tendency to talk about the Commission as though it still had the duty to operate like a price code, creating price levels throughout industry without any individual justification, without any specific examination and without allowing for the circumstances of one individual company or industry.
During my last two meetings with the CBI on this subject, one taking place only last week, its members still continued to talk about price codes. They still continued to compare the safeguard level in this discretionary Bill with the safeguard levels in the codes which were abolished in 1977, and they still continued to talk as though the Commission were attempting to impose a pattern of profits and investment throughout industry according to a crude and simplistic formula.
If CBI members discuss the work of the Commission in that way and if, as a result of what they say, there is a loss of confidence and a reduction in morale, it is the CBI alone that must be held responsible for that loss of confidence and that reduction in morale.
§ Mr. Hattersley
I have given way to the hon. Member once already. I must continue with my speech. If no other hon. Member interrupts, I may give way to him again in a moment.
No one who has watched and understood the work of the Price Commission can still honestly believe that it is either legally able or would choose to use its powers in a destructive way. Equally, no one who has watched and understood the work of the Commission over the last year and a half can possibly doubt that the safeguard clauses often have prevented it using its powers at all. No doubt the Opposition are delighted by that.
§ Mr. Kenneth Baker (St. Marylebone)
If, as the right hon. Gentleman claims, the Price Commission has been fettered for the last 18 months because it has not had these powers, will he estimate what effect this fettering has had upon the retail price index in those 18 months?
§ Mr. Hattersley
I have today answered a parliamentary question to that effect. I do not know whether I should give the hon. Member for St. Marylebone (Mr. Baker) the answer to that question or allow the hon. Member concerned the privilege of giving it during his speech. I shall leave the hon. Member concerned with the privilege of giving the House the information which he obtained from me earlier in the day.
§ Mr. Hattersley
There appears to be an argument about it going on on the Opposition Front Bench. The hon. Member for Hertfordshire, South (Mr. Parkinson) is five times more accurate than the hon. Member for Gloucester, who is arguing with him. We estimate that the percentage difference in consumer expenditure over the year is about 0.5, which is not the £80 million figure suggested by the director-general of the CBI, who has not had a good month in terms of published estimates. It is about five or six times that figure.
I wish to go on to talk about the attitude of the Opposition to these matters and their delight, no doubt, that the Price Commission Act frankly has proved a good deal less effective than we hoped and believed it would be when it was passed by this House in 1977.
For my part, I regret that the Commission's discretion has been removed, because I believe in and want to see a genuine prices policy which can influence the price levels of key commodities and give the consumer the assurance that prices are not increased where there is no necessity for them to be increased. That condition can come about only if the Commission's powers are strengthened, and strengthened we propose they should be.
We propose that the Commission's powers should be strenthened in two specific ways, which I fear that I can describe to the House only by first reminding hon. Members how the safeguard clauses work at present.
They take two forms. Companies under investigation by the Commission can, automatically and without any limitation, increase prices by whatever amount is necessary to obtain a rate of return on capital of about 12½ per cent. 1065 Since the regulations allow calculations for depreciation and valuation of stock which go some way towards current cost accounting, the amount which they can charge—the increase upon which they can insist—produces a substantially larger return than 12½ per cent. calculated according to simple historic cost conventions. The Lever Brothers' price application to which I referred a moment ago, automatically safeguarded, allowed by the Commission without any discretion—it was not within the Commission's power to prevent it going ahead—was for a company where the return was substantially greater than that 12½ per cent. figure.
But that is only the first safeguard. The second is even less consistent with the legislation as we intended it to be. Companies under investigation are allowed, again automatically and without any limitation, whatever price increase is necessary to provide 80 per cent. of the profit which they earned and enjoyed in 1977. If they made an immense profit in 1977, under the present safeguard regulations they are entitled to increase their prices until they make 80 per cent. of that immense profit. No matter how great the figure was in the base year, they are allowed the automatic right to put up their prices without check, without investigation and without qualification. Whilst the increase has been so obtained, even if the subsequent investigation discovered that the price increase could not be justified, there is no way of the Price Commission rolling back that price increase. Once a price increase has been obtained during the investigation and under the safeguards, it is the company's to keep for ever.
§ Mr. Cecil Parkinson (Hertfordshire, South)
I am sure that the right hon. Gentleman does not wish to mislead the House. Will he confirm that in many other cases the Price Commission has said that increases bigger than the safeguard increases should have been allowed? Will he also confirm that in future those companies, which are in the majority, will be entirely at the mercy of the Price Commission and its discretion?
§ Mr. Hattersley
The hon. Member's second question is defeated by his first. In future the Commission will be entitled—I argue that it will be required under 1066 section 2—to agree to discretionary price increases where they are necessary for the company. No one wants to remove the Commission's discretion. But the Commission will not be required automatically to rubber stamp a number of price increases which it might want to prevent.
If the hon. Member for Hertfordshire, South has any doubts about how reasonable the Commission will be on this, let him think of examples which have happened already. He is right to say—but it is my point, and not his—that in the past some companies have got discretionary price increases from the Commission. Thermos, The Daily Telegraph and United Biscuits all came to the Commission saying "We are not safeguarded. We need the increase", and the Commission said "By all means. You have justified the need. Have it".
All that I ask is that price increases should be justified. All that this Bill seeks to do is prevent a company saying "We do not need to justify it. The prices policy does not apply to us. We shall have our price increase, come what may". I hold the view that the Commission should operate on the basis of the simple rule "Justify the price increase, and it shall be yours. Fail to justify it, and you are not allowed simply to pass it on to the consumer".
In practice, 20 out of the 30 major investigations that the Commission has carried out have ended with the price increase going through either totally unchanged or only partly amended. That happened without any justification being advanced and without the obligation to prove the necessity, simply because those companies were safeguarded. These are companies—I repeat the point that I made earlier—where we ought not to be told and could not be told, with any justification, that their prices were being kept down anyway by the forces of competition.
Let me give five examples out of the 11 cases where companies have acquired automatically every penny of the price increase for which they asked without any power on the part of the Commission to prevent it coming about. The examples are Tate and Lyle, British Railways, Allied Breweries, the South of Scotland Electricity Board and London Transport.
§ Mr. Hattersley
The hon. Gentleman has got the point. With remarkable perception, he cries that some of them are nationalised industries. That is quite right. No doubt, he was listening to his hon. Friend the Member for St. Ives (Mr. Nott) complaining about this Bill on television on Saturday evening. The hon. Gentleman said that one of the things to which the Opposition objected was that the real monopolies were the public utilities and that the real absence of competition was to be found in the nationalised sector. But this Bill will actually enable the Commission not only to exercise its powers over nationalised industries—it has always been able to do that—but will enable it to exercise those powers effectively. It will no longer be hampered by the safeguard clauses. I want to see that happen wherever competition is absent and does not hold prices down.
§ Mr. Sydney Bidwell (Ealing, Southall)
Does the Bill help to probe price rigging? Sometimes, there is obvious monopoly price fixing and sometimes, less obviously, undercover price rigging, carried out on the golf course and by telephone. Does this Bill help to prevent that?
§ Mr. Hattersley
I hope that my hon. Friend will understand if I say, in direct response, that his point leads me to my next example. Associated Portland Cement made two price increase applications, both of which were substantially safeguarded. Shortly afterwards, Rugby Portland Cement made an application, which was also substantially safeguarded and remarkably similar to those made by the other cement organisations. Again, the Commission found that its powers to prevent those increases were severely limited by the regulation which now applies. I believe that the time has come when that hampering and that fettering of the Commission's intended task has to be removed.
I repeat that we propose to remove all safeguards so far as they apply to companies proposing a price increase, so far as they apply to price investigations, and so far as they apply to propositions for individual increases in prices. This will leave the Commission free to examine 1068 those prices individually, allowing them to proceed, if they seem reasonable, within the terms of the Act, but freezing them if the Act allows the Commission to do so and if the Commission judges that no price increase can be justified. That is the proposal we make for individual price applications and the investigation procedure that follows.
There is a second area of the Commission's work where we propose to modify rather than abolish safeguards. The Commission examines whole industrial sectors at the invitation of the Secretary of State of the day. When it has made such an examination, it reports to the Secretary of State. Its reports may include the recommendation that prices should be limited throughout the sector or that margin control should be applied to some, or to all the companies within the sector.
By their nature, orders implementing such a price control proposal or orders operating such margin controls are likely to apply to companies in the industries which have not been subject to the careful individual scrutiny that the Price Commission applies to individual price applications. We therefore propose for these sectoral examinations to maintain in some form—it will be a matter of consultation—not the historic safeguard that guarantees a past level of profits but the current safeguard, which maintains their profitability irrespective of the proposition that the Commission makes for the industry as a whole.
Those are our proposals. But before I sit down I want to deal briefly with some of the criticisms of the Bill that we have heard over the past fortnight, which have been repeated with increasing stridency, particularly by the Leader of the Opposition and the director-general of the Confederation of British Industry. Naturally, they have been echoed by some of the newspapers which normally adopt the point of view of the Leader of the Opposition.
First, I turn to the allegations that the Bill has some mysterious and disreputable relationship with wages policy. It has been alleged that the policy is simply a sop to militant trade unionism. That was alleged in the Daily Mail of 15 January—
§ Mr. Hattersley
It has also been alleged that the policy is simply an attempt to suppress the wage demands of militant trade unionists. That was also alleged in the Daily Mail on 15 January. I have only one thing to say about those allegations, which appeared in the same leader within two paragraphs of each other. The Price Commission Act does not allow the Commission to become an instrument of wages policy, nor would the Commission, as presently constituted, be willing to perform that role. If I am asking for an increased sanction, I am asking for a prices sanction and a prices sanction alone.
Secondly, there have been comments about the effectiveness of the proposals, indeed about the effectiveness of the Commission as a Whole. The hon. Member for Gloucester, who leads for the Opposition on these matters, repeated today the answer that I or one of my hon. Friends gave, which she believed demonstrates the triviality of the effect the Price Commission has on prices in this country. She forgets, although we will not allow her to do so completely, what has come to be known in the trade as the "Gloucester speech", in which she described the Commission as so terrorising companies that many were not even prepared to apply for a price increase.
§ Mrs. Oppenheim
The Secretary of State referred to a statement that he said I had made today or repeated today. Could he give details?
§ Mr. Hattersley
Yes. It was when the hon. Lady was arguing with her hon. Friend that the figure was not 0.5 per cent. Let us see if we can build on the understanding of the Gloucester speech. If the Price Commission is deterring companies even from making price applications—I believe that it is—and encouraging them to make the minimum price applications, which I believe it does, and encouraging them to look at the necessity for price increases, rather than 1070 automatically increasing prices without much thought or consideration, the effect of the Commission on price levels is far greater than the simple sum of the safeguarded excesses, of the investigation results, or any other figure that can be cobbled together.
My own view is clear. The Commission is deterring many price increases which otherwise would come about. What is more, a whole range of commodities, many of them essential and most of them central to the life of ordinary working people and their families, are lower today in price than they would have been had there not been a Commission investigation.
I know that when I give a list of these items Opposition Members laugh and guffaw. I hope that the hon. Member for Gloucester does not take that view, because the Commission's ability to operate on individual prices and to hold down individual prices is particularly important to somebody whose only prices policy is to be photographed in supermarkets with a basket full of groceries. If she votes against this Bill tonight, every grocery with which she was photographed will be a reminder of her continued efforts to make sure that such commodities are not subject to price control. We propose to ensure that they are. We propose to ensure that they are subject to effective control by amending the Bill in the way I now suggest.
I want to turn now to the third area—
§ Mr. Sainsbury
What the right hon. Gentleman has just said seems to contradict what he said earlier. He now appears to suggest that there is no competition in the High Street, that the great Co-operative movement, which is by far the biggest retailer, particularly the biggest food retailer, in the country, has no influence on prices anywhere else. Is this so, or does he recognise that British retailing is as competitive and efficient as any in the world?
§ Mr. Hattersley
I cannot believe that, with his experience of these matters, the hon. Gentleman has forgotten the example of tea. Let me remind him. The Price Commission discovered that the price of tea was being kept artificially high by an arrangement among the blenders which the commission described as "excessively 1071 gentlemanly". I am sure that the hon. Gentleman recalls the excessively gentlemanly arrangement among the tea blenders. I hope that he also recalls that, because of the exposure by the Commission and because of the lead given by the great Co-operative movement to which he refers, other tea blenders and other retailers were forced to reduce their price.
§ Mr. John Pardoe (Cornwall, North)
Does not the right hon. Gentleman agree that the obvious answer to restrictive price fixing agreements is to make them a criminal offence, as they are in the United States, and that that is the way to bring competition in and to solve the problem of the tea industry?
§ Mr. Hattersley
I am a great believer in extending and sharpening competition. Indeed, the hon. Gentleman will recall that the Government have published a Green Paper about how it should be extended in one specific area. I hope that we shall get some support for that Green Paper and mergers policy from the Liberal Party. It is consistent with what both the hon. Gentleman and I believe.
Experience suggests, however, that the real way to combat the absence of competition, to promote competition, has to come in two forms. One is something like the Monopolies Commission, attacking the structure of monopolies and breaking them down. The other is something like the Price Commission, attacking the symptoms of monopoly—excessive price increases—until the Monopolies Commission can do its more thorough work. I doubt whether we disagree about that.
I doubt also whether we disagree about the fourth criticism. That is the current criticism, that the Price Commission Act in general and our attempt to amend it today are an attack on profits. Let me make it clear that the law, the Price Commission Act, section 2, with or without safeguards, obliges the Commission to approve price increases which are needed to recover costs incurred in the efficient supply of goods and services, and increases which are for the specific purpose 1072 of profits necessary to defray the cost of capital to compensate for risks and to promote innovation. All of those things are stipulated in those terms in the Act and it is wrong to say that the Commission has either the wish or the power to prevent the accumulation of profit for those purposes.
Indeed, the criticism, the fear, the horror, of the director-general of the CBI can be totally allayed. Profits for the purposes for which he said that he wanted profits to be accumulated—increases in investment, the creation of jobs and the promotion of exports—are wholly safeguarded in the general sense under the Price Commission Act, with or without the clause that I now seek to remove.
Finally, there is the most extraordinary, the most bizarre, criticism of the Bill—again, the one repeated by the hon. Member for St. Ives on television on Friday evening and hawked around the country by the Leader of the Opposition, by the CBI and, for all I know, by the hon. Member for Gloucester. That is the comment, the criticism, the denunciation, that this Bill does nothing to help with the problems that this country now faces in terms of secondary picketing, the disruption of services and the problems facing the National Health Service and public services.
Of course it does not. I can give the hon. Member for St. Ives and his hon. Friends a long list of other things that it does nothing to help with either. But I want to make this absolutely clear: while the hardships that many people are now suffering and the need to change practices and attitudes to remedy some of those hardships are certainly most immediate and most urgent problems, they are not the most fundamental problems that this country faces.
While the road haulage dispute goes on, while there is continued action in our hospitals and while there is disruption of the water supplies, the newspapers and the House of Commons will rightly concentrate their attention on those immediate issues. But, on all the evidence, the people of the country still believe that inflation remains the major threat to our society. I believe that the people are right. The Bill enables the Price Commission to contribute towards its control. I commend it to the House.
§ 5.15 p.m.
§ Mrs. Sally Oppenheim (Gloucester)
Over the past month it has seemed to many people that we have had no Government at Westminster and that instead we have had government by bully boys throughout the country. The Government have now not so much woken from their inertia as stirred in their slumbers to introduce a Bill which will mean that British industry is to be squeezed between government by bully boys on the picket lines and government by busybodies at the Price Commission. What it seems we shall never get from the Labour Party is government by Government.
Before its publication the Bill was widely heralded in the media, in stories supported by hints and nods by Cabinet Ministers appearing on television at the time, as an emergency measure which was to be rushed through Parliament to restrain the rise in the retail price index which was about to take place. The Secretary of State, it is true, has been more modest in his claims for the Bill today, although he, too, has implied that it has an important role to play in restraining prices.
I am therefore bound to say that it will do no such thing and that its effect on the overall family budget will be so negligible as to be insignificant, and until today the right hon. Gentleman himself has not disputed that. When it was put to him at Question Time on 20 November that the total effect of the Price Commission over a year was to restrain the RPI by about 0.1 per cent., roughly, he replied, with his usual old-world charm and grace, which he has demonstrated again today:It may be that the calculation of the hon. Member for Gloucester (Mrs. Oppenheim) was, for once, correct. That may be the figure. I have never made that calculation.I asked: "Why not?" The right hon. Gentleman replied:Because it implies a role for the Price Commission that I have never assigned to it, The Commission is not an agency for getting the RPI down."—[Official Report, 20 November 1978; Vol. 958, c. 907.]So, on his own admission, the figure of 0.1 per cent. that I put to the right hon. Gentleman at that time was not incorrect. On the basis of that calculation, or even on the basis of the calculation that the right hon. Gentleman has put forward 1074 today, the approximate effect of the Bill on the RPI could not be 0.5 per cent., and even if it was 0.5 per cent. that is peanuts.
I shall abandon percentages, because percentages, as the Secretary of State is probably not aware, mean nothing to those on low incomes for whom he shed crocodile tears today. What means something to those people is pennies, and the Bill will mean less than a penny per person per week for a low income family.
It is ironic that a Government who have reduced the purchasing power of every pound in people's pockets to less that 50p now promise to put less than 1p back into those pockets. Whichever way one looks at it, that is a derisory amount and is totally irrelevant in the context of a Bill which will damage not only industry but the long-term interests of consumers.
The Bill is nothing more than a cynical exercise in political expediency, which, like all this Government's cosmetic measures which have gone before it, is not related in any way to any concern about prices or about consumers: it is in fact an insult to their intelligence.
I shall tell the House what the Bill is. It is a response on the part of the Government to four political needs. It is a response, first, to the political need to appear to be doing something about prices now that the retail price index has started to rise again, after the Government said it would not do so.
Secondly, the Bill is, in some odd way, fulfilling the political need, according to some newspapers, in some obscure way to embarrass the Opposition by making us vote against it.
Thirdly, it is a sop not to the militants in the trade union movement but to those trade unionists who are still blinkered enough not to understand the connection between profits and jobs.
Fourthly, and last but not least, it is to strengthen the Price Commission in terms of political intervention in industry so that the Government will have an opportunity to manipulate prices in the short term if they want to.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
Has not my hon. Friend left out the fifth reason? What about the new term that we had from the Attorney- 1075 General last week—lawful intimidation? Is not that what the Bill really is?
§ Mrs. Oppenheim
My hon. Friend is right. I was not absolutely certain that the Secretary of State could count past four, so I thought that I had better limit it to four reasons.
On all but one of these political criteria, the Bill fails. It fails on the first count because the people of this county are not so foolish as to be hoodwinked by a Government all of whose cosmetic measures in the past have not prevented prices from doubling and have not prevented the pound in one's pocket from being reduced to less than half its value in terms of purchasing power. Why should they have any faith in a Government who have inflicted on them the worst period of inflation since modern records were kept? Why should they have any faith in any measure from a Government who have inflicted on them the very hardship about which the right hon. Gentleman was talking—hardship, deprivation, anxiety, and a constant struggle to make ends meet? Why should they have any faith in any measure from a Government who have turned what were ordinary items of family expenditure in 1974 into items which are now beyond the reach of practically every family in the country today? Nothing that such a Government can offer in the way of the so-called prices policy can have any credibility with the British consumer any more.
On the second point, we are not in the least embarrassed about opposing a measure which is totally irrelevant in the context of the low levels of productivity throughout British industry today. We are not in the least embarrassed about opposing a measure which will undermine investment confidence, which will lose jobs, which will hamper productivity and which, in some cases, could lead to bank-ruptcy. Far from being embarrassed, it would be the height of irresponsibility on the part of the Opposition if we did not oppose such a measure.
On the third count, as a sop to the trade unions the Bill is worthless, because this particular piece of Danegeld has bought nothing whatsoever. We are still in the middle of the worst industrial chaos that we have experienced in this country probably since the general strike.
1076 On all but the fourth and last count, the Bill fails to meet its own political criteria. The one and only objective which will be met is the most damaging one. The Bill will strengthen the Commission's already wide arbitrary discretionary power, so that industry will be more vulnerable than ever to strong arm tactics and to threats from the Commission itself. Also, of course, the Bill will provide the Government with an opportunity—this is a reason for Labour Members below the Gangway to support the measure. I have no doubt—to manipulate prices in the short term in the run-up to a general election, exactly as they did in 1974. That—and no other reason—is why this measure is being rushed through Parliament today.
How else can the Secretary of State explain the U-turn in his own attitudes? Today he has passionately espoused his belief that the safeguards should be removed. Recently, at a dinner, speaking to the Marketing Research Society on 17 January, he said:I have never made any secret of my wish to abolish safeguard regulations.But only a couple of months earlier, at Question Time, the right hon. Gentleman said:removing the safeguards, or changing them after a year, or one and a half years—which is precisely at this moment in time—would involve some penalties in terms of industrial confidence. I think that they could be removed or altered only as part of a wider initiative about prices and wages. It would be very difficult to alter them in isolation."—[Official Report, 20 November 1978; Vol. 958, c. 890.]No doubt the right hon. Gentleman would now like to intervene to tell the House what has changed his mind in the space of two months. What is this wider initiative on prices and wages which had to be introduced with this measure? Or is the truth that when the right hon. Gentleman did this U-turn he had two things in mind, rising inflation and an impending general election, and that is why this panic measure is being rushed through the House today?
§ Mr. Hattersley
It is the impending general election point which the hon. Lady says has prompted me to bring a Bill to the House of Commons which enables the Government to manipulate 1077 prices. Will she describe to the House how that process of manipulation is done under the Bill?
§ Mrs. Oppenheim
I shall be coming to that in great detail.
The Government know perfectly well that by delaying price increases for three or four months, that is the way they will manipulate price increases. The truth is that the Bill, which masquerades as a measure to protect the consumers, is nothing more than a fraud. Here I shall answer the right hon. Gentleman's point. No, it will not prevent price increases; it will merely defer them. It is not a price-freezing mechanism; it is merely a price-deferral mechanism. It is not likely to impress the trade unions. It will erode profits even further. It will create great uncertaintly throughout industry. It will lengthen the dole queues. It will strengthen a body which is already beyond the control of Parliament and which already has too much discretionary power.
I do not believe that even the present Government would be so irresponsible as to introduce such a measure if it were not for the fact that they, too, regard it as a short-term bridge between now and a general election. Even they know that the dangers to industry are so great that they could not be contemplated in the long term. So this measure is just another short-term sham from a Government who have a short time to go.
Indeed, what has intensified the sense of betrayal among the British people as a result of the atrocious rate of price increases that we have had under the present Government, what has wiped out all credibility in any measures they may introduce, has been not only their failure to restrain inflation but the underlying deep vein of dishonesty and deception which has accompanied every measure and every statement that they have made in this area.
It all started in 1974 with a false forecast—the 84 per cent.—and with it, it was said, no evidence of any price increases in the pipeline. It was carried on by nine wrong forecasts by the Chancellor of the Exchequer between February 1974 and June 1976, and brought almost up to date last June by the Prime Minister, who said of inflation at Question Time: 1078I see no reason why it should ever get back to double figures."—[Official Report, 6 June 1978; Vol. 951, c. 25.]It was brought up to date even more recently by the Secretary of State for Prices and Consumer Protection at the Birmingham exhibition centre on 11 June, when he said:We can produce the same success in 1979. I have no doubt that we will make the same sort of progress next year as we have made this year.Does the right hon. Gentleman wish to qualify that remark in any way? He is looking in the opposite direction and does not wish to intervene.
Perhaps we should not be too harsh on the right hon. Gentleman about some of his more recent forecasts, because, clearly, the Government are today very confused and perplexed people. All within a space of months we have had statements from them claiming, first, that they were winning the battle against inflation, then that they had won the battle, and more recently that they were in the middle of the battle. There could hardly have been more confusion among the generals at any time since the retreat from Moscow.
It is no wonder that the triumphant boasts that we had from the Government last year about having won the battle against inflation have met with the contempt and derision of the people of this country. Only this Government would have the cheek to boast that in one year out of five they have brought inflation down to single figures. Now that the temporary and overdue abatement has ended, leaving inflation running at a much higher rate than the Government had expected and still rising, the Secretary of State for Prices and Consumer Protection and the Prime Minister are not prepared to admit that any success last year owed little or nothing to the Government's policies but almost everything to the comparative stability of the pound as a result of measures imposed by the IMF, the falling dollar, North Sea oil prices and commodity prices. We heard that from the Chancellor of the Exchequer, but we have never heard it from the Secretary of State or the Prime Minister.
After the forecast came the phoney alibis. They sprang to the lips of Ministers trained like Pavlovian dogs. As soon as they heard the words "prices" or 1079 "inflation", they barked "four-fold increase in oil prices". The Government did not mention that other countries which had had the same increases had, at that time, rates of inflation less than a fraction of those in this country. The Government did not say that other world prices were very favourable to this country. Other world prices rose by 157 per cent. under the previous Conservative Government. They have risen by only 3.7 per cent. during the whole period that the present Government have been in office.
The Government cannot have it both ways. They must decide whether they are knaves or fools. Either they knew about what they describe as the inheritance from the last Conservative Government at the time these forecasts were made, or they did not know. Either the forecasts were fraudulent or they were incompetent. If the Government are not prepared to say which, they had better stop making silly excuses and admit that what has massively fuelled inflation that could not be stopped by any cosmetic measure was their own crazy spending and borrowing binge.
Still on the subject of deception, I come to the cosmetic policies—such as the one we are debating today—introduced in the name of counter-inflation. All these policies were political expedients designed to deceive and disguise inflation rather than to cure it. When the Government and the right hon. Gentleman criticise us for opposing their policies, they should reflect that all these measures which we have criticised in the past—except the most recent ones—have either been discarded or denounced by themselves.
Let us start with food subsidies. They cost £3,000 million, did not assist the lower paid and had to be phased out when the Government ran out of money and credit. The subsidies were not merely discarded but were denounced by the right hon. Gentleman. On 18 June on the BBC television programme "One Man, One Voice" the right hon. Gentleman said:there are probably better things to spend the money (i.e. public expenditure) on than food subsidies.The right hon. Gentleman did not like "Shirley's shopping basket" either. The less said about that the sooner it is 1080 mended; because the bottom fell out of that.
The counter-inflation publicity unit cost £2,500,000. After little over a year that was stood down because, the Prime Minister told us, it could be stood down but it could be quickly assembled if it became necessary. We have not heard that it is being quickly reassembled. Therefore we assume that it is another discarded policy that we opposed.
Do my hon. Friends remember the selective price check scheme, with its little red triangles? That cost nearly £1 million. The triangles were sent through the post to shopkeepers, including those not in the scheme. However, they all put them on their windows. At the end of three months when the scheme was over and prices burst forth again, those same shopkeepers could not remove the triangles from their windows. Believing that it was a good scheme and that the Government would perhaps reintroduce it, they kept them there. I am afraid that it is yet another discarded policy.
My hon. Friends and I make no apology for opposing these expensive worthless items of political window dressing—of which the Bill today is one.
Last, but not least, I look to the Price Commission Act itself. Here we come to the triumphant charge made by the Secretary of State, a charge, based on a characteristically arrogant assumption on his part, that in that Act he has some sort of "immaculate conception"—a sort of "Love me, love my dog" syndrome or "You must not criticise it because it is mine" syndrome.
The charge, which he continues to make by a curious equation that he works out for himself, is that because the Conservative Party does not like the Price Commission we are automatically in favour of higher prices. The reverse is true. However, we do not like the Price Commission because, first, it does not prevent high prices and, secondly, because it does damage to industry. That is the only equation that matters. As I have shown—and the Secretary of State has not previously disputed this—the Commission has no effect on inflation.
What about the important components in the family shopping basket? Perhaps my hon. Friends and I are wrong about the Commission. Perhaps it has selected 1081 goods that are important to families. Let us look and see what important components in the family shopping basket have been affected by the Commission. They are cement, soda ash, fertiliser, plaster board, fine bone china, dry batteries, tea and so on.
When it all boils down, as the right hon. Gentleman said, it is not controls but competition that affects prices. No-where is this more evident than with coffee. The Commission intervened and negotiated a voluntary agreement with the trade that was worth 2p or 3p on a 4 oz. jar of coffee. In the meantime, consumers themselves decided that coffee was too expensive. One of the leading supermarkets decided to market own name brands and not to buy the brand leaders. Consumers preferred to pay the lower price. Now the main brand leaders have announced that they will reduce the price of a 4 oz. jar of coffee by about 30p. Therefore, there was a reduction of 60p as a result of competition and of 2p as a result of the involvement of the Commission—an example of consumer power operating as it should do.
Consumer power is founded on competition, and that is why a Conservative Government intend to root out uncompetitive practices and to introduce the necessary measures to ensure that competition is as vigorous and as strenuous as it can be.
The Bill will strengthen a Commission which does not affect the retail price index and important components in the family shopping basket, and which does not bring about competition. What does it do for the £7 million that it costs each year? The right hon. Gentleman says that it prevents unjustifiable price increases. Unjustifiable on what basis? On the basis of the value judgment of members of the Price Commission? Some of those members have never been in industry in their lives, so perhaps it is not based on that. Is it on the basis of the value judgments of Professor John Hughes, architect of the Ford workers' pay claim? No doubt he was shuffling backwards and forwards between the Price Commission and the Ford pickets, telling the pickets how they could get more and coming back to the Price Commission and saying what was justified and what was unjustified.
1082 It is a sobering thought that for the cost of running the Commission for one year the special kidney unit at Hammer-smith hospital, which had to close through lack of funds, could have remained in operation for 14 years at 1978 prices. That represents a Socialist choice of priorities if I ever heard one.
§ Mr. Bidwell
I am a member of the Transport and General Workers' Union, and I paid rapt attention to the Ford settlement. The hon. Lady must realise that one's involvement in the negotiations on a claim is another matter entirely from one's involvement in the picketing.
What the hon. Lady said earlier about trade unions when I tried to intervene was incorrect. In the private sector, trade unions love to see high profits. It is the distribution of those profits that they challenge.
§ Mrs. Oppenheim
I am delighted to hear that if it is the truth. Certainly among some of the more sensible trade unions it may well be the truth, in which case there is hope for this country. I hope that what the hon. Gentleman says is right.
The Bill, which strengthens this futile Commission by removing profit safeguards, could not have come at a worse time for the country. It is being introduced against a background not of five years' soaring profitability but of five years' severely depressed profitability. It comes at a time when industry is still reeling from the losses that it is incurring as a result of the present industrial chaos, and after a year in which it has had to absorb 15 per cent. pay increases and be unable to pass them on in prices, not as a result of the Commission but as a result of competition. This industry-bashing Bill is being introduced at a time when industry needs all the support that it can get. The fact that the Bill is retrospective makes matters much worse.
The section of the Price Commission Act which is virtually repealed by this Bill contains a clear reference, as is contained in the explanatory memorandum, to the safeguard for basic profits. I do not mind which dictionary definition one takes for the word "basic", but I know what my definition is. "Basic" means rock bottom. Now, with the removal of 1083 safeguards, companies with profits which are already at rock bottom could have them pushed below levels described in the Government legislation as "basic". Even loss-making companies could be pushed even lower.
Where, then, are all the fine words of the Prime Minister? What has happened to the Baldwinesque mask that he was wearing until only a short while ago? He seems to take a very different view of the need for profits from the Secretary of State when on 13 May he said in the House:In a nutshell the situation is this—today's profits must be tomorrow's jobs. If there are no profits, there will be no jobs"—[Official Report, 13 May 1976; Vol. 911, c. 665.]At the Labour Party conference in Blackpool on 28 September 1976, he said:The willingness of industry to invest in new plant and machinery requires not only that we overcome inflation but that industry is left with sufficient funds and sufficient confidence to make the new investment.Where is the Prime Minister today? What does he have to say in the light of this Bill and in the light of his own words?
§ Mr. Ron Thomas
Will the hon. Lady explain in simple terms what appears to me to be a piece of schizophrenia? On the one hand she says that the Bill is purely cosmetic and will have no effect on prices, and on the other she says that it will have a damaging effect on the profits which arise from the prices charged.
§ Mrs. Oppenheim
I always try to explain matters in simple terms for the hon. Member for Bristol, North-West (Mr. Thomas). The answer is quite simple. The effect on prices will be narrow. The effect on the overall profitability of industry will not be very great. But the profitability of an individual company could be disastrously affected during one of these investigations.
We fought the Price Commission Act on the basic plank of the inadequacy of safeguards, and these are now to be removed. In Committee on that Bill the Secretary of State said, in effect, that no company on low profits had anything to fear from the Act. Now, through this Bill, he is reneging on his words, and as a result companies on low profits, or no profits, will have everything to fear. But on what good grounds?
1084 What examples has the right hon. Gentleman given us of loopholes in the safeguards that have been exploited? The fact that so many companies qualified for interim awards during the first year of the Price Commission Act was not an indication that there were many loopholes in the safeguards. It meant that the level of profitability of British industry was so low that the Price Commission was irrelevant.
The record shows that the main beneficiaries from the operation of these safeguards, in addition to those that the right hon. Gentleman mentioned, were largely in the public sector. The House, then, has a right to know where the right hon. Gentleman stands on this. Are loss-making industries in the public sector to be pushed even lower? If so, how is that to be offset? Will it be by subsidy, by demanning, or is it to be by a reduction in their cash limits? Does the Secretary of State wish to answer?
§ Mr. Hattersley
I am not following the hon. Lady as carefully as I should. I find it difficult to distinguish between her rhetorical questions and her real questions.
There is no doubt that under section 2 of the Act—not the safeguard clauses, but the criteria by which the Commission must be guided—a report which described a company as not making profits for the purposes set out in that section, and which then went on to make recommendations on the increase in prices necessary to restore the level to profitability as described in section 2, would be a report upon which the Government could not take action.
On the other hand, while section 2 applies in those terms to private industry, it applies in a related way to nationalised industries. It will not do for the hon. Lady now to complain because the Bill will have an equal incidence in private and public sectors. Her previous complaint was that we did not touch public sector prices. I believe it to be essential that public sector prices are subjected to the same scrutiny as that given to private sector prices. But I also believe that there is no question but that section 2 requires the Commission to allow the price increases that are necessary to make a trading profit.
§ Mrs. Oppenheim
The Secretary of State was, clearly, not listening to the question that I addressed to him. I asked where the money would come from if loss-making public sector industry profits were pushed even further below profitability. Will it come from Government subsidy, from demanning or from a reduction in cash limits? The right hon. Gentleman has not answered that.
§ Mrs. Oppenheim
I shall not give way again. The right hon. Gentleman had his opportunity.
The great danger is not so much what the Commission will do but the uncertainty that is created by widening the already arbitrary criteria by which the Commission operates.
Forward investment planning will become impossible in many cases. How can a business plan forward investments except on the basis of an expectation of an adequate return on capital? An adequate return on investment means an adequate profit. To ask British industry to go ahead and invest and become more productive on this basis is like sending the British Lions to play the All Blacks wearing straitjackets and leg irons.
If the Bill is enacted, essential investment either will not take place or will be severely curtailed. The House does not need to take that from me. I have a letter from an engineering company which wrote to the CBI and which does not wish to have its name mentioned.
§ Mrs. Oppenheim
Because it is afraid of reprisals from the Price Commission. The letter goes as follows:We have put a total embargo on all capital expenditure as a result of the decision to review profit safeguards, for at least three months, and shall review the position then. My guess is that capital expenditure after that time will be limited to items which can show a quick return and we may definitely have to postpone, if not abandon, some of our long term investment plans.That is typical of the attitude likely to prevail throughout industry.
What is so serious is that, by their very nature, the investigations under the 1086 Price Commission Act assume that a company is guilty until proved innocent. So if, during that period, a company suffers very serious loss, although it is proclaimed innocent—in inverted commas—by the Price Commission, it will still mean that it will have suffered irrecoverable losses. There are numerous other cases of the variable aspects of profits that we shall raise in Committee. But the point is that these decisions, affecting the life and death of companies, are all to be made at the discretion of the Commission, and where this uncertainty arises there will be a crucial lack of confidence in industrial investment.
The whole future of companies and their investment plans are at stake, and there should be, at the very least, some fail-safe mechanism below which they should not be pushed. Companies should not be dependent on Price Commission discretion. They should be under no doubt, under the law, That they will not be pushed into bankruptcy, that they will not be pushed into loss-making and that they will not be pushed into a lower profit level than makes their business viable.
§ Mrs. Oppenheim
No, I must get on. It is my normal practice to give way, but the hon. Gentleman will be replying to the debate and therefore will have an opportunity to put all the points that I know he will want to make and to answer all the questions that have been put to him. That is what the hon. Gentleman is paid for.
The Secretary of State tries to claim that this uncertainty about investments is psychological, that it is not economic. He has even tried to claim that we are responsible, that we create the uncertainty, probably by making the kind of speech I am making now. Does not the right hon. Gentleman understand that experienced business men do not need us to tell them whether they are certain or uncertain? They make these judgments on whether investment will show an adequate return and on no other basis. When the right hon. Gentleman prognosticates about price increases being justifiable only on the basis that costs are partly 1087 absorbed by increased efficiency, all that jargon really means higher productivity. He does not want to say "higher productivity" because "productivity" is a dirty word in certain trade union circles at the moment, so he wraps it all up in jargon.
But, of course, the right hon. Gentleman is quite right—productivity is too low in this country. Investment in new production techniques is sluggish. He should ask himself why. He should ask himself who are the production wreckers in this country. I will tell him. The answer is the Government, on three counts. First, because they penalise initiative instead of encouraging it; secondly, because they undermine labour relations so that management is not able to manage as efficiently as it should; thirdly, because investment confidence in the kind of expensive investment in improving production techniques is the very kind of investment that is hit hardest by this sort of measure. That investment can only be encouraged; it cannot be imposed by Government or Price Commission edict, much as the right hon. Gentleman might think so. It will, in fact, be hampered by the kind of meddling that we shall have under this Bill.
§ Mr. Heffer
I see that the hon. Lady is getting to the end of her notes and is therefore drawing her speech to a conclusion. She has said that the only thing that the Conservative Party would do is allow greater competition. Is that really the only policy that it can offer the House of Commons and the country? What about the questions raised by my right hon. Friend the Secretary of State in relation to the various rings that operate, for example, in the cement industry and many other industries? What exactly is the policy of the Conservative Party? I have listened very attentively to the hon. Lady and have been hoping not only to get severe criticisms—some of which I am not entirely opposed to, and indeed have made them myself—but to hear what alternatives the Conservatives have to offer. I have not heard anything about that, and I have listened carefully.
§ Mrs. Oppenheim
The hon. Gentleman speaks with remarkable prescience, because I am coming to the conclusion of my remarks. He raised an important and 1088 valid point. I did not say that we would allow competition to take care of these things. I said that we would ensure, by whatever legislative measures were necessary, that competition was as active, vigorous and robust as it could possibly be, and, in precisely the kind of case mentioned by the hon. Gentleman, where rings exist they would not be allowed to exist any more, for the very reason given by the hon. Member for Cornwall, North (Mr. Pardoe) in an intervention. It is because competition does not exist in those cases, because there are possibly restrictive practices in those cases, that those rings can exist, and we do not intend to allow that sort of thing to continue. I hope that I have answered the hon. Gentleman's question.
Here we are with the prospect of a further bout of inflation confronting consumers, with prices already having risen by over 100 per cent. under this Government—a Government who are still spending too much, who are borrowing too much, who are taxing too much, who still have no credible comprehensive policies for tackling inflation, who are delaying the vital budgetary measures necessary and who are now trying to disguise this whole disastrous scenario behind a shabby little Bill—because that is what it is.
The Bill is a measure which, far from preventing the unjustifiable, will lead to the roughest kind of justice or no justice at all. It will, by preventing investment, impede increased efficiency. No one likes price increases, and, goodness knows, we have had enough of them under this Government. But reality and the history of the Government confirm that price control does not and cannot prevent inflation.
That is why the Bill is totally irrelevant to the needs of consumers, to the needs of industry, to the needs of the trade union membership and to every need except the Government's own political needs. It will gravely damage industry at the worst possible time. It should be rejected for what it is—the last desperate attempt by a dying Government to deceive the consumers and paralyse industry.
§ 5.57 p.m.
§ Dr. Oonagh McDonald (Thurrock)
I am bound to welcome the Bill since, if I remember correctly, I asked my right hon. 1089 Friend the Secretary of State for Prices and Consumer Protection at the end of November if he would be willing to remove the profits safeguard section from the Price Commission Act. However, the context of the Bill made me pay particular attention when he said that the measure was not in any way to be used as a sanction on pay. If that is the case, I ask him to comment on what I understand were the words of Mr. Charles Williams when he warned companies that the Price Commission will be looking closely at wages and material costs in price applications and is prepared to intervene more actively. Perhaps my right hon. Friend will clarify those remarks by Mr. Williams and reassure us that the Bill is not intended to be used in that way.
Naturally, I welcome the Bill because the profits safeguards section of the Act has allowed companies to push through price increases even before the Commission has been able to investigate their requests to do so. It has allowed firms to maintain profit levels by putting up their prices arbitrarily, regardless of whether the same level of profit could be achieved in other ways.
Of course, one would expect a measure like this to meet with hysterical opposition from the CBI and its representatives on the Benches opposite, though even as I say that it occurs to me that only one or two hon. Members opposite oppose it hysterically because the rest seem to find the subject so utterly boring that they were fast asleep during most of the speech of the hon. Member for Gloucester (Mrs. Oppenheim).
The Conservative Opposition and the CBI claim that the Bill will do irreparable damage to company profits, lead to further unemployment and damage the economy as a whole. But let us look a little more coolly at what has happened to company profits. In fact, 1977 was the third straight year in which company profits rose sharply in real terms. The gain in company profits overall during that year, excluding stock appreciation and the North Sea oil sector, is put at 30 per cent. We should perhaps take a more careful look at what happened to profits during the 1970s. For all industrial and commercial companies, real profits rose by only 7 per cent. between 1090 1970 and 1976. What we need to do is disaggregate those figures and look at the top 25 companies. During that period, the top 25 companies' share of gross profits increased dramatically from about one-fifth to two-fifths of industrial and commercial companies as a whole.
§ Dr. McDonald
No. Among the top 25 companies we find that Tate and Lyle, ICI and Unilever are three of the most profitable companies that have been granted the price increases that they asked for by the Price Commission.
§ Dr. McDonald
No. Their products include sugar, soap, detergents, household cleaners and other equally important items in the weekly shopping basket of very many households up and down the country. In addition to the three companies I have already mentioned, a further 27 companies have already been allowed price increases under the profits safeguard clause. This clause has had quite an important effect not necessarily on the retail price index but on important goods which people have to buy frequently. These price increases have been justified in terms of the profits safeguards clause. That seems to me to be quite the wrong justification for them. Many of the top 25 companies control substantial market shares in the various goods for which they are responsible and therefore they have a very important role to play in the effect that the prices of their products have on ordinary people and on the kind of goods that they buy each week. It is therefore at these top 25 companies that we should perhaps look more carefully and it is on those companies that we should concentrate our attention.
The Commission has investigated a number of top companies and a number of companies which are the leaders in their particular market. In each and every case the Commission has been able to point to this or that aspect of the way in which those companies conduct their business and to point to great inefficiency in the way their businesses are conducted. The Commission has, therefore, said that in order to avoid price increases in the future those companies, 1091 such as Blue Circle, should put their own houses in order and make sure that they carry on their business efficiently.
The hon. Member for Gloucester talked about the value of competition. She believes that competition is the answer to all our problems. The hon. Lady is simply living in cloud cuckoo land. Perhaps she should consult the previous chairman of the Price Commission, the noble Lord, Lord Cockfield, who was—I do not know whether he still is—a friend of the Tory Party for a long time. This is what Lord Cockfield had to say about the working of the free market economy in this country:One thing which clearly emerged from the administration of price control was the extent to which competition is effectively limited in this country. We suffer market domination, price leadership, parallel pricing, the lack of effective competition, unwillingness to compete on price, which in many trades is regarded as disreputable or undesirable; and a cost-plus mentality under which the instinctive reaction to cost increases is to pass them on in prices rather than to absorb them in greater efficiency. There is a tendency to talk of pricing abuse, but my experience is that it is not so much the active and deliberate abuse which is the problem as a general attitude of non-competitiveness.This gentleman was a one-time company chief executive and he could hardly be described as a Left-winger. Yet he says after his five years' experience as chairman of the Price Commission, and his view is supported by practically every investigation report which the Commission has since produced, that lack of competition and inefficiency are what lead to high prices, and that those prices are often to be found amongst the top 25 companies which control so much of the market share in the range of products with which they are concerned. For that reason, it is important to have a strong and effective Price Commission, and I should certainly like to see its powers strengthened. Therefore, I welcome the step that the Government have taken.
It is important that it should be noted as well that the Price Commission is only one tool for dealing with prices; it is only one tool for dealing with companies and ensuring that they become far more efficient than they are at present. What we also need, and what the Government should now take on board, is what the Labour Party has pressed for so long. It is that in order to deal with ineffi- 1092 cient practices, with market domination, with price leadership, and so on, it is high time that the Government entered into a tripartite partnership with those major companies and looked at the evidence put forward about the practices of those companies, which has already been offered by the Price Commission. The Government should ensure that these companies become more efficient and give trade unions a say in future planning and pricing policy and in every aspect of their investment plans, through compulsory planning agreements. In that way, we would seriously begin to tackle the problem of rising prices in this country. We would do it—
§ Dr. McDonald
We would do it not by the imposition of controls from outside but by a tripartite arrangement between Government, trade unions and the companies. Such an arrangement would enable the proper discussion of plans and pricing policies and it would also enable the Government to put pressure on the companies to ensure that they put their own houses in order. By looking at those companies we could begin effectively to control prices so that households up and down the country could really begin to see the benefit of such controls. That is the way to tackle it, and not merely by strengthening the Bill or by imposing a price freeze on all companies at this stage. I think that that could harm small and medium-sized companies and lead to unemployment. Let us tackle it with the major companies which control so much of production and sales in this country and which have a tremendous impact on the weekly shopping basket of every single household, through the planning agreements system.
§ 6.9 p.m.
§ Mr. Giles Shaw (Pudsey)
I think it is deeply saddening that the hon. Member for Thurrock (Dr. McDonald), despite her long sojourn on the Price Commission Bill Committee upstairs, has still failed to grasp the role that profits play in the welfare of her constituents. No doubt a prophet will always be without honour, except in her own country of Thurrock, and I think that industries there should be taking note that it is the view of 1093 their elected Member that they have no part to play in the efficiency of British industry.
However, we are discussing something which by all accounts has a significant part to play as far as the Secretary of State is concerned because of what he terms a purely prices policy—a policy that has nothing to do with pay or any of the more devious aspects of economic management, but simply the lively pristine thought that here is something that is purely a prices policy; and he usually manages a shake of that jowl which, sadly, I cannot imitate.
I think I must remind the right hon. Gentleman, and I am sorry that he is not in his place, that he started his fairly turgid remarks by misleading the House to a considerable degree. He suggested that the inclusion of section 9 of the Price Commission Act was a matter forced, reluctantly, upon the Government by outside interests, namely, the CBI and industrial pressures of one kind or another.
The right hon. Gentleman is clearly on record as demonstrating to the Committee the imperative nature of having a clause to deal with safeguards. Sadly, he is absent, but I shall remind him in absentia of what he said, and the Under-Secretary of State will no doubt do his best to reply, with the loquacity for which he is famous, in winding-up.
In Committee on the Price Commission Bill, when dealing with clause 9, the Secretary of State said that he wanted tomake it absolutely clear to the Committee that there is no disagreement between us—the right hon. Gentleman was referring to there being no disagreement between the two sides of the Committee—about the need for safeguards. I do not simply mean things which are called safeguards, but things which protect the viability of companies which are being investigated during the period in which they are being investigated.The significant sentence is:That was always our intention from the moment that the Bill was envisaged.That does not square with what the Secretary of State told us about being pushed unwillingly into making some concession in the drafting of this Bill in the matter of safeguarding profits. Section 9 of the Price Commission Act is described as "Safeguard for basic profits". During the long Committee stage, with 1094 which I shall not weary the House, because hon. Members on both sides will recall it, the discussion turned upon the way in which the Government were to describe the safeguard for profits, which was clearly drafted in the Bill. Time after time the right hon. Gentleman and his colleagues refused to provide the Committee with any description of the safeguard. It was not until Report that a consultation document was produced.
By coming before the House today with this grotty little Bill, the Secretary of State is attempting to remove something to which, during the preparation of the Price Commission Act as it now is, he was totally committed as being a vital ingredient in the prices policy which he was then supporting.
We are talking now about the removal of section 9 of the Price Commission Act. If the Secretary of State wants to complain about the number of price increases which have been awarded at the interim level, because of the safeguard clause being applied, that is relevant not to section 9 of the Act but to the regulations which he has designed and published.
Section 9 provides that the right hon. Gentleman should issue such regulations, and the requirement is that basic profits—that is, rock bottom profits, as my hon. Friend the Member for Gloucester (Mrs. Oppenheim) rightly described them—should be safeguarded during the four or more weeks of a price investigation. The formulae under which those profits have been described, the effect of those profits on the number of price applications and the consequential belief which the Secretary of State would wish the House to share—that the loophole has been so large that many companies have been able to operate a formula—have nothing to do with the section which the Bill seeks to abolish, but they have everything to do with the regulations which were issued by virtue of the power granted in section 9.
The Secretary of State is seeking to remove any possible interim safeguard for profits when he could meet his point, if he wished, by redesigning the criteria for the regulations which he has issued. The Under-Secretary of State shakes his head in dissent. We shall listen carefully to his explanation in reply. The Committee stage allowed the Secretary of 1095 State substantial scope to deal with the problem which wide abuse of the safeguard profit regulations could provide. In Committee, the right hon. Gentleman said:During the initial consultations, we agreed that we should accept a statutory obligation to create safeguards.It is that statutory obligation that the Secretary of State now seeks to remove. The right hon. Gentleman went on to say:My original intention was to do it as an administrative act, but because industry believed that it would feel a great deal more reassured if it were written into the Bill I gladly agreed to do that as an indication of good faith.Therefore, we can conclude that its removal through this amending legislation is a calculated act of bad faith. It is deliberately designed not to reassure industry. It clearly will not contribute towards improving the climate between industry and the Government.
In Committee the Secretary of State went on at length to emphasise the importance of basic profits. He said:It would be preposterous to allow a situation to develop in which the investigatory freeze drove companies out of business, or so to imperil their commercial prospects that they could not recruit, export or invest."—[Official Report, Standing Committee B, 17th May 1977; c. 381–83.]We share with vigour the view that section 9 of the Price Commission Act achieved a safeguard to enable industry to earn profits, especially during a period of investigation, and to safeguard trading operations. Indeed, it protected policies on investment and jobs. Therefore, it is extraordinary that the Government should have sought to come forward with this proposal at this time—a time when industry is desperate in terms of cash flow, is under the greatest possible pressure of loss of export earnings and is having the greatest possible difficulty in sustaining employment. It is a time which must have a major effect on the profitability of industry in the financial year 1979. It is a travesty of economic management that the Government should come forward at this time with a Bill to remove an element of safeguard for basic profits in their so-called prices policy.
§ Mr. Maclennan
Does the hon. Gentleman dissent from the view expressed by 1096 his hon. Friend the Member for Gloucester (Mrs. Oppenheim) that the effect on the profitability of industry as a whole will not be great?
§ Mr. Shaw
I do not dissent from that view. I understand that view perfectly. I was referring to the current industrial climate upon which this additional burden has now been put. As for the control of basic profits, if the Bill is passed there will be no statutory protection for industry. We shall be reliant, once again, upon the discretion or, to put it no finer, the whim of an extra-governmental body which may or may not seek to use its discretion favourably. It should be made clear that the reputation of that body so far would hardly reassure industry that in future the discretionary element will be as favourable as the statutory protection which the Government now seek to remove.
This is a most ill-considered measure. I think that there would be some possible cause for acceptance of such a measure if the remaining sections of the Price Commission Act provided a better definition of "profit". But, as the Under-Secretary of State knows, it was never the Government's intention to admit or define what should be a fair level of profit. Therefore, we have an open-ended problem in defining the level of profit to be attributed under section 2 of the Act. It was in large measure the issue of regulations under section 9 which supplied the gap which section 2 failed to fill.
If we remove section 9, and thereby remove the right of the Secretary of State to issue regulations which define profit and produce a formula against which it can be worked, we shall place on the Commission a discretion far in excess of what should be applied. Industry must have some guidance of the Commission's attitude to profit. If such guidance is removed by the Bill, and if it is not to appear in some other published form, that will be a serious threat to the way in which industry presently works with the Commission.
The effect of failing to define in quantitative terms in other parts of the Bill the acceptable level of profit is another reason for the removal of this section being crucial. It is true that levels of profit were determined under the previous codified regulations. It is true that 1097 they provided a complex formula. As the Secretary of State admitted, companies were locked in to a base period, the effect of which in later years was seriously to distort and to erode profit. The regulations were designed after intensive consultation as a more effective description of true profit. That they should now be removed altogether from the scene is most damaging.
The application of the regulations is triggered off only by a price application. If we have companies applying to increase their prices, and if we have available a profit regulation safeguard, it stands to reason that that regulation will be used in all instances where it may be justified. It was to allow for the justification that the section and the regulations were designed. It was to prevent a period of severe strain on cash flow and severe damage to investment plans that the section and the regulations were designed. We cannot allow the section to be removed without questioning what the Government hope to achieve thereby.
The Secretary of State went on record as believing that such action would have an important effect in making the Commission "more effective". He said that it would give it wider and more discretionary powers. If that is so, we must assume that it will be carrying out more and more investigations of price applications, more and more sectoral investigations where appropriate and, presumably, freezing prices more frequently during periods of investigation. We do not have any assurance that any interim safeguards that the Commission originates will be comparably more widely applied. There have been only three occasions when the Commission of its own volition has allowed interim price awards to be made. Surely it is damaging that it should go forward into the new, uncharted territory of wider and more discretionary use of its powers with a track record of not being especially helpful when it comes to interim price adjustments.
The Under-Secretary of State must be aware that if the House is unwise enough to give the Bill a Second Reading there will be amendments tabled in Committee to seek to rectify some of the substantial omissions to which I have drawn attention.
1098 I suppose that we must congratulate the Secretary of State at least upon his effrontery in changing the rules in this way. He has removed protection. He has increased discretion to an extra-parliamentary force. He has virtually given the Commission the role of a form of permanent paid-up picket whose intention is to disrupt British industry's right to manage. Furthermore, it is to be a flying picket. It may be sent into any sector of the economy, either at the discretion of the Secretary of State or of its own volition. It may examine prices from anywhere. It may indulge in sectoral examinations and it may find itself acting as a shop steward for prices where-ever it so decides. Its form of picketing is to picket the pockets of the producers.
The governing rules of the past are now to be tightened. It seems that if we seek a price increase we are to be assumed guilty until we are proved innocent. The Commission itself will determine whether we qualify for interim price adjustment. It must be widely regretted that the Bill is a plain example of the way in which the Government seek to operate their economic policy. If the Bill is not to have—we must admit this—a great effect upon the inflation index, and if it is not to have, except for the companies that really need it, the effect of bringing about a major lift of interim profitability, what is its purpose?
My hon. Friend the Member for Gloucester suggested that there are some fairly obvious political purposes wrapped up in the timing and rush associated with the Bill. It cannot genuinely be said to be a well-thought-out part of the Government's battle against inflation. It is clearly an erroneous piece of economic management. If, 18 months ago, basic profits were regarded as vital during the enactment of the Price Commission Act as it now is, how can it be said now that basic profits are of no consequence and deserve no protection? It is a blatant example of the Government's casuistry in their operation of prices policy. It is another sop, whether it be to the trade unions or to the Left of the Labour Party. Or is it a measure to show that the Secretary of State has something to do? Whether it is effective does not really matter to the right hon. Gentleman. At least he can wave the Bill, or later the Act, and say "Here is a piece of paper 1099 that I engineered". What is more, he will probably claim that he guided it through the House as an emergency measure at the height of the greatest industrial crisis of the decade.
That is not good enough. The trend cannot continue. We cannot have this sort of legislation introduced in this way and based on specious arguments. The Bill and the Government should be treated with the contempt that they both deserve.
§ 6.27 p.m.
§ Mr. William Hamilton (Fife, Central)
The Opposition had better make up their mind whether the Bill is a mouse or a tiger. Both charges have been made. The hon. Member for Gloucester (Mrs. Oppenheim) dismissed the Bill. First, the hon. Lady talked about government by bully-boy tactics or by the Price Commission. She dismissed the Bill and its effect on prices as negligible. Nearly in the next breath she said that it would lead to massive increases in unemployment, a massive increase in bankruptcies, a discouragement to invest and an erosion of profits. She cannot have it both ways. Either the Bill will have a devastating effect on profits and industry generally or it is irrelevant to the problems that we are facing. Opposition Members cannot stand on both arguments at the same time.
The Bill has been produced at the behest, encouragement and will of our friends in the trade union movement and on the NEDC. We make no apology for that. Opposition Members need make no apology for being the spokesmen in the House of the CBI and employers. The Opposition are here to speak on behalf of those interests and we make no complaint about that. They should not expect us to apologise for sometimes acting on the advice and encouragement given to us by our friends in the trade union movement or to deny that we sometimes do so. There is nothing wrong in that.
§ Mr. Ridley
May I help the hon. Gentleman with his dilemma on the question whether the Bill is a mouse or a tiger? Surely the right answer is that the more successful the Bill is, the more damage it will do.
§ Mr. Hamilton
The hon. Gentleman must square his own conscience in these matters. The Opposition are directly contradicting themselves. I believe that the effect of the Bill on prices will probably be minimal. Therefore, industry has no need to get worked up about it. Despite what the hon. Member for Gloucester said, there is no evidence anywhere in any of the speeches made by Opposition Members during debates on prices and consumer protection that the Opposition have serious policies to put forward on the control of inflation.
On the contrary, there are in "The Right Approach" repeated major policy statements, all designed to increase—and increase substantially—prices and costs, all along the line. We have only to look at the propositions in that document relating to the National Health Service. We find proposals for increased charges right across the board. There is to be a separate health service for the private sector. The National Health Service, according to the Conservative Front Bench, is to deal with geriatrics and the mentally deficient. The kind of service given by the NHS would be for the second-rate citizens. The top-rate citizens, who could afford a top-class service, could have their nice little private sector for themselves. That might well be the kind of society that Conservatives want to build. It might or might not be the kind of society with which the trade unions would co-operate happily.
The Conservative Party's housing policies are also spelt out in "The Right Approach" in very great detail. Their policy for the general election is to promise that they would substantially reduce housing subsidies, to an extent that would mean colossal increases in rent. Again, in the agriculture sector, we know that the Conservatives' official spokesmen in Europe have advocated the removal of monetary compensatory amounts, which would have the direct consequence of increasing massively the cost of living in this country. It ill becomes the Conservatives, therefore, to belabour the Government for doing something through the Bill, however small and insignificant it might be, to control inflation.
Whenever I go to my constituency—and I go almost every weekend—the basic complaint of housewives and others alike is about rising prices. Equally, when I 1101 go abroad and talk to people abroad, who are watching us from outside, they invariably say that the most impressive achievement of the Government has been their massive and continual onslaught on inflation. Anyone who talks to industrialists or to ordinary working people abroad knows that that is the case. The Government, through their measures, have now reduced the level of inflation to a figure vastly less than that at which it stood before Labour came to power. We have been seeking to take control of a runaway horse, and it takes time to do that. We are still continuing with that process, and the Bill is only a puny measure in that direction.
The hon. Member for Gloucester, from the Opposition Front Bench, quoted, from a document that had been sent to Members of this House by the British Paper and Board Industry Federation, some remarks made in this House on 20 November by my right hon. Friend. That document also prophesies calamity, if not ruin and bankruptcy, for the paper trade. I ask my hon. Friend, in reply to the debate, to say whether he thinks that there is anything in the argument put forward by the paper industry—and presumably some other industries take the same view—that this puny measure will lead to bankruptcy and to massive unemployment. I think it is bunkum.
It is interesting to note that, the Prime Minister having announced on 16 January the intention to introduce this measure, the brewers almost instantaneously reacted by stating that they proposed to put 3p on the pint. Their excuse, as it always is, was that—
§ Mr. Hamilton
No. I do not know whether the hon. Gentleman has an interest to declare, but several Conservative Members no doubt have. As always, the brewers used as an excuse the fact that their raw material costs and labour costs were increasing. They said that they had no alternative to putting 3p on the pint. They put forward that argument all the time. When the hon. Member for Gloucester was asked by one of my hon. Friends how the Conservatives would control inflation or bring down prices, she said "By competition". She should talk to the brewers about competition, because every 1102 one of them happens to think that 3p on the pint will meet his company's requirements. There is no more competition in the brewing industry than there is in the coal industry. When Conservative Members talk about private enterprise ensuring competition, they, too, are talking a lot of nonsense.
§ Mr. Neubert
Whatever my own interests in the brewing industry, which are confined to an excellent Ind Coope brewery in the heart of Romford, will the hon. Gentleman none the less accept, to be fair, that the brewers made their application on 29 December and that the House learned of these proposals from the Prime Minister only on 16 January?
§ Mr. Hamilton
I do not think that the hon. Gentleman is right. No doubt the Minister will be able to reply to his assertion. My guess is that the hon. Gentleman is wrong. The brewers foresaw that this legislation might be introduced and they sought to jump the gun. I hope that we shall get an assurance from my right hon. Friend the Secretary of State that the brewers will not be allowed to jump the gun. If there are any people in this country who cannot qualify for supplementary benefits, they are the brewers. Not one of them is in poverty street, so there should be no sympathy for the brewers in whatever difficulty they have these days.
There was an article in one of the newspapers the other day—I think it was in the Financial Times but I am not sure of that—from which I should like to quote. It stated:The brewers fear that if the Government is successful in scrapping the existing safeguards from its price regulations,—which is precisely what we are doing here—which enable companies to have interim price rises to protect profitability, beer prices may be frozen … The brewers fear that Mr. Roy Hattersley, Prices Secretary, may see the political advantages of keeping beer prices down in the run-up to a General Election.I hope that my right hon. Friend is well aware of the political implications of putting 3p on a pint of beer a few months before the general election. If he is not, he should not be where he is.
§ Mr. Hamilton
I will not give way. I want to say my piece on the brewers.
1103 Conversely, the brewers want the 3p on the pint because they wish to contribute to the Tory Party's election coffers, as they always have done magnificently. I hope that my Government, equally, are determined that the brewers will not get that money out of the pockets of my constituents. If the Bill contributes to that exercise, it will be very worth while, even on that ground alone.
In my view, the tougher powers that the Price Commission will have will continue to be guided by the original Act, and the criteria embodied in section 2 still require the Commission to judge any price increase against a range of relevant factors, including efficiency, profitability and the need to keep costs down by making the best use of resources. There is nothing wrong in any of that. Surely no hon. Member should complain about that. No special category of costs can or would be singled out. The control of prices by the Commission involves the examination of all costs—labour costs, transport costs, fuel costs, raw material costs and the like.
The removal of the so-called safeguards will simply enable the Commission to use its own judgment about the necessity for individual price increases, and will prohibit those price increases which are believed to be unjustified. In those circumstances, it seems to me to be a small but sensible and significant increase in selective price control. If, as I hope, we in this House are all concerned to prevent further inflation and to control inflation—indeed, to get it down—we should all regard this Bill as a very small but not insignificant contribution towards that end.
§ 6.40 p.m.
§ Mr. John Pardoe (Cornwall, North)
The hon. Member for Fife, Central (Mr. Hamilton) began his speech by saying that the Opposition should get themselves straight by deciding whether the Bill was a mouse or a tiger. The same injunction could be applied to the Government. This Bill is a marvellous political animal, because it can be a mouse or a tiger depending upon whom one is canvassing. If the Secretary of State for Prices and Consumer Protection is canvassing council estates in his constituency, he will say "We have introduced this splendid tiger to control prices", but if he is speaking 1104 to the CBI he will say "Do not worry, this is only a feeble mouse, and will not do anything at all." Therefore, it is a marvellous political animal, and I congratulate the zoo master on having created it.
It is a miserable and futile Bill, introduced by a badly rattled and desperate Government. The Secretary of State, in dealing with prices, gives the impression of being rather like the hero in Stephen Leacock's story who jumped on his horse and rode off in all directions.
§ Mr. Pardoe
The Government, in pursuing rising prices, have ridden off in all directions. This is a futile Bill, and the right hon. Gentleman said as much. He has estimated—and this is the "mouse" side of the matter—that its effect on the retail price index will be about 0.5 per cent.—over a period of 18 months.
I believe that this legislation will not have any significant effect on prices for the consumer. We should not waste time introducing and debating legislation that will have no significant effect on anything. I believe that this legislation is entirely irrelevant to the control of inflation.
The right hon. Gentleman said that I had signed an early-day motion on this topic. I have found that motion, which was placed on the Order Paper on 31 January 1978 and contained the names of 119 Labour Members. There are one or two Scottish nationalists in the list, and my name is among them. I have not yet been able to check whether my signature did occur. I think that it is highly unlikely. If the right hon. Gentleman had read through the list of names and had seen only one Liberal, he would have known that throughout the Lib-Lab pact we forbade the Government to introduce this legislation. [Hon. MEMBERS: "Oh."] Yes, that was the main reason why the right hon. Gentleman did not have these provisions in his legislation.
§ Mr. Pardoe
The right hon. Gentleman can look at any of the documents relating to the time when these conversations took place.
§ Mr. Pardoe
The right hon. Gentleman knew that he would not get a majority because the Liberal Party refused to support this legislation during the course of the Lib-Lab pact.
It is most unlikely that I signed the motion. However, it is always possible, as indeed all things are possible. I suppose that I shall have to say much the same thing as the Prime Minister said last week about the Secretary of State for Employment, namely, that he did not understand the question. I shall have to say something on those lines if my signature is on that motion, but I think that is highly unlikely. We can sort that out in due course. No doubt the right hon. Gentleman will apologise to me if he finds that my name was not on the motion, and I shall apologise to him if it is the other way around.
The Bill is a miserable piece of legislation, and it is purely political. It is not economic because, as the right hon. Gentleman admitted, it has almost no effect on what he is trying to control—namely, the general level of prices.
The Secretary of State, as part of his efforts to make it look like a mouse, listed what the Bill was not attacking. He said that it was not an attack on profits. I am glad of that, because profitability in British industry is not very high by any standards, even by the low standards of British industry in the past decade, or compared with our major competitors.
The Bill is not even an effective attack on prices. What is it attacking? It is, of course, an attack on the Opposition parties. It is an attempt to wrong-foot them on the vital and populist issue of price control, which everybody believes is a good thing.
The history of man's efforts to control prices is a comedy of errors. My favourite story involves a great Chinese emperor who many years ago tried to control prices. He was advised by the Milton Friedman of his day that there was too much money around. Therefore, the emperor killed the only white deer in his deer park, cut off its skin and said that in future that was to be the currency of the land. The only trouble was that others discovered how to breed white deer, and the whole process went wrong. 1106 I suspect that this legislation will go as badly wrong on this occasion.
The right hon. Gentleman the Secretary of State in attempting to control the tide of inflation is sometimes compared with King Canute. That is a terrible insult to one of our greatest monarchs. Most people get it all wrong about poor King Canute. The reason why he went down to the sea and told the tide to stop rolling in was not that he believed he could control the sea but that the fools around him believed that he could do so. He went down to the sea to prove to all those flattering morons that he could not control the sea. I wish that the right hon. Gentleman had brought the Bill before us with the same purpose in mind. But, alas, his motivation is not as honest as that of King Canute.
We have had some varying views from the Labour Benches on the subject of profitability. The hon. Member for Thurrock (Dr. McDonald) did not seem to be very much in favour of profit and thought that British industry was making a satisfactory profit at present. The hon. Member for Ealing, Southall (Mr. Bidwell) then said, in an intervention, that the Labour Party welcomed profit and suggested that it was only a question of who received the profit.
That is the most acceptable view that I have heard from the Labour Party on the subject of profit in all the time I have been in the House. That is what the radical Left should be saying. It is extraordinary how Governments of both parties have neglected the sharing of profit. I was delighted to have that comment by a Labour Member. I hope that other Labour Members will go for profitability and will make sure that people want profitability because they know that they will share in it. That would be a great thing for the British economy.
What are the safeguards in the Bill? The most considerable is that it will operate only if profits have fallen by more than 20 per cent. since a base date. We must accept that on the base date the real return on capital in British industry was about 4 per cent. Will the Minister, in replying to the debate, say what, in British industry, the Government regard as an adequate return on capital? Is a figure of 4 per cent. what the Government are aiming for when they inject all 1107 these funds into industry? Is it to encourage industry to earn 4 per cent. on capital?
The Secretary of State may say that it will not affect profits and that there is no need to reduce profits. I believe that it will affect very little indeed and that it will almost never be applied. If one looks at the history of the Price Commission one can see that it would not have been applied. It is a purely political device to wrong-foot the Opposition.
I suspect that the Secretary of State more or less agrees with my position on price control. We must first ask whether prices can ever be controlled. They certainly can, but only if the price is distorted by monopoly, restrictive practices or price fixing. In such a situation the Government have a moral duty to control the price charged by the monopolist.
§ Mr. Pardoe
I do not dissent from the need for a Price Commission. I never wanted the National Board for Prices and Incomes to be abolished. If we had the board now, we should not be in the mess that we are in on relativity and pay. But where there is a free market and competition exists, there is no need for price control. We are concerned only with exercising price control where there is no free market and no competition. There are, unfortunately, too large parts of the British economy where adequate competition does not exist. Under free market conditions and competition, price is the balance between supply and demand. If the Government, on behalf of the consumers, reduce prices, the supply of the goods or services is likely to be reduced. The consumer does not benefit from that because his degree of choice lessens.
The foremost duty of Government is not just to control the prices charged by monopolies; it is also to abolish the monopoly and the restrictive practice. That was my reason for saying that by far the most effective means of tackling the problem is to make price fixing a criminal offence. Conscious parallelism and the talks on the golf course that the hon. Member for Ealing, Southall mentioned should be criminal offences. We should bring the full rigours of the law to bear on that sort of price-fixing agreement.
1108 To a certain extent we have tried to ban the written price-fixing agreement, but that is only the tip of the iceberg. There is a great deal more competition in the American economy than there is here, and we should introduce similar criminal penalties for those who conspire to fix prices.
The Secretary of State did not mention that it was part of the Government's purpose to try to control incomes by controlling prices. The hon. Member for Thurrock said that she hoped that the Minister would say that that was not part of the Government's purpose. But in 1974 the Labour Party made this a specific part of its platform. It said that there was no need for incomes control because incomes could be controlled through prices. It is exceedingly doubtful whether that works. It is beautifully simple in theory. In theory, an employer cannot increase wages unless he can pass on the increased labour costs in higher prices. Free collective bargaining is nothing less than a conspiracy between two teams of producers to gang up against consumers. The employer will accept a grossly inflated wage increase because he knows that he can pass it on to the consumer. Each of these teams on the production side is conspiring to do down the consumer. Free collective bargaining is nothing less than licensed monopoly.
The Secretary of State did not say that he would use prices to hold down wages. It does not work in practice. Small firms go bust because they do not have the resources to hold out against wage claims or increased costs. If they go bust, it reduces the number of suppliers and the amount competition, and that may result in increased prices. So that is not in the interests of the consumer.
Big firms do not go bust; if price control is effective, their profits fall and they cut back on investment. They also exert great pressure on the Government. For example, if price control works on a company employing 10,000 voters in the Prime Minister's constituency of Cardiff, and the firm complains to the Prime Minister that the Secretary of State will not allow it to increase prices and it must close forthwith, the Government will obviously not allow that to happen. They will step in with a Government grant, take over the firm or 1109 persuade the benighted National Enterprise Board to take it over. If it is a general matter applying to many firms, they will do what the Chancellor did on stock relief—undo the tap and allow the companies to get the money back through the tax system.
Price control, in theory, would encourage greater efficiency, but only if the labour market were so unrestricted that it would enable the employer to use the manpower more efficiently. One of the besetting sins of British industry is the innate conservatism, the resistance to change in labour practices because of the restrictive practices in the labour market. That, therefore, would not be allowed either.
The hon. Member for Thurrock asked the Secretary of State if he would remove the profit safeguard clause from the Price Commission Act 1977. The Secretary of State made an interesting reply. He said thatremoving the safeguards, or changing them … would involve some penalties in terms of industrial confidence. I think that they could be removed or altered only as part of a wider initiative about prices or wages. It would be very difficult to alter them in isolation".—[Official Report, 20 November 1978; Vol. 958, c. 890.]That is absolutely right. Price control is a legitimate political quid pro quo for incomes control. But we should not fool ourselves that we can control incomes, which is the price of labour, by controlling the price of something else. It has never worked and it will not work now. The only justification for price control is control of all prices affected by monopoly, including the price of labour.
I believe that the Bill should be opposed. It will not have any useful effect on the general level of prices. It may have a minor effect on prices in individual sectors of the economy. It will not erode or undermine profitability in British industry. It will raise fears among potential investors that the Government do not want them to have an adequate return on capital. In the present context of British industry we want all the investment that we can get. The Secretary of State stated that it would undermine confidence. Anything that undermines the confidence of potential investors must be bad for Britain and British jobs.
§ 7 p.m.
§ Mr. Michael Neubert (Romford)
First, let me deal with the engaging suggestion of the hon. Member for Fife, Central (Mr. Hamilton) that I was wrong in stating that Allied Breweries put in its application for a price increase on 29 December.
§ Mr. Neubert
Well, Allied Breweries is the brewery which announced a price increase of 3p to take effect on 14 February. If that is not correct, and if the dates are wrong, perhaps the Minister will correct me when he replies to the debate.
Perhaps, also, the Minister will confirm that the Secretary of State in announcing the strengthened powers which he intends for the Price Commission said:We also believe that it is only fair that companies which have already pre-notified price increases under the existing regime, and who may have prepared their notifications with an eye to the present level of safeguards, should not find that the rules have changed in the middle of the game. We shall therefore provide as a transitional measure that increases notified before the announcement of the Government's plans—increases notified on or before 16 January—should continue to be subject to the existing investigation safeguards.That puts the picture straight as far as the Allied Breweries application is concerned.
If the hon. Member for Fife, Central is suggesting that Allied Breweries somehow got wind of the Government's proposals at least a fortnight before they were announced, he is underlining the fact that once again the Government have prompted what otherwise might have been an avoidable price increase by their inept and ham-handed policy of price control. This is not the first time they have done it. Their quarterly increases, allowed under the last Price Code, were often the occasions for increases in prices which companies might not otherwise have sought.
Inflation cannot be abolished by an Act of Parliament. Those are not my words but the Secretary of State's. The right hon. Gentleman has repeated them so many times that obviously he intends and wishes that they should be engraved on his political tombstone. Judging by the way things are at present, I believe 1111 that he can give instructions to the monumental mason very soon.
Obviously, for the right hon. Gentleman it is a question of an early demise, because here he is at the Dispatch Box introducing another Bill which he claims will contribute to the battle against inflation. He may well argue that he does not seek from any single Act of Parliament the complete abolition of inflation, but he is certainly suggesting that this puny measure will make some contribution to that end. The stale familiarity of the ideas coming forward from this Government at this end of their natural life is very depressing.
We have had in quick succession from the Prime Minister on 16 January—only a few days after he was convinced that no crisis existed—an off-the-cuff reaction of three proposals. The first was to increase the rates of pay of the lower paid by a standard arrangement up to a ceiling The second was that there should be comparability between the public and private sectors in pay terms. The third was that there should be this strengthening of the powers of the Price Commission. All these measures were adopted at very short notice by the Cabinet, no doubt at a meeting that very morning in order to give some impression of action to cope with the increasing chaos that was all around.
Yet these measures, adopted as so many have been recently, will no doubt do intolerable harm to British industry and Britain's prosperity generally if they are allowed to subsist for very long. Even now, talks are continuing with the TUC in an attempt to give birth to a new social contract. As if past such efforts have not been damaging enough, we are once again returning to that path.
There is an impoverishment of imagination on the part of the Government. Rarely have a Government looked so exhausted and ready to get out of office as this one. After all, whose legislation are we repealing? Is it some noxious Tory measure brought in between 1970 and 1974? Not in the least. We are being asked, only 18 months after they were introduced, to repeal the regulations that the Secretary of State himself brought before the House for approval in 1977.
1112 My colleagues have quoted from the Committee proceedings on the Price Commission Bill in 1977. I add to their quotations. This is what the Secretary of State said on 17 May 1977:I accept wholly and entirely that both during the investigation and after the investigation when a freeze or something like it may apply there must be an absolute assurance that companies are not driven into bankruptcy or deterred from carrying out activities which are proper and legitimate in an expanding and prosperous economy."—[Official Report, Standing Committee B, 17 May 1977; c. 408.]Therefore, by what the Secretary of State is doing today he is withdrawing that absolute assurance to companies that they will not be deterred from carrying out activities which are proper and legitimate in an expanding and prosperous economy.
The Secretary of State went on to reinforce that point in a press statement on 15 June 1977. He said.The safeguards are not what the Price Commission of the or the Government will regard as reasonable profit levels. They are essentially a minimum—the legal protection of a level of profits below which no company will ever be forced to operate, even if all the other built-in safeguards are not already there.In other words, these safeguards which are being withdrawn today are what the Secretary of State believed only 18 months ago to be essentially a minimum.
By removing these safeguards he is prepared to see companies operate below that level. This may be a change of judgment on his part. He acknowledged in an aside that he had recommended the regulations to the House at the time. But we must ask what is the purpose of his coming forward now with these proposals? We are told it has nothing whatsoever to do with pay policy. We are told that it is part of a long-term strategic policy. The Secretary of State has said that he had never made any secret of his wish to abolish the safeguard regulations. I realise that in politics "never" sometimes dates from the period beginning last week, but for the Secretary of State to change his mind so radically in 18 months is an example to be deplored. Having given that assurance to industry, he is now pulling the rug out from under its feet. Yet the assurances which he is withdrawing were only a minimum protection.
We have been told that the Bill has been misrepresented as an attack on 1113 profits. Where could we have got that idea? The Secretary of State thinks that we have been reading the leader page of the Daily Mail. On the contrary, I have this impression from studying the front page of Labour Weekly of 19 January where the headline read:Jim turns screw on profits".Who is this Jim? Could he be the same Jim who said that today's profits were tomorrow's jobs? Could it be the same Jim Callaghan who said at the Labour Party conference in 1976:The willingness of industry to invest in new plant and machinery requires not only that we overcome inflation but that industry is left with sufficient funds and sufficient confidence to make the new investment. When I say they must have sufficient funds, I mean that they must be able to earn a surplus, which is a euphemism for saying that they must make a profit.After that speech I had hoped that the word "profit" would be rehabilitated and that it would no longer be used as a term of political abuse. At last it seemed that even the Labour Party had seen the advantage of profits for the country's prosperity and for jobs for British workers. However, it appears that as we come closer to the general election profits will once again come under fire as a social evil.
§ Mr. Bidwell
The hon. Gentleman has referred to something which appeared in Labour Weekly. There was a much more telling article in that publication in December, describing the Price Commission as a toothless tiger. Obviously, we cannot look at profits alone. Prices, profits and wages go together. It is in such a climate that, with the help of the trade union movement, efficiency is produced. The TUC basically agrees with that concept. It may also press for more public ownership and greater participation by workers in the control of industry. In the present climate we have to deal with realities and aim to produce greater efficiency. The weakness in the brief which the hon. Member has received from Tory Central Office is the concentration on profits alone.
§ Mr. Neubert
The hon. Gentleman has confirmed my impression that the Bill has everything to do with pay policy and the present disruption by the trade union movement. Why else was the Bill introduced in an announcement by the Prime 1114 Minister on 16 January? It was not part of a long-term strategy but simply the reaction to events of a rattled Government. Not only is a Bill brought before us when the Secretary of State believes that an Act of Parliament will not abolish inflation, but we are told that it is to be rushed through by 13 February. We are even to have the Committee proceedings on the Floor of the House. This is obviously a response to the present position, which in turn is created by pressures from the trade union movement upon the Government. The Government are trying to respond to those pressures by providing a sop, as they have done so many times previously. They will find themselves as disappointed on this occasion as they have been in the past.
The Bill can potentially be an attack on profits. What profits? The general level of industrial profitability in this country has already been cited. There was a decline during the 1960s and a particularly sharp fall from 1973 until a point was reached at which, if North Sea oil is excluded, the rate of return, pre-tax, in real terms, was down first to 3½ per cent. and then marginally up to 4 per cent. Is this a reasonable rate of return on capital? Can this give confidence to investors? Can it give confidence to management in industry to make the necessary investment decisions which bring about more jobs? Of course not.
To come forward now with a Bill which undoubtedly has profits in mind is particularly irrelevant and damaging. It is not as though there are companies making excessive profits. Even those which have been cited this afternoon, such as Tate and Lyle, have taken a severe blow. Only last Friday that company announced extremely disappointing results, to put it no higher. We have to look hard for profitability in British industry.
What are the effects of the Bill likely to be? They will be twofold. The first effect is intended to be upon prices. This is likely to be negligible. I now have to hand the written answer of today's date from the Under-Secretary of State. It reads:It is estimated that on an annualised basis the total yield per year of price increases awarded under the safeguard regulations since 1 August 1977 is approximately £365 million. Prices investigated by the Price Commission are not necessarily components of the retail prices index, but if fully passed on to the 1115 United Kingdom consumer this annual sum would represent approximately 0.5 per cent. of consumer expenditure. The function of the Price Commission is, however, to investigate prices and price increases on a selective basis in accordance with the criteria set out in section 2 of the … Act, and not to seek to control the general level of inflation.In passing, I point out that the chairman of the Price Commission, at the turn of the year, said:Over the next year we will be playing our role to the full in counter-inflation policy, as opposed simply to competition policy.There are two voices speaking there.
If we wish to see the effect of price control on prices we have to look, as the hon. Member for Thurrock (Dr. McDonald) looked, to the experience of Lord Cockfield, as he now is, previously the chairman of the Price Commission. He had this to say:looking at all the evidence available, the best estimate we can make is that at the peak, price control probably reduced prices by about 3 per cent. or 4 per cent. compared with what they otherwise would have beenHe concluded by saying that in the later stages of that regime the control was minimal. Recession was at work and competition was bringing down prices. They remain too high.
It is possible for a Bill to have two effects. The Bill will have an effect not only upon prices but upon industrial confidence. No one has suggested that it will have a massive effect on employment, that there will be millions of people out of work as a result of this small measure, and it is a small measure. If it were a Ten Minute Bill it might be thought to be rather sparse. For a Government measure it is exceedingly short.
The Bill will, however, have a crucial effect on confidence. Investment decisions are often precariously placed. Those who are entrusted with millions of pounds worth of shareholders' money for investment in new equipment have to be assured of an adequate return, otherwise they would not be keeping faith with those whose money was in their hands. There will be an incalculable but inevitable effect on confidence and therefore upon investment and, in turn, upon jobs. The Secretary of State acknowledged that in answer to a question in November.
The safeguard regulations are not to be swept away entirely. The sectoral investi- 1116 gations will still have some safeguards retained. Not all companies investigated will have their prices frozen. We are discussing a small measure with a limited effect in terms of prices.
What is to be the position with the nationalised industries? I note with interest that of the five companies chosen there are three—British Rail, South of Scotland Electricity Board and London Transport—which are not making excessive profits for private advantage. What is to happen to British Rail? This was the one case, until today, where the Price Commission had claimed that it was inhibited by the working of the safeguard regulations in dealing with recent fare increases. Are we to return to a system whereby fares are held down while costs rise, while manning levels are sustained? Are we to return to a system which, rightly, was criticised as subsidising the consumer and leading to longer-term problems for short-term advantage? What is intended by "the same scrutiny"? It is all very well to give the same scrutiny, but what will be the outcome of such scrutiny? Are these loss-making concerns to have their price applications refused?
The Bill confers greater powers on the Price Commission and calls into question the independence of that extra-parliamentary agency under its chairman, Mr. Charles Williams. As someone who has entered a politically contentious post, he must understand that comment on his background is unavoidable. He spoke, in connection with British Rail, apparently at a private dinner. We are not told what function this was. Was it, perhaps, the annual dinner of the Colchester Labour Party? Mr. Williams was the parliamentary candidate for Colchester at a general election not long ago. Was it perhaps a gaudy arranged by the Labour Economic, Finance and Taxation Association, of which he was at the time of his appointment a vice-chairman? I would have thought that holding such a post was a qualification for early retirement rather than appointment to the chairmanship of such an influential parliamentary agency as the Price Commission.
The independence of Mr. Charles Williams must be suspect because he has a similar political background to the Secretary of State, with whom he works closely by reason of the Act, and other 1117 more natural sympathies. We must hesitate to confer extra discretionary powers upon a Commission chaired by a man with such a background. I do not quarrel with his excellent public school or with his having been a merchant banker. Those seem to be first-class qualifications. I believe it to be reasonable to challenge his political background at a time when the Commission is being used as an instrument of government.
We heard the hon. Member for Fife, Central urging the Secretary of State to intervene with the brewers as a political decision. We could have had other political decisions. May I remind the Secretary of State, in his absence, that he, if anybody, could perhaps be described as the author of the present industrial dispute? It was he who referred the road haulage industry to the scrutiny of the Price Commission as an immediate and spiteful reaction to the concessions which the Road Haulage Association made on wages the year before. As a result of that report, the Road Haulage Association has been under threat of an order freezing its prices—again as a consequence of the intervention of the Secretary of State. So, if ever there was an example of Government intervention having harmful effects, it must be the present disruption we are suffering.
Increased discretion for the Commission would allow more political influence and inevitably less security for private industry. I think that the Bill ought to be resisted on two counts. First, it is an exercise in political pandering—an attempt to conciliate the unions. Secondly, it is a political pretence—to delude the public into believing that some action is being taken about prices.
§ 7.21 p.m.
§ Mr. Robin Corbett (Hemel Hempstead)
I apologise for not being here at the start of the debate Mr. Deputy Speaker.
I do not understand the remarks of the last two speakers in our discussion this evening. The hon. Member for Cornwall, North (Mr. Pardoe) quite rightly singles out as areas of special concern those parts of the economy where there is no competition, either for reasons of private monopoly or because it is not appropriate for the services involved to be competitive, unless it is to 1118 be suggested that we should crash down the electricity generating authority or carve up the railways and sell to the highest bidder, and the rest of it. The arguments of the hon. Member for Cornwall, North are absolutely valid. Yet they do not persuade him that it is worth giving support to the Bill.
We can make judgments and have disagreements about the effect of the proposed legislation and what it may or may not do to the rate of price increases, but I should have thought that a measure of this kind would appeal to both the Liberal Party and the official Opposition. One of the claims that can be made—I think, without contention—is that the new policy could encourage firms to look first at the efficiency of their operation and to try to cover the extra costs rather than simply—sometimes too quickly—caning the consumer because of the monopoly position which they hold in their market and the size of their market share.
We are lectured continually about efficiency. I agree with my hon. Friend the Member for Keighley (Mr. Cryer) that for right hon. and hon. Members to criticise other people about not being up to date in their thinking is the height of cheek. If this proposal makes only a small contribution towards encouraging firms first to look at improvements which can be made in the efficiency of their operations in order to try to recover costs instead of passing them on, I should think that it would be worth having.
Surely, the Price Commission, in its judgment—I do not believe that any hon. Member can accuse it of being sloppy or politically motivated in its reports; quite the reverse is true—having gone through that process of investigation and examination and having a report published and made available to the public, the firm can say "We have been all through this, and the Price Commission agrees that this level of price increase is justified". It is like having a placque on the door saying "By Appointment". I should have, thought that that was a good thing, because it could help the public to understand these matters and to see that there are no magic and instant remedies available to prevent price rises.
I should have thought that that was fairly common ground in the House. Some price rises are inevitable. We are talking 1119 at the moment about encouraging and enabling people in the street—people who are being asked to make sacrifices in the general battle against inflation—to accept that there is an independent check on the level and rapidity of some price rises.
Alhough I disagree with it profoundly, I understand the argument that, at the end of the day, one should stop tinkering with price controls and leave them to the free play of the market, because that, in the end, is what will determine the matter. If we push the price up through the roof, the customer will say "No, thank you, I am not having that" and the firm will go to the wall. It really is cool cheek to suggest in this economy that there is such a thing as the free play of the market, because what that implies is that there is fair play and free play in the market place. That is not so. The top 100 companies which dominate our economy—
§ Mr. Corbett
The hon. Member says "Rubbish". I hope that he will allow me to reach the end of the sentence. He is entitled to that view. The top 100 companies in this country, particularly in the manufacturing sector—many of them multinationals and effectively controlled from the other side of the Atlantic—can and do, through the operations in which they engage, effectively prevent a free market from operating. They can jiggle about with the market and, if the market share is big enough and the domination of a particular sector of the market is big enough, make a mockery of the claim that there is anything like a free market in the private sector.
Developments have taken place in this country which, if known by people outside the House—and perhaps a few inside, also—would turn their hair grey. The diminution of effective competition over wide areas can be seen by anyone walking down the High Street. People can see for themselves what is taking place. The monopoly chains are driving small businesses to the wall in order to grab a larger share of the market. That is the reality of the situation.
In the public sector there are areas that I thought we had learnt were not appropriate for the kind of competition 1120 that it is claimed exists in the private sector. I instance such services as gas, electricity and the railways. The jobs that those bodies are trying to do are totally different. They serve basically social needs, and in those circumstances it is right that they should be under social control.
My hon. Friend the Member for Fife, Central (Mr. Hamilton) mentioned what had happened in the brewery sector. With great respect to him, I do not think that he went far enough. It is not simply that Allied Breweries has announced that on St. Valentine's day it will put 3p a pint on its beer in 7,000 outlets throughout the country. Allied Breweries enjoys over vast tracts of this country virtual monopoly. For example, in the Midlands the company controls Ansell's brewery and Ind Coope. There are areas, therefore, where there is virtually no competition. I am not singling out Allied Breweries; what I have said applies to other big breweries. But to talk of fair competition in relation to the breweries is laughable.
It is not as if that is the end of the story. I shall advance a good example of what the proposed new powers for the Price Commission can achieve. Under the arrangements that monopoly brewers have, they make a profit on the sales of beer and spirits to their tied outlets. If, through the enterprise of those who manage the properties, business increases, a few months or a couple of years later, through another door, along comes a gentleman from the brewery—which has already taken its cut on the barrels and bottles—who says "You have been doing very well. I am going to jack up your rent." There are landlords in my constituency who, in the last few months, have had to pay rent increases of 130 per cent., 140 per cent. and 150 per cent.
That is not the end of the matter. To cover these rent increases dictated by monopoly brewers, landlords already face the prospect of putting 2p on a pint. Now they face the real possibility, in order to stay in business and merely stand still, of having to put 5p a pint on the beer made by those who are putting up their rents.
Many hon. Members spend much of their time talking in this House about small business owners being kicked to death. I submit that when the brewers 1121 can behave in this way without the Price Commission having adequate powers at least to investigate what is going on, they do much more than threaten merely the livelihoods of those managing and employed in their public houses, especially in less urban areas, where they play a strong community role. In the last two increases that the brewers have made there has been no power in existing legislation to enable the Commission to act effectively.
Finally, I deal with British Railways. I apply similar arguments to them, as they affect commuters. It should be said that British Railways are to be congratulated on at least managing to keep their last two increases a year apart and on the fact that in the last increase they did not perpetuate the additional loading on commuter rail fares. It is bad enough for fares to go up, but for commuters there was a surcharge, because British Railways claimed that these services were extremely expensive to run. It is an argument that has not been demonstrated and sustained, and I am not sure that the last Price Commission report about this dealt with it satisfactorily.
People cannot understand—these are questions that the Commission can ask—why the most regular users of a service are expected to pay most for that service. I have in mind the example of a train that leaves five minutes after the main commuter train from Hemel Hempstead, on which it is possible to travel to London for well under half the fare that the coin-muter pays.
These matters need to be brought into the open. I am not knocking British Railways at all, and I do not want that to be suggested. It is right for the private sector, and it is right for the publicly owned sector, on occasions, where the impacts of policies are severe, to have to submit to investigation by the Price Commission so that the results of that investigation can be made public.
No one pretends that this measure suddenly will put the whole process into reverse and that prices will start to come down. We are not saying that. This measure is a contribution, and on that ground it is worth supporting.
§ 7.34 p.m.
§ Mrs. Margaret Bain (Dunbartonshire, East)
I shall not take up any of the 1122 arguments of the hon. Member for Hemel Hempstead (Mr. Corbett), who defended the beer-drinking commuters of Hemel Hempstead. It is apparent that he is one of their staunchest defenders.
The hon. Member for Romford (Mr. Neubert) said that 18 months was a very short period for the Secretary of State for Prices and Consumer Protection to change his mind about this issue. It seems to me that the House has a penchant for choosing spans of time to suit its own arguments. Perhaps one of the most famous phrases to have emanated from this Chamber in the past decade tells us that a week is a long time in politics. In my short experience in the House, I have seen so many individual and collective about-turns by members of both major parties that it comes as no surprise to me that in 18 months a Secretary of State can change his mind.
Despite the attempts of both sides of the House to make the Bill an area of major contention, there has been a certain amount of lack-lustre about the debate and we have had no real fire or positive argument from either side.
It appears to those of us who represent minority parties that two basic arguments are being put forward not for supporting the Bill but for opposing it. The first is that the effect of this legislation on prices for the consumer will be so minimal as not to be worthy of support. The second is in direct contrast, namely, that the effect on the confidence of industry will be so great that the Bill must be opposed.
We in the Scottish National Party do not dispute that the effects for the consumer will be small. But, however small the improvement is for the consumer, it is worthy of support. In Scotland, which has high prices and lower than average family incomes, we are extremely keen to see any measure taken which will be of assistance to us.
In terms of the effect on investment and job security, the official Opposition have been extremely vocal and voluble, as have outside interests such as the CBI. However, we all know how predictions can go awry. It is always difficult to assess what the effect of any measure will be.
1123 In connection with the CBI's predictions, let me refer to a document forwarded to me by Strathclyde regional council. I note that I am the only hon. Member present at the moment who represents a Strathclyde constituency. It has been prepared by its economic and industrial development committee, and it refers to the general position in the West of Scotland. It says:The conflict in industrial and economic forecasting which has become apparent in recent months was sharply illustrated by two contrasting reports published towards the end of December. On the one hand, the CBI produced its most optimistic forecast for many months, whilst on the other hand the Organisation for Economic Co-operation and Development gave a warning of lower world growth.The regional council then goes on to elaborate the extensive differences which exist.
It is interesting for SNP members to be lobbied by groups such as the CBI, which, after all, was one of the most voluble groups in telling us that if we did not join the Common Market we would see no improvement in investment and an increase in job losses. The contrary has been the case in Scotland. Therefore, although our attitude has not reached the point of not buying a used car from these organisations, we are coming pretty close to it.
We believe that we have a right to exercise our political judgment on these matters. After all, if these predictions are made at such times as our entry into the Common Market or on the setting up of an Assembly in Scotland, we have to decide as a political movement what we think is best. As yet, all these arguments that have been produced in terms of additional investment for Scotland have still to be justified. Although investment opportunities have existed and as far as we can judge the money is there, there is as yet no major form of investment forthcoming, especially in the industrial areas of our country. What is more, last month's figures on employment are an indication of just how wrong the predictions of previous bodies have been about how the economy will pick up.
Given that we have to make a political judgment, the Scottish National Party has decided to give the Government its support on the Second Reading of the Bill.
§ Mrs. Bain
I am surprised that the hon. Member for Glasgow, Cathcart (Mr. Taylor) can make any comment, given that this is his first appearance in the Chamber today.
The alternative which would appear to be open comes in the concluding remarks of an editorial in the Financial Times of 25 January—perhaps an appropriate day for a Scottish Member to quote. It reads:The appropriate price policy for this moment is almost exactly the reverse of what the Government proposes. It is to allow all employers who are subject to competition complete freedom to pass on increased costs, and the quicker the better.That kind of attitude could never be endorsed by my party. That is why we are prepared to give the Government a chance. However, we have a few reservations about this legislation, and we shall be tabling amendments to which we hope to be fortunate enough to speak later this week. They apply especially to companies which have to import their raw materials and find them subjected to price increases. They can also be adversely affected by the fluctuating value of the pound. Although it may have stabilised slightly over the last few years, it is not exactly one of the most stable European currencies. We feel that consideration should be given to companies which are affected by the value of the pound.
We are also concerned for companies which operate in what are defined as assisted areas under the Government's own policy, which might find themselves in economic difficulties during a price freeze. We shall be moving amendments to protect such companies. But, on the whole, we lend our support to the Government and await with interest any changes that they may make in the legislation within the next couple of days.
§ 7.41 p.m.
§ Mr. Esmond Bulmer (Kidderminster)
The House will be interested to learn of the intentions of the Scottish National Party. I regret that it took that decision before hearing what I had to say. But at least there was an indication that, should this miserable Bill receive a Second Reading, the Scottish National Party is seized of some of its possible dangers. I welcome the reference of the hon. Member 1125 for Dunbartonshire, East (Mrs. Bain) to the variable rate of raw material prices and how they can accelerate in a short space of time.
I was interested in the reasons given by the Prime Minister in advancing the Bill. Talking about the erosion of the safeguards, he said:They allow firms to maintain profit levels by putting up prices, whether or not the same level of profit can be achieved in other ways—by cutting costs or by improving efficiency.—[[Official Report, 16 January 1979; Vol. 960, c. 1558.]Few companies can do that without loss of market share. Most companies have had to look extremely hard at their costs in recent years. Let us not forget that as a consequence of the Government winning the 1974 election wage inflation accelerated to the point that we are now paying ourselves nearly double for producing no more.
A further consequence of this large increase in pay without any comparable increase in productivity was that unemployment went up by nearly 1 million. I should have thought that people on the Government Benches would think hard about what the Prime Minister said and might feel that it was better for a company to recover a penny here or there rather than that more people became unemployed. Any management will react, if its margins come under pressure, by seeing how it can reduce costs. Usually, the major cost is that of labour. If it has made itself very much more expensive, the consequences are obvious. Although we are producing very little more than during the three-day working week, we are employing more people to do so. Our productivity has been disastrous and is at the root of our present discontent.
My fear is that if the Prime Minister's advice is followed those who will suffer most are school leavers. The number of school leavers out of work has not increased as much as it might, because so many more have decided to stay on at school. But all of us in industry are conscious of how difficult it is to discharge what we would regard as our social responsibility to employ as many as possible of those leaving school. If margins are under pressure, it is only natural that a company should take that into account and be inhibited from taking on as many 1126 people as it otherwise would.
The next option that a company considers, if under real pressure, is cutting back on investment. This means that jobs in other parts of the country and in other companies are cut back. I do not believe that any hon. Member on the Government side wishes to see that happen. No more do we on this side. The third area that will naturally be explored is that of cutting back other costs, such as media expenditure. That will lead to a decline in market share and often to an increase in import penetration. In turn, that will mean a loss of jobs in this country.
The pressures that the Government are bringing to bear on industry have the effect of reducing the number of people who are gainfully employed. This is done because so many hon. Members on the Government Benches regard profit as something that is not acceptable. They cannot accept that it is simply the measure by which a company determines the success or otherwise of its use of the raw materials that it processes. We have heard, time and again, from this side of the House that profits are a third of what they were 10 years ago. The Secretary of State did not attempt to put the point that profits are too high. He knows perfectly well that they are not. They are too low. They should be very much higher if we are to get the investment we need and reduce the level of unemployment. Let us suppose that there are companies making what the Secretary of State would regard as excessive profits. What is the consequence? Some of that money will be distributed in dividends. If it goes to a very rich man, he will pay 98 per cent. of that in tax. That 98 per cent. will go straight back to the Exchequer for schools, houses, and suchlike.
The majority of the equity of British companies is owned by pension funds. As we become an increasingly ageing population, it is important that money should pass to them and that they should at least be able to see their investment keep pace with inflation. I challenge anyone on the Government Benches to name half a dozen companies in which the value of their equity, if they had invested £100 10 years ago, would have kept pace with inflation, net of any tax they would have to pay on any notional profit they took.
1127 A further consequence of holding down profits is that companies are taken over and that people overseas can invest in British companies and British assets at a fraction sometimes of their true worth. The Government continually point the country in the wrong direction. Surely, the need is to establish a relationship in the public mind between prices and wages. How many people today now relate the cost of electricity, which has gone up by 177 per cent., to the cost of settling the miners' strike? Do the Government want that link made? I have my doubts.
The Secretary of State has admitted that the measure he has introduced will have some effect on business confidence. Perhaps I could detain the House for a few moments with my personal experience. My family company is a middle-sized manufacturing company in the drink industry. It tried very hard to keep its prices down. It successfully did so below the rate of inflation and then found that the Treasury increased its wholesale prices overnight by nearly 30 per cent. It was put in the position of having to recover costs but was no longer able to do so by extra sales because the effect of the 30 per cent. increase was to cut the growth of sales overnight. So it then had to face the Price Commission. It found itself in effect between the devil and the deep blue sea. The arguments that it had advanced to the Treasury for not increasing prices so much were used in turn by the Price Commission against it.
Perhaps I could set the scene for what a medium-sized manufacturing company feels when put in the position of having to go to the Price Commission to develop a case. What strikes the company first is how widely drawn are the powers and how difficult it is to be certain that the case that is made will stand up.
Section 2 of the Price Commission Act 1977 states:It shall be the duty of the Commission, in performing any functions mentioned in subsection (3) of this section—(a) to have regard to all matters which appear to the Commission in the particular circumstances to be relevant with a view to restraining prices of goods and charges for services so far as that appears to the Commission to be consistent with the making of adequate profits by efficient suppliers of goods and services.1128 Nowhere are adequate profits or efficient suppliers defined. I hope that the Minister will give some criteria by which companies without large back-up can determine whether their case is likely to stand up.
The next thing that a company learns is that it has no right to address those who decide. The matter is in the hands of the sponsoring civil servant. He is usually very helpful, but if he is away with a cold the company can lose the benefit of a price increase for a month. Then, if its directors look to see who will decide their case, they find that it may be determined by a housewife, a Left-wing academic, a company director or a union official—but they have no idea who it will be.
The Secretary of State for Employment is fond of referring to the industrial tribunal machinery as a fruit machine. I am not saying that companies go that far in their view of the Price Commission, but there is a real element of uncertainty. No one will accept that the people I mentioned will view the application from the same standpoint.
If the Commission will not accept an application without an investigation, that is a real problem for a small company because the disruption of an investigation is hard for it to contemplate. Actually putting together the application can take a fortnight of the managing director's time, six weeks of the finance director's time and perhaps 24 weeks of the time of middle management. That is a large exercise for a company that is not very big.
Firms such as ICI and BSC have been able to deal with the Price Commission with the backing of Government Departments or of European law, but that is not the sort of thing that medium manufacturing companies can do. So, if they take this decision, they have to accept an investigation and face being told by people with no experience of their industry how to run their company. When that decision is made, they have no right of appeal.
My company did not suffer an investigation, but we had a price application deferred. That reduced the return on capital to 11 per cent. from the 18½ per cent. that we sought. At the present rate of inflation, I do not believe that 1129 18½ per cent. is an unreasonable return. The reason that we were given was not a commercial one; it was that, if the brewers had a certain amount, we could not have more, regardless of the fact that our raw material costs were quite different and much higher. For one medium manufacturing company, the Price Commission offers a real disincentive and a considerable diversion of effort which could profitably be used for the company's development.
The Government have said that they require extra powers against employers. During the road haulage dispute, a four-point offer was put to the unions: that the men should go back to work, that they should accept 15 per cent., that they should agree to arbitration and that the Government should call off the threat to invoke the Price Commission. The TGWU negotiators turned it down out of hand. They did not wait to find out whether the Government were prepared to call off the threat.
I told one of the negotiators that I found that surprising, since if it was clear that the Government would not sustain their threat, the union's bargaining case would be much improved. I was told that the negotiators were absolutely confident that the Government would not invoke those sanctions, that the Government knew which side their bread was buttered—and of course the negotiators proved to be right. The fact that the union exercised such muscle, both through its financial contribution to the Labour Party and through the votes that it cast at the party conference, proved an irresistible argument.
So we see again the double standards that we saw over sanctions, with the book thrown at Ford but nothing done about the TUC increases. Most people are fed up with these double standards. The Bill does not attempt to address itself to the real problem, which is the imbalance in bargaining power exercised by groups of workers, who so often command power that no employer can resist without totally unacceptable losses.
§ 7.55 p.m.
§ Mr. Ron Thomas (Bristol, North-West)
If one message should go from the House today, it is that the Tory Party is completely opposed to any kind of control over prices. It is important 1130 to make that clear. Recently the Tory Party has indulged in expensive advertising, especially, I understand, in women's magazines, shedding crocodile tears about the rapid increase in prices. It has tended to concentrate on food prices.
I should have thought that few people could, without recondite reasoning, place the blame for increasing food prices on this Government. They can certainly place it on the common agricultural policy of the Common Market—and in so far as the Government, regrettably, accepted that system, the blame can perhaps be attached to them in that way. We understand that the Tories have spent hundreds of thousands of pounds on an advertising campagn part of which was devoted to prices, yet the Tories have made it clear today, as in other debates, that they are completely opposed to any form of price controls.
The Tories have also made it clear that, in order to give additonal tax handouts to the wealthy whom they represent, they want a massive switch from direct to indirect taxation, which will increase prices rapidly and put a rising burden, mainly, on the housewives.
The hon. Member for Gloucester (Mrs. Oppenheim) would have us believe that in Britain today prices are fixed as they were in the nineteenth century in the market place of Gloucester, and that the only way of dealing with this problem is by creating some kind of perfect competition, which I understood even the Tories realised had disappeared by the end of nineteenth-century Liberalism—certainly by the end of the last century, if not many decades before.
It is part also of this similar philosophy that we get from well-heeled middle-class women who, on television and radio, tell our wives to shop around, to spend the whole of Saturday going from one end of the High Street and one part of the city centre to another, as if they had nothing better to do or—more important—as if the time of our wives was worth absolutely nothing. Part of the competition process, they say, is to shop around for the odd bargin at Tesco, or somewhere else, as if the housewives of Britain had nothing better to do and their time was absolutely worthless. Of course, the same well-heeled middle-class women do not do that themselves. Either 1131 they send someone else to do their shopping or they have it delivered.
What we have had today is one of the clearest pieces of schizophrenia that I have ever seen in the House. Tory speaker after Tory speaker has said that the Bill will have no effect whatever on prices but, on the other hand, that it will have a catastrophic effect on the level of investment. I do not see how one can possibly sustain those two arguments. It certainly seems to me that hon. Members are trying to ride two horses at once and that those horses are going in opposite directions. I know that someone once said that if one cannot ride two horses at once, one ought not to be in the circus at all. However, this is not a circus. It is a very serious matter.
The only thing that the hon. Member for Gloucester could say was "There will be a traumatic experience for the firm that is being investigated." She also linked that, as did others, to saying that the Bill was a piece of general election political manoeuvring. Perhaps we could be told at some stage, given the progress of the Price Commission up to now, how many firms the hon. Lady really expects the Commission to investigate between the end of February, when the Bill is likely to get through—we are told—and the next general election. How many firms will go through this traumatic experience?
It has also been suggested that my right hon. Friend has suddenly discovered this because of wage claims and a general election, and that he has decided to bring the Bill forward as a sop either to the militant trade unionists or, indeed, to housewives in terms of the coming general election. I cannot speak for my right hon. Friend, but I can read the reports of the Price Commission. It certainly made this clear in its last quarterly report on the period August to October 1978. The report said:At any time during an investigation the Commission may allow an interim price increase, up to the amount originally pre-notified under section 4(5) of the 1977 Act. They may be obliged to do so by the operation of the Safeguards Regulations, made by the Secretary of State under section 9 of the Act.These regulations guarantee a minimum current profit margin in relation to any product or service under investigation. If a proposed interim price increase is necessary to 1132 achieve this minimum, the Commission have no discretion to refuse it.Therefore, it is quite clear that the Commission had already got in its mind some months ago that this was certainly impeding the work—it mentioned the Imperial Tobacco case—that it felt it was necessary to do.
It seems to be nonsense to have some kind of body that supposedly will investigate a price increase but, at the same time, to say that immediately the company concerned can raise its prices to keep what is described as a minimum current profit margin. The hon. Member for Kidderminster (Mr. Bulmer) suggested that the return on capital should be at least 18½ per cent. Workers who put in for rises of 18½ per cent. are not great friends of the Tory Party or, indeed, of the Government Front Bench, and they certainly come under severe criticism.
My right hon. Friend the Secretary of State mentioned profit margins of about 16 per cent. or 17 per cent. It is nonsense to have a body that is supposed to be investigating price increases when, because of these particular safeguards, the company is able to raise its prices to keep up its profits in this way.
I have some respect for my right hon. Friend, if only for the fact that he has had the thankless task of telling the House on so many occasions that a particular prices Bill will work. When he first came along, he admitted that, in effect, the Price Code probably raised prices rather than reduced them or kept them stable.
I still have grave doubts that this kind of Bill will have any real effect on prices. As my right hon. Friend pointed out, under section 2 of the parent Act we still have a whole number of gateways by which the Price Commission can decide to allow an increase in prices, not the least of which talks about the making of adequate profits by efficient suppliers of goods and services to defray the cost of capital, including compensation for the risk involved in producing the profits.
I find it very interesting to consider the stage that British capitalism has reached. We are lectured about shareholders who take on the risk element by putting money into businesses, but in fact that is now allowed for in legislation, and it is really consumers who are paying for it. They are paying for the cost of capital via 1133 price increases. The next step which some Labour Members hope for is that they will own the capital for which they are paying via price increases.
There is the need to take account of changing prices in determining the value of the assets, and so on. Therefore, there are plenty of gateways by which prices will continue to rise.
I am also very worried about quantity and quality. I know that the Government have taken certain steps in this direction. There is the whole question of one being able to see on packets just how much they are supposed to contain, and so on. I do not think that the Government have gone anything like far enough. I see that there are Government proposals on the question whether articles in a sale have been on sale at the pre-sale price for a period. This hurdle has been overcome by practically every firm that advertises, simply by the firm making a statement covering itself on that point.
However, I am very concerned, as are all hon. Members, that many of the packaged products that we buy, certainly in the food line, are getting smaller and smaller. I am convinced that under price control mechanisms, companies—some companies anyway—find other ways of reducing the quality or the quantity of the product and that they are imposing on housewives—on all of us—a very rapid increase in prices that is not to be seen simply in the amount of money that we are now told a product costs.
§ Mr. Thomas
We hear a great deal about profits and about the return on capital. I am certain that there are at least some in this House who would agree with me that accountants continue to argue among themselves just what profits are as a concept. What are profits? We remember the Pergamon Press and the Robert Maxwell affair. One group of accountants was saying that this company was making massive profits, was highly profitable, and so on, and another group was saying that it was on the brink of bankruptcy. I have heard it suggested that there are thousands of different ways in which balance sheets can be presented to show different levels of profit and different returns on capital, all of which 1134 are quite legal. I do not accept the kind of figures that are thrown out. Capital can be watered down.
As my hon. Friend the Member for Thurrock (Dr. McDonald) pointed out, the profits of the 25 largest companies in this country, the oligopolists which determine prices over a great deal of British industry, have increased by 70 per cent. in real terms since 1970. All profits increased by 30 per cent. last year.
I do not know what would be considered as a legitimate increase in profits. However, I take little notice of figures produced by companies. My hon. Friends often talk about opening the books to examine the figures, but I believe that in many cases a profit figure is produced to suit the purpose that the company wishes to achieve. Therefore, I am not happy about the national profit figures produced on that basis.
I turn to the subject of prices in general. It is not often that the House examines the retail price index itself. It is often discussed in general terms when we are examining the level of inflation. But an examination of it shows that the items that have increased most rapidly in price are, for example, food, housing, fuel and light.
It has been suggested by some strange reasoning that one can link the whole of the rise in the cost of fuel and light to the miners' pay claim. I believe that one of the main reasons for the rapid increase in fuel and light charges was the decision by the Government, rightly or wrongly, under pressure from the Opposition and the IMF, that the nationalised industries should raise far more of their money by increasing prices rather than by borrowing.
The price of food has increased by over 100 per cent. since 1974. By no stretch of the imagination could one link that to the wages of agricultural workers or those employed in the food industry.
There is direct Government policy on housing, either by mortgages or rent. My hon. Friends and I know that under the Conservative Party council house rents would rise faster than at present. However, that has nothing to do with wages in the building industry.
The price of meals consumed outside the home has nothing to do with the still 1135 very low-paid workers in hotels, cafés, and so on.
When one examines these items one finds that it is clear that there is not the correlation between wage increases and price increases that so frequently we are led to believe. Prices rise for many reasons, for example, the position of sterling in the international money market; indefensible policies, such as the common agricultural policy of the Common Market; and because companies are running well below their capacity due to Government policies that have imposed a recession on the economy. In the latter case, prices are higher than they would otherwise be, especially in capital intensive industries where the level of capacity working is crucial to prices.
Multinational companies can ensure, through their price fixing, that they pay the least amount of international tax possible. There are all kinds of reasons for price increases, and to suggest that the only correlation is that between wages and prices is nonsense.
I suggest that those television and radio interviewers or interviewees and those who write in the press and lecture a lorry driver earning £53 per week for driving a 30-ton wagon for 40 hours a week should be made to disclose their total incomes. Let the Robin Days of this world, when they interview people, declare what they themselves earn a year. Let those who come from the CBI, from industry or from the trade unions at national level state what their incomes are before they start lecturing others and pontificating about wages increases.
I hope that if the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) succeeds in speaking in the debate he will tell us how he can link increases in the index of retail prices to the money supply, to the public sector borrowing requirement or to public expenditure.
I support the Bill, but I want an assurance from my right hon. and hon. Friends that they are not trying with it to introduce some kind of pay policy by the back door. It has been suggested that this will have an effect on pay claims, but I doubt it. The trade union movement is quite rightly pursuing legitimate claims across the private and public sec- 1136 tors and I do not feel that the Bill will have much effect on that.
Equally, I feel that the Bill will have little, if any, effect on prices. I support it, however, because I think that the Government are trying to do something to control prices, in contrast to the Opposition, who have made it clear that they are opposed to any form of price control whatsoever.
§ 8.16 p.m.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
I say only this to the hon. Member for Bristol, North-West (Mr. Thomas). He is a living example of the microbe which causes the British disease. If it were possible for me to make him Chancellor of Germany, or the ruler of Japan, that would be the greatest contribution which could be made to the improvement of the British economy. I only wish that it were possible.
The hon. Gentleman understands little of what determines prices. Prices in any economy are determined entirely by competition, and the phenomenon that the hon. Gentleman noticed, that it is impossible to define profits, a phenomenon that many hon. Members have touched upon, arises because the profits necessary to sustain investment and growth are different in different industries. There can be no common yardstick for depreciation, the rate of capital consumption and all such matters. The result is that there is no way in which the Price Commission could determine the basic needs of profit. Those needs vary from company to company, and from industry to industry, and there is no standard.
It must, therefore, be right, and the House is crazy to forget it for one moment, that the only thing which should be allowed to determine prices is competition. Hon. Members have rightly pointed out that there are areas in our economy where there is not much competition. I believe that they have grossly exaggerated the story in the private sector. With one breath we are told by Labour Members that there are all these rackets and monopolies. One hon. Member said that there were a whole lot of monopolies in one industry, which seems a contradiction in terms. In the next breath we are told by Labour Members that profits have never been lower at 4 per cent.
1137 Which way is it? The point about a monopoly is that it makes bigger profits, but never for 30 years have there been high profits in the private sector of British industry. Even in monopolies—I concede that there are some uncompetitive areas—if the Commission succeeded in controlling prices the effect would be to make it longer before competitors came into the market and before customers rejected the products of that monopoly.
The best thing to do with a monopoly is to encourage it to let its prices zip. Then others come in and take business and competition is restored. So whether we are talking of a competitive or uncompetitive industry in the private sector, the activities of the Price Commission are in no sense helpful in dealing with prices.
Labour Members and the Secretary of State himself have spoken of the nationalised industries. They have suggested that one of the great benefits of the Bill is that it will enable nationalised industry prices to be held down. It is extraordinary. The one thing on which I am prepared to pay the Government tribute is that they rescued the nationalised industries from the sorry state of price control and loss into which the previous Government brought them.
In 1975, for example, 62 per cent. of the income of the nationalised industries came from the taxpayers and not from their customers. That was a disastrous state of affairs, and one of the reasons why the Government have been able to improve the economy is that they put that situation right. For every pound that the Secretary of State, with his ridiculous Price Commission, takes off the income of nationalised industries through this Bill or the parent Act, there will be one more pound to be printed, which will cause one more degree of inflation. Any action that is taken in the form of price control in the public sector will have the simple and sole effect of increasing the inflation in our economy. That is what needs to be said about the Price Commission.
The extraordinary thing to me is that the Bill is clearly part of a whole deal. In the Sunday Telegraph yesterday it was reported: 1138The TUC would be involved in policy-making on pay, prices, investment, regional aid, exports, imports and industrial strategy.The offer of a new Social Contract was made on Friday.It is an extraordinary response to our present crisis that, when the employers have been squeezed on one side by the Government's pay policy and on the other side by the breakdown of the 5 per cent. limit, the Government's reaction is not to do something about the inequalities in the bargaining system but to increase those inequalities and to seek, albeit in a token fashion—the Bill is only a token—to chastise the employers by working more fiercely on the prices side.
The remedy of giving more power to the trade unions at this time will be utterly rejected by the entire population. The evils with which we should be dealing today and on Wednesday are not price rises but the evils of trade unionism which are causing those price rises to be worse than they might be.
I quote from the minutes of a joint shop stewards' committee meeting on 18 December in a major firm in my constituency. These minutes were sent out. They said:It is well known throughout the site, that there are those among us who are anti-trade unionists and these are the people who howl about democracy and the lack of it in the Trade Union. They are, quite often, the same people who crawl back to work as blacklegs and traitors when the going gets rough. It should be recorded, therefore, that we know who you are and what you are, and when your time comes, we shall know what to do.That is the brotherhood of man in the trade union movement. That is the stuff that is frightening and intimidating workers and which is causing the inefficiency in British industry which makes our prices high.
If the Government had any sense or understanding of the national problems, it would be that aspect, the closed shop, secondary picketing and the so-called lawful intimidation for which they would be using the time of the House of Commons, not for the pathetic rubbish of this Bill.
The balance of power has to be improved as between employer and employee, and to give the trade unions this further little sop by dealing with the so-called sanctions is purely a political move of little or no significance in 1139 economic terms. It is a mouse—if we are to go on with that simile—but what gives it away even more, and what revolts me even more, is the way in which it is to be applied in what the Secretary of State called the "sensitive industries"—the industries which make things that are, he said, essential for working people.
That gives the game away. He does not care about the machine which packs the food he cares only about the food. He does not care about the whole range of industry. He cares only about things which will be picked on politically in the general election. These are the obvious things which are nearest to the point of consumption by the people. So his motivation was exposed to the House. It was to do not with price control, but with the cosmetics of appearing to be trying to do something about certain industries only.
But let us suppose that the right hon. Gentleman was successful and took the food industries—all those industries closest to the shopper—and succeeded, in the absence of the safeguard clause, in keeping those prices below what was necessary for basic profit levels. All that he would achieve would be the destruction of the firms which made those goods, and the consumers would then be short of the very things which are sensitive. Working people, as he so patronisingly calls them, would find that the things which were essential to them were not present. His whole strategy therefore is a disservice to the people of this country.
When something important happens—for example, the road haulage strike—as my hon. Friend the Member for Kidder-minster (Mr. Bulmer) said, the Secretary of State bears a large measure of responsibility for it because of his absurd policy of price control. When this pay claim came up he immediately announced that he was not going to use his powers against the road hauliers, because he knew very well that those powers were totally inappropriate and would have no effect on trade unions. He knows that it is not in any sense the hauliers' fault if the price of haulage goes up, so he runs away from the problem. He reasons that the average Labour housewife does not buy very much road haulage and that the Government will get through to the election without anybody noticing.
1140 That is the right hon. Gentleman's cynical attitude. He and his Under-Secretary of State remind me of the Walrus and the Carpenter. I am not prepared to say which is like the Walrus and which like the Carpenter. It will be obvious to those few hon. Members at present in the House. But the story will be remembered of how the Walrus and the Carpenter persuaded the oysters to come out of the sea and walk along the shore with them. There would be no harm to the oysters, who were told that there were plenty of safeguards.
That is just what the Secretary of State was saying to British industry today when he said that he did not want to do anything to damage its profitability. The oysters all came running out of the sea:For some of us are out of breath,And all of us are fat!I suppose that is fairly apt. The Carpenter, who I gather is to wind up the debate, said nothing but'"The butter's spread too thick!"'Finally:'I weep for you' the Walrus said:'I deeply sympathise.'With sobs and tears he sorted outThose of the largest size,Holding his pocket-handkerchiefBefore his streaming eyes.But answer came there none—And this was scarcely odd becauseThey'd eaten every one.The message which should go to the CBI tonight is that, in callous disregard of company profits and future investment, for the sake of a little bit of electoral gloss and in the hope of placating the trade unions by one tiny per cent., they have "eaten every one".
§ 8.29 p.m.
§ Mr. Bob Cryer (Keighley)
The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) put forward the usual political philosophy of the Conservative Party—that competition is the universal panacea for all our ills. The Opposition often seem to forget that competition implies a race and that there are winners in a race. They are the oligopolies and the monopolies who, by sharing the market between them and fixing prices, ensure that competition, which they fear as much as anybody, is not brought to bear, because they know that competition means firms going to the wall, jobs being lost, bankruptcies, liquidations, receiverships and all the difficulties of life in that 1141 situation. The notion that we live in a competitive society in the image dreamed up by the hon. Member for Cirencester and Tewkesbury is the basic philosophy that he and his kind see through their rose-coloured spectacles.
I welcome the Bill so far as it goes, but it does not go very far. The Price Commission Act was modified, in terms of the safeguard section with which the Bill deals, as a result of representations from the CBI. We now know that the CBI is not a trusty friend of a Labour Government. The CBI continually claims that its members make meagre profits, but those members are extraordinarily reluctant to open their books when confronted with claims by their workpeople that they have made sufficient profits to pay increased wages. They rarely open their books to refute such claims.
The CBI goes further, because, in addition to trying, wrongly, to influence a Labour Government when it seems that some influence on the horizon might cause its members' books to be opened, it starts a propaganda campaign in opposition. For example, in terms of industrial democracy, are workers to be allowed access to the books to see what decisions are made when prices are fixed? Of course not. Such action must be opposed. It will wreck British management which has brought British manufacturing industry to the current height of activity that we now have. The use of the talent and ability of people on the shop floor is totally opposed by the CBI and its friends on the Opposition Benches. Therefore, any move towards industrial democracy, except on the most limited and paternalistic basis, is opposed.
When the Labour Government came into office they introduced a policy on planning agreements. We felt it desirable that the top 100 companies, which make enormously important decisions affecting the people of this country, should have a relationship with the Government in which they had a wider area of responsibility than simply profits to be distributed either to shareholders or to be put in the back pockets of the directors or families who own the majority of shares.
Planning agreements represented a sensible, straightforward Labour Party policy which was put before the people and was adopted and endorsed at the 1142 election. But planning agreements have been bitterly opposed by the CBI. Unfortunately, we took a very gentle line. Our attitude to planning agreements was similar to the gentle attitude that we adopted towards the original Price Commission Act, which was bitterly opposed by the Tories. We said that we would have a voluntary arrangement on planning agreements, but there have been no volunteers because the CBI has been intransigent in its attitude towards the implementation of planning agreements.
The Opposition take a very different view towards legislation on prices and investigation from that which they take towards individuals who apply for supplementary benefit. If we said that we would disregard the rules governing the investigation of applications for supplementary benefit, there would be a tremendous howl from the Opposition, who have never repudiated the scurrilous attack on applicants for supplementary benefit made by the hon. Member for Aberdeen, South (Mr. Sproat), supported by scurrilous papers such as The Sun. They have the double standards. They have one standard for company bosses and big business—"Leave them alone. Do not investigate their responsibility to the rest of the nation." It would appear that they should be taken care of by some kind of mysterious competitive process. When Thorn sacked 2,300 in Bradford, those people were put on the dole. The Opposition were secretly pleased because it helped their image, which is portrayed by Saatchi and Saatchi as long dole queues.
What opportunity do the Government have to be involved in the decision-making process of that highly profitable company with £57 million profit in 1977, importing colour television sets by the hundred thousand—sets that could have been made in Bradford? what opportunity did the Government have to become involved in decision making? None at all. What is the attitude of the Opposition? Total silence.
When we want to take powers to have some degree of control and investigation over the pricing arrangements of these over-mighty subjects, the attitude of the Opposition is one of total opposition and intransigence.
§ Mr. Mike Noble (Rossendale)
Would my hon. Friend like to take his argument further and contrast the attitude of the Opposition to this Bill with that of their friends in industry to the begging-bowl mentality when it comes to Government handouts?
§ Mr. Cryer
My hon. Friend has made a good point. I shall come to that ere long. The Opposition try to exhibit their bleeding hearts about small firms. The share of the market of small manufacturing firms diminished over the past 20 years, not because of Government intervention but because large firms have taken over small firms in this competitive process and closed them.
We face an economy in which the top 100 companies—certainly the top 150 companies—have an enormous area of economic decision making which affects millions of people. It is not good enough to leave it to the executive suite, because the boards of management do not have the national interest at heart. Therefore, we must have centralised power which we may use to ensure that decision making is reasonably in the interests of the nation.
If the Price Commission makes a judgment, it is entitled to call attention to that and to apply it. However, four out of every five Commission investigations have resulted in its decisions not being applied. Prices have increased, whatever the decision of the Commission. That is a wrong and negative attitude.
My second point concerns the way in which the Opposition treat the operating of price control. I persuaded the Department of the Environment to provide the costs of running a consumer protection shop in my constituency for two years. My hon. Friend will recall that when the Government came to office we had a policy in which we wanted a consumer protection shop on every High Street. Where excessive prices are charged, many people are confused and go to another shop, which may or may not be convenient. However, they do not often have the opportunity of confronting the manufacturer, the wholesaler or the distributor directly. Therefore we wanted a system of High Street consumer protection where people could call in to exercise their rights. We have done it in 1144 some areas, mostly with Labour-controlled authorities co-operating. The Department of the Environment agreed to provide the cost of running the shop in Keighley for two years. The local West Yorkshire metropolitan county council, which is Tory-controlled, refused to obtain the premises. That would have been a modest cost. Instead, people must travel from Keighley to Bradford, where the nearest office is located. That is 22 miles there and back. Alternatively, they must telephone. To a pensioner or person living on a low income it represents an important cost when several telephone calls are involved, which is invariably the case.
The cost of bus travel is prohibitive. As the West Yorkshire metropolitan county council withdrew the mobile protection shops, people living in Keighley have no easy opportunity to exercise their consumer's right of protection against price alterations or charges which they regard as unfair. That is the position that applies on the ground in a Tory-controlled local authority. One hopes very much that this piece of legislation is an indication that the Government want to see that position reversed and are moving in with some sort of more emphatic powers.
§ Mr. W. Benyon (Buckingham)
Is the hon. Gentleman aware that competition in the High Street has been one of the most powerful factors at work in keeping down prices, and that this has been freely admitted by the Secretary of State and his colleagues on several occasions during the last year?
§ Mr. Cryer
People have come to my advice surgery and made representations about the opportunity to express their concern about certain matters relating to consumer protection. They have told me that it is difficult for them to make the journey of 22 miles, there and back, from Keighley to Bradford. It was as a result of these representations that I took up this matter. It is, as I have said, a Tory authority, and it does not agree with the necessity for this form of consumer protection.
It is not only a matter of excessive prices, misleading claims or advertising, trade descriptions, and so on. The majority of shop owners in Keighley try to give a very good service, but there are 1145 people who still feel that the deal they are being offered is unfair because of misleading claims, or whatever else it might be. They have a right to exercise consumer protection and they are being denied this right by the Tory-controlled local authority.
The hon. Member for Cornwall, North (Mr. Pardoe) said that the Bill was a political gesture. It is a gesture, at least in part, in response to an early-day motion in the 1977–78 Session, signed by 150 Labour Members. It makes a change for the Government to respond so rapidly and so sympathetically to Labour Members. There are Labour Members who feel that sometimes the Government make their decisions without taking fully into account the feelings of ordinary Labour Back Benchers. When the hon. Member for Cornwall, North talks about a political gesture, he is trying to say that the Government want a relationship with the trade union movement, and that is absolutely right.
What is wrong with that? What is wrong with it from the Opposition point of view is that it weakens their position. They want to see a series of long strikes, so that they can crow and say that the relationship of the Government with the trade union movement is disintegrating. That is what they are after. They do not give a hoot about solving the lorry drivers' strike, or any other strike. The longer these strikes go on and the more difficult the position becomes, the happier they are. Indeed, the total silence on the Opposition Benches when my right hon. Friend the Home Secretary made his statement today is proof of my contention.
The trade unions in general make wage claims to follow price rises. The reverse is not the case. My hon. Friend the Minister will know of the document entitled "The Wrong Approach". It is "An exposure of Conservative Policies", and is published by the Manifesto Group of the Parliamentary Labour Party, which has a majority in the Parliamentary Labour Party because it wins all the elections to the liaison committee, and so forth. Under the heading "Last Time Round", this is what the document says, on page 9:Between June 1974 and June 1975 average weekly earnings went up by 25.6 per cent. Why? Cynical Conservatives just blame it on the Labour Government, because that was 1146 the period of Labour's first year in office. But that is not true. Sir Keith Joseph himself—Opposition Members will recall that he is Shadow spokesman on the Conservative Front Bench—has made that clear. 'High pay claims are the result of high inflation', he said in October 1976. And that's exactly what happened. Over the same period (June 1974-June 1975) the retail price index went up by 26.1 per cent., but there's not a single economist who would claim that wage rises feed into price rises that fast. It's much more likely, as Sir Keith says, that the wage explosion followed the price explosion. And the price explosion was caused largely by the inflationary policies of the Tories' last couple of years.Therefore, if the Bill has the effect of controlling prices it will help the trade unionist to assess the position more accurately when making a wage claim so as to keep abreast of the cost of living.
Many well-heeled Tories—who receive about £7,000 as Members of Parliament, and who have two or three directorships to bring in a few more thousand and a few parliamentary consultancies to keep the wolf from the door and to provide them with town houses fitted with Division bells—condemn lorry drivers for earning £53 per week for driving vehicles of 21 tons and over. It is said that lorry drivers will earn overtime, but EEC regulations curb overtime. Therefore, lorry drivers and other trade unionists are seeking to assess what their cost of living will be. Legislation of this kind makes that process more simple.
In the past, trade unionists have rightly argued that the Government have been concerned with planning wages alone. We do not argue that wages alone should be planned, we argue that the economy should be planned and that wages are only a part of the economy.
It has been said that this Bill adopts a callous disregard for company profits. That is not true. The position of industry on a historic cost basis is reasonable. What many Conservative Members fail to recognise in their tirades against this legislation is the generous view taken by the Labour Government of private enterprise and the money that is given to it. We know that 100 per cent. tax allowance is given on investment in plant and machinery. The Opposition have not mentioned that topic in this debate. According to the CBI, it is the most generous tax concession and investment 1147 inducement in the whole of Western Europe. Furthermore, private industry is afforded stock appreciation in tax relief. With the benefit of corporation tax relief and stock appreciation concessions, the cost in general revenue is about £4 billion to £5 billion each year. That money goes to company profits instead of being deducted from corporation tax. Again, in this debate, the Opposition have been silent on that subject.
In the regions, in addition to corporation tax relief, companies are allowed £22 for every £100 spent on buildings and a similar figure in respect of expenditure on plant and machinery. The Opposition have not commented on that aspect.
There are important inducements to industry to invest. That factor has not been mentioned by Tory Members or by the CBI. Members of the CBI—not Labour's best friends—are among those who encouraged the Labour Government to remain in the Common Market. The EEC is an important cause of price increases, and we should look to that area for important and fundamental reforms.
I welcome the Bill so far as it goes. It is a useful gesture by the Government in demonstrating the need to control prices. It is important for the housewife and for the shopper that we take this action, because we know that the Tories do not know much about price control. Indeed, they opposed the original legislation as they oppose this Bill, and they are against any facilities to enable ordinary people to combat inflation.
§ 8.50 p.m.
§ Mr. Tim Smith (Ashfield)
It is unfortunate that I do not have the time to give the hon. Member for Keighley (Mr. Cryer) a lecture on the difference between historic and current cost profits. He chooses the former figures to suit his argument, and nobody else does that. The Government Front Bench do not do so. During the debate we have had much discussion about the level of profits, and I would like to start on that point.
If one looks at historic cost profits, one sees that the figure from 1960 to 1977 has not changed a great deal. It has moved from 19.3 per cent. to 16.4 per cent. return on capital employed. In 1960 we had a low rate of inflation and 1148 in 1977 a high rate. If we look at the figures at replacement costs after providing for stock appreciation, we see that they were 14.2 per cent. in 1960 and 4 per cent. in 1977. This was dealt with at some length by the hon. Member for Thurrock (Dr. McDonald), who had so much confidence in her arguments that she refused any interventions in her speech. She wanted to talk only about the 25 largest companies. But if we look at the Government figures for the large listed companies in manufacturing industry, we find that the figures are similar. The return on capital employed was 13.7 per cent. in 1960 and 4.3 per cent. in 1976.
Even if we deal with the food, drink and tobacco industries—the hon. Member for Fife, Central (Mr. Hamilton) wanted to talk in particular of brewers—we see that the figures have changed from 13.7 per cent. in 1960 to 6.5 per cent. in 1976. That illustrates the need for profits and the fact that they have dropped dramatically over the last 16 or 17 years. On 22 October 1976, the Under-Secretary of State for Prices and Consumer Protection said thatProfits are the reward of success on the shop floor, success in the salesroom, and success in the boardroom. An enterprise once set on a profitable course provides the best protection to employees against the vagaries of the world economy and the best prospects in the locality of new job opportunities. Where profits are well founded on good employee-employer relations, high productivity, and good marketing both at home and abroad, the enterprise can plan ahead confident of its future prospects whatever the general economic situation. In a very real sense profitable enterprises are islands of security and prosperity for all who work in them.We have heard a lot of quotes from the Prime Minister and the Chancellor of the Exchequer, and I thought that I would quote the Under-Secretary for a change. I agree with that. We should keep that point in mind in considering the Bill.
The timing of the Bill is crucial. That was referred to by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). Only two months ago, the Secretary of State for Prices and Consumer Protection said that it would not be appropriate 12 or 18 months after introducing the original Price Commission Act to make any amendment to clause 9. We now see the Bill being introduced today, and it seeks to amend clause 9. 1149 The Secretary of State did not answer the question on the timing. There is no real answer. The suggestion that it has to do with the industrial situation and is an attempt to appease the trade union movement has been denied.
During the course of the Second Reading of what subsequently became the Price Commission Act, the Secretary of State said that… it would clearly be impossible to have effective general price control without some form of wages policy.In answer to the hon. Member for Bristol, North-West (Mr. Thomas), who expressed concern about the fourth or fifth round of the pay policy, the Secretary of State said:… it is not intended to extend the pay policy unacceptably. … "—[Official Report, 27 April 1977; Vol. 930, c. 1259 and 1264.]Present events suggest that the pay policy has been extended unacceptably. The Bill must be viewed in the light of present events. A relaxation of price control might seem more logical in the event of the collapse of pay policy for two reasons. First, the Prime Minister is constantly referring and has constantly referred to the relationship between wage increases and price increases. He tells us of the need for more public education and the need to explain how wage increases will work their way through into price increases. But the effect of this Bill will not prevent that from happening—merely delay it. For that reason it is particularly regrettable. We do need to emphasise the relationship between wage and price increases which is sometimes denied by certain Members opposite.
Very often it is thought that price control is a quid pro quo for wage control. If that is so, one might suppose that at a time when Government pay policy had collapsed, price control would be relaxed rather than tightened up. The corollary of what the Secretary of State said during the course of the Second Reading debate would be equally true. That would be that it would be clearly impossible to have an effective wage control without some control of prices policy. Indeed, it was the view of the last Conservative Government that this was so—that the two things must go together. That Government created the Price Commission.
1150 Government pay policy is now in ruins. Therefore, why did the Prime Minister propose a measure on 16 January increasing price control? We have not had an adequate explanation. He said then that the Government believed that their proposals on prices would not discourage good and efficient firms, but might make less efficient firms more ready to overhaul their practices. But I believe that the effect of the Bill will be to discourage all firms by creating a psychological atmosphere in which confidence is eroded. That is the essential point.
Investment decisions are affected by confidence and by the atmosphere in industry at any particular time. When section 9 of the Price Commission Act was discussed on Report, the Secretary of State said this about confidence:the problem that we are facing 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 … The psychology of industry is something that we all help to create."—[Official Report, 21 June, 1977; Vol. 933, c. 1545.]I suggest that this Bill will help to destroy the investment confidence and the confidence of industry. It is quite clear from the representations of the CBI what the psychological effect of this Bill will be, quite apart from its economic and financial effects. What the Secretary of State said on that occasion is really damning because the fact is that it will help to destroy industrial confidence. It would do this whatever the timing. Whenever this Bill was introduced it would have that effect. When we look at the timing of this Bill, it is all the more true to say that it will destroy industrial confidence.
On Friday the Secretary of State for Industry told the House in a statement on the essential supplies and services:The effects of the road haulage dispute, are damaging a large number of firms financially. Industry has coped remarkably well so far, but the continuation of this dispute will be damaging to our balance of trade, will undermine the efficiency and viability of many firms large and small, and endanger the livelihoods of millions of trade unionists.Then he said in answer to my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph):Undoubtedly there is a liquidity problem. The cash position of many firms, large and 1151 small, is being hit."—[Official Report, 26 January 1979; Vol. 961, c. 892.]In this context and climate the Government choose to introduce this Bill. They introduce it when the confidence of industry is already damaged by the road haulage dispute. The effect will be that the cash position of many firms will be hit hard because the principal effect of the Bill will be to delay price increases which will subsequently be allowed by the Price Commission. The record suggests that, because even where the safeguard measures have been invoked the Commission has said in many of its reports that the price increase subsequently would have been allowed. So the main effect of this Bill is to delay price increases, and this will have a consequent effect upon the cash flow of industrial companies.
This will serve to disguise the relationship between wage and price increases. This is the very thing that the Prime Minister is so keen to emphasise at present. Some of the latest reports of the Commission show that increases allowed under the safeguard regulations are subsequently seen to have been justified. Trust Houses Forte, Lever Brothers and Royal Doulton all show exactly that in their reports. It is true, in the case of Lever Brothers, that the company has a dominant position in the market. Nevertheless, I believe that the Conservative proposals, which would place more emphasis on competition policy, would adequately deal with that situation. I believe that in certain circumstances, with a strengthened Monopolies Commission and strengthened Office of Fair Trading, we could do away with the Price Commission altogether.
This Bill is unnecessarily irrelevant and it ought to be renamed. Instead of being the Price Commission (Amendment) Bill it should be called the Price Commission (Increase in Unemployment and Reduction in Investment) Bill. That will be its effect. It will damage industrial confidence, and for that reason the House should reject it.
§ 9.1 p.m.
§ Mr. Michael Shersby (Uxbridge)
As we have heard, the Bill is nothing more than a political ploy. It is designed as a piece of window-dressing with an elec- 1152 tion in mind. It is intended to mislead the public into thinking that it will control prices and help fight inflation. We know that it will neither control prices nor make any significant impact upon the rate of inflation. What it will do, as my hon. Friend the Member for Ashfield (Mr. Smith) has pointed out, is to cause unemployment, because it will further undermine the confidence of industry to invest and will halt expansion and investment in new equipment.
The Bill may well slightly reduce the choice of various lines which are available to the consumer in the High Street. For example, there may well be a reduction in the number of small packets available, where packaging costs are higher and production runs shorter. Why do we have the Bill? We all know that the Secretary of State agrees with the proposition that a loss of industrial confidence is one of the penalties which will have to be paid for it. My hon. Friend the Member for Gloucester (Mrs. Oppenheim) quoted the answer the Secretary of State gave to the hon. Member for Thurrock (Dr. McDonald) on 20 November 1978. It is clear from the Secretary of State's reply that he understands the penalties that will be paid by industry. How, in the light of that reply, can the Secretary of State vote for the Bill?
Where is the wider initiative about prices and wages to which he referred in his reply? We all know that at present there is no such initiative. The right hon. Gentleman is on record as accepting the relationship between the safeguards established under the 1977 Act and industrial confidence. In his Department's consultative document on safeguards of 15 June 1977, it is stated as a comment on profit safeguards during an investigation of a company's price or notified price increases, and in justification of them, thatAt the material time the commission will have insufficient information upon which to justify any more severe reduction in the margin currently earned.Many people in industry were glad to see the Secretary of State accept that a purely discretionary power for the Price Commission to award an interim price increase would not be adequate and that a reduction in profit margins more severe than that now made under the safeguard regulations would not be justified on the basis of information available 1153 to the Commission at the time when the investigation was decided to be necessary. Consider, for example, the food and drink industry. The Secretary of State knows that all the five companies investigated by the Price Commission under the 1977 Act had their notified price increases allowed in full. It is for this reason that, tinder the Act, the Commission is bound by regulation. If the Bill is enacted, the Commission will be required to use its discretion on the basis of admittedly inadequate information.
In the present political climate, it is now almost certain that lower interim awards will be given than under the current safeguards. In three of the five cases the safeguard enabled the increases to be fully implemented during the investigation, and in the other two cases a large part of the increase was allowed under the regulations as an interim measure. By the right hon. Gentleman's admission, the Commission does not have sufficient facts on which to form a judgment regarding an interim increase. I ask the House to consider the impact of lower awards at a time when inflation is likely to increase as a result of the present industrial strife. We cannot escape the conclusion that the food and drink industry in particular—whose costs consist in large part of materials over the price of which the manufacturers have no control—will suffer most of all. This evening, therefore, I intend to vote against the Bill, in the interests of my constituents, industry and the country as a whole.
§ 9.5 p.m.
§ Mr. Cecil Parkinson (Hertfordshire, South)
It is common for Labour Members to pretend that anyone who speaks out against any aspect of the Price Commission is automatically in favour of high prices. I was not here for the whole of the speech of the hon. Member for Keighley (Mr. Cryer), but I heard the end of it. He was pushing out that entirely predictable line.
However, even the chairman of the Price Commission and the Minister—until today, I might add—admit that in anything but the short term the Price Commission has no effect of any real consequence on the movement of prices. We all remembered the Minister's famous interview—I think that it was with the News of the World—in which he very frankly said that even if he had had the 1154 powers that he was seeking in 1977 he did not expect that the rate of inflation would have been affected.
The chairman of the Price Commission agrees that the name of the Commission is rather misleading. He has proposed—not perhaps as a firm proposal, but he has been quoted as saying it—that to avoid misleading people the name of the Commission should be changed to "The Commission for Imperfect Competition". I do not like the name "Price Commission" much, but there is something even more sinister sounding about the chairman's proposal.
We must be absolutely clear that this debate is not between those in favour of high prices and those against them. As the Secretary of State has confirmed, had this measure been available to him earlier it would have had no effect of any consequence on the price explosion and very little effect on the retail price index.
As the House debates the Bill, thousands of British companies are struggling to maintain production at any sort of level. Millions of pounds worth of exports are delayed at our docks and in the factories where they were produced. Last Thursday I was talking to the sales adviser of a successful, medium-sized British company. He told me that his company had expected to export about £200,000 worth of goods in January. It will now be lucky if it exports £40,000 worth. Many of the goods which have been exported were air freighted, at enormous additional expense to the company, in an attempt to keep faith with the company's customers. The company faces severe competition world-wide from the Japanese and recognises that the present disruption will further improve the long-term prospects of its Japanese rivals and damage its own.
The company's warehouse is crammed with finished goods for which it has orders but which it is unable to dispatch to its customers. It has paid for the raw materials for those goods, but it will be paid by its customers several weeks later than it might reasonably have expected to receive the money. Inevitably, there will be damaging and quite unnecessary pressure on the company's cash position and profitability. Its investment programme will almost certainly have to be cut back this year.
1155 My hon. Friend the Member for Ash-field (Mr. Smith) spoke about this matter and explained just what impact the present crisis will have on the cash position of many British companies. I am sure that many hon. Members could give similar examples, from their own experience in their own constituencies, of companies whose exports prospects are being damaged and whose profitability and cash position are badly affected. In this serious crisis, the Government's only legislative response is to bring forward this poisonous and irrelevant little Bill which adds to industry's problems at a time when it already faces huge problems, many of them caused by the activities of this Government.
My hon. Friend the Member for Gloucester (Mrs. Oppenheim) and others have pointed out that it is not as though there was any evidence of excess profit-making by British industry. The hon. Member for Thurrock (Dr. McDonald) came up with some rather bizarre figures about the excessive profits which British industry was alleged to be making. I refer her to the official magazine of the Department of Trade and Industry, Trade and Industry, of 22 September 1978. One reads in that magazine:The modest increases for 1977 raised the levels of the real rates of return achieved by British industry to about half their level in the early 1970s and barely one-third of the levels in the 1960s. The 1978 outturn is almost exactly the same as the result for 1977.British industry is achieving a historically low rate of return on capital employed. In a statement last week, the Central Statistical Office said:Industry's profits in 1978 increased more slowly than its increased spending on fixed assets and stocks.The truth is that British companies have not been making sufficient profits to sustain their investment programmes and to restock—and this was before they faced the problems and the losses caused by the activities of the pickets.
In 1977, industry faced its biggest financial deficit for several years, and most people expect the 1978 figure to show a bigger deficit. Industry is having to borrow money to cover this deficit at very high rates of interest—higher than they need be, because of this Government's chronic overspending and their 1156 need to pay high interest rates to fund their own bloated public sector borrowing requirement.
The Secretary of State is having a poorish month. He made a disastrous speech in the House earlier in the month, and now he comes forward with a Bill which has been condemned almost universally. He tried to pretend that it was only the Tory press which was getting at him. Let me read to him a quotation from The Guardian:It is an ambiguous gesture for the sake of making an ambiguous gesture and, in content, it is worse than nothing.There are those right hon. and hon. Members who would say that the troubles of the Secretary of State could not happen to a nicer chap. I think that is rather unfair to him. He makes the worst of it, but I think that he has a rotten job. If prices go up, he is criticised. If they go down, he gets no credit. In fact, as we all know, he deserves neither credit nor blame. He and the Price Commission are irrelevant to the general movement of prices over anything but the shortest term.
The other day, I was thinking of the story of the Yorkshire family business which had a company secretary who was not a member of the family but who had attended board meetings for more than 20 years. After 20 years, he decided to speak. There was a stunned silence, after which the chairman turned to him and said "Just be quiet. Tha's nobbut the scorer." The Secretary of State and the Price Commission simply keep the national prices score. They have little more influence on prices than the scorer in the present test match at Adelaide will have on the result of that match. But the Secretary of State has one power which the scorer does not possess. He has the power to postpone increases, no matter how justified, and the ability, by his actions, to damage industrial confidence.
In the Bill, the right hon. Gentleman is aiming to do the former and, as a number of my hon. Friends have said, he will certainly achieve the latter. He seeks power to remove the safeguards provision, which is section 9 of the Price Commission Act. A number of my hon. Friends have questioned his motives. I also intend to do so. It is worth looking at the background to these safeguards.
1157 The Secretary of State, in a speech to the Marketing Society on 17 January, which has been much quoted today, said:We agreed to write the safeguard provisions into the legislation to meet fears expressed by industry, fears about the then untried powers and procedure of the new Commission.The Secretary of State now claims that he always disliked the safeguards.
My hon. Friends the Members for Pudsey (Mr. Shaw) and Romford (Mr. Neubert) have given a number of quotations from speeches which the Secretary of State made in 1977 in which he certainly did not leave the Committee with that impression. But, under the 1977 Act, the Price Commission and the Minister obtained wide discretionary powers that can be used on the basis of a number of extremely subjective criteria.
I remember the Secretary of State, in his anxiety to reassure us, telling us that socially responsible companies that made socially acceptable profits had nothing to fear. Many industrialists, who might have a different idea about what is socially responsible and socially acceptable, recognised the subjectivity that lay behind those remarks. Industry was alarmed at the extent of the powers being given to a politically ambitious Minister who might appoint a politically motivated chairman to his new Commission. What has changed in the interval? One might argue that industry's fears have been confirmed, not lessened. We have the same Minister, no less ambitious. We have a politically committed chairman. And this Bill, which has no economic justification, is perhaps the best evidence of how right British industry was to demand safeguards.
The right hon. Gentleman argues that the Commission has proved that it is to be trusted. From the representations that we have received, we feel entitled to ask by whom it is trusted. The Secretary of State claims that the Commission feels constrained by the safeguard clause. We draw a different conclusion. In 20 out of 27 investigations—the right hon. Gentleman said 30, but the last figure I saw was 27—the safeguards have proved necessary. Since that fact is resented by the Commission, we are entitled to argue that the existence of safeguards may well have forced the Commission to act more fairly than it would have wished had it not been so constrained.
1158 The Secretary of State may argue, as the CBI points out, that in virtually all the investigations to date the Commission has been less restrictive when it has finished its investigation than the legislation permits it to be. The right hon. Gentleman argued today that in a minority of cases the Commission would have wished not to be bound by the safeguards, but the majority of cases have shown that the safeguards were vital. The right hon. Gentleman tried to reassure us by saying that we could rely on the discretion of the Commission. We and British industry take the view that it is far better off with legal safeguards in the Bill than with any assurance of the Secretary of State.
If the Price Commission has been hampered, if it feels constrained—although, as I said, the safeguards have mostly been justified—that also causes us concern. We see the Bill as evidence that the Commission intends to change its practice in future and that it needs to be constrained perhaps more than in the past and not less.
I have said that there is no economic justification for the Bill as a prices measure. Even the right hon. Gentleman admits that safeguards over the last 16 months have allowed through increases which have had a minute effect on the RPI and the cost of living. We are therefore entitled to ask why the Bill has been introduced. There are three main reasons, I believe. First, in spite of the Minister's assurances, the Bill is intended as a replacement for pay sanctions.
The Secretary of State knows that sanctions were resented by some of his hon. Friends below the Gangway, as well as by all parties on this side of the House. We all know that he has a fairly low opinion of his hon. Friends and is convinced that if he dresses up pay sanctions as a prices measure he may get away with it. Unfortunately, the chairman of the Price Commission has blown the gaff. In The Economist of 20 January he was reported as saying that he would be concerned if large wage increases were used to jack up prices but that an increase above the 5 per cent. guideline would not trigger an automatic investigation.
One of the Bill's principal aims is to replace the sanctions that the House rejected with a further pay sanction dressed 1159 up as an attack on prices. Employers who resist excessive wage demands and eventually lose the struggle can be clobbered under this legislation. The union which gets the increase will be left alone. That was one of the most unacceptable features of the original pay sanctions. The possibility of such action will exist again if the Bill is passed.
The Minister's action in the present dispute shows once again that the ability of the union in question to cause trouble will be one of the principal price rise criteria. The Minister's announcement after the House had risen at the end of the week before last that the road hauliers had nothing to fear, that any price increase they applied for would go through, was a measure of this. He had seen how much trouble the unions in the industry could cause, and that was the basic criterion on which he decided to let through the price rise.
It is ironic that, on the Tuesday of the week in question, the Prime Minister made a strong statement about the Government's position. On the Thursday he said that the worst thing that could happen to the nation would be to have a Government that used strong words and took weak action. On Friday he set up the right hon. Gentleman to take the weak action that went with his strong words—precisely the recipe that he had been deploring only a few hours earlier.
The second reason for the Bill is that the present Government, better than any other, know the value of being able to rig the retail price index in the run-up to a general election. The Chancellor did it in 1974 and was, as a result, able to make his infamous and misleading claim about the rate of inflation being 8.4 per cent. The Bill will enable the Secretary of State to play his part in this election year in rigging the index. The right hon. Gentleman rose rather ingenuously this afternoon and asked how that could possibly be. He knows as well as I know, and as well as everyone in the House knows, that under the Bill, once the safeguards are removed, it is within the power of the Price Commission to delay any increase applied for by a pre-notifying firm by up to four months. What a bonus for a political operator such as the Secretary of State to be able 1160 to help in rigging the price index in the months ahead!
In the House on Thursday the Chancellor made a tough speech, on which he was rightly congratulated by my hon. Friend the Member for St. Ives (Mr. Nott) in his excellent speech. On Friday the Chancellor of the Exchequer led a team of Ministers—they were described as senior Ministers—the sell-out squad, round to TUC headquarters to try to cobble together a new social contract. Mr. Len Murray has made it clear that he is prepared to talk about anything but pay. He is prepared to discuss the Government's responsibilities but not his own.
The Chancellor of the Exchequer must realise that most of the many mistakes which he and his Government have made stem from the social contract mark 1—the wage explosion of 1974: the battery of trade union privilege legislation, which is at least a partial cause of many of today's problems; and the Government's reckless and continued overspending, which has doubled the national debt in five years, forced up interest rates and crowded out private investment. The employment protection measures have made the employment of people an unattractive proposition at a time of high unemployment. Even critics of the present Government accept that they delivered their side of the social contract, but many of us feel that the nation has paid a high price as a result.
The question that many people are now rightly asking is what the Government gained in return. Until recently it was fashionable to pretend that the Government had obtained great wage restraint. Until recently scarcely a day passed without a tribute from some Minister or other to the unions for their self-sacrifice and a promise that the good times were coming when the sacrifice would be rewarded. Ten days ago I saw the Chancellor being interviewed on the programme "TV Eye" by three trade union leaders, Mr. Moss Evans, Mr. David Basnett and Mr. John Boyd. His trade union colleagues made the claim that they had made their sacrifice and were now claiming their reward, repeating to the Chancellor the remarks that he and the Prime Minister have made to them many times. The Chancellor's answer was short and to the point. In effect, he 1161 said that the trade unions had made no real sacrifice. He told the trade union leaders that they must not believe everything that they heard, especially if it came from him and the Prime Minister.
The measures that I mentioned earlier, and many others introduced by the Government, have pleased the trade union leaders but have been damaging to their members and to the rest of us, the majority who are not trade union members. This measure is another example. It will have no real impact on prices but, because it further damages industrial confidence, it will undermine the job security of some of those at work today and the employment prospects of some of the 1½ million unemployed. It is evidence to those in industry that even in a time of crisis the wishes of the TUC, and not the will of the nation, will come first with the present Government. The very irrelevance of the Bill to the country's real needs is perhaps its most damaging and depressing aspect. That is why we shall vote against it.
§ 9.30 p.m.
§ The Under-Secretary of State for Prices and Consumer Protection (Mr. Robert Maclennan)
The debate has ranged widely over the whole question of inflation and its control, together with that of the role that price control might or should not play in that battle in which the whole country is engaged.
A considerable part of the Conservative contribution has been to speculate about the motives of my right hon. Friends in bringing the Bill forward. The hon. Member for Hertfordshire, South (Mr. Parkinson) gave, his view of the possible reasons. He suggested that the Bill was an attempt to repair the damage that had been inflicted on the Government's counter-inflation policy by their defeat in this House on sanctions. He suggested that it was an attempt to introduce by the back door a new form of disincentive to excessive wage claims.
My hon. Friends the Members for Thurrock (Dr. McDonald) and Bristol, North-West (Mr. Thomas) also expressed the hope that there was no question of the Bill's introducing a pay sanction by the back door. Not only is it not the Government's intention that this Bill should be used in that way. It is a legal impossibility for that to happen.
1162 One of the features of the debate has been the lack of attention paid by Conservative Members both to the Bill and to the Price Commission Act which it seeks to amend. Hon. Members will see that section 2 of that Act provides that in carrying out its duties the Price Commission is required to have regard to matters specified in subsection (2).
Moreover, it provides that the Price Commission may not have regard to other matters. If, in proposing to restrain a particular price increase, the Commission sought to implement a pay policy, it would of course be open to the aggrieved company to seek redress in the courts on the ground that the Commission was acting ultra vires the Act.
There is no question of the Commission's being in a position at law to operate pay sanctions. I can add to that what my right hon. Friend said this afternoon, that not only is it not open to it as a matter of law but it is the express wish and determination of the members of the Commission not so to use the Act. It is, of course, perfectly open to the Commission to consider wage costs along with all other costs. Indeed, it is required to do so by the terms of the parent Act. [Interruption.]
§ Mr. Deputy Speaker (Sir Myer Galpern)
Order. I remind the House that the hon. Member for Hertfordshire, South (Mr. Parkinson) was listened to without a single interruption or intervention, and I appeal to hon. Members to show the same respect to the Under-Secretary of State.
§ Mr. Maclennan
In bringing forward the Bill, the Government's purpose was quite simple and is contained on the face of the Bill. It can be summarised simply. Its purpose is to repeal the provisions by which applications for price increases are automatically allowed, irrespective of the judgment of the Price Commission. That intention was clearly announced by my right hon. Friend the Prime Minister on 16 January, and in opening the debate today my right hon. Friend the Secretary of State described in detail how the Bill would operate to give effect to it.
The provisions that it is intended to remove from the 1977 Act never sat comfortably with the new form of price control to which Parliament gave its 1163 approval 18 months ago. They were in essence a hangover from the mechanistic and elaborate rules of the Price Code devised by the Conservative Government in 1973. The disappearance of the Conservative Government was largely unlamented at the time, certainly by industry. The hon. Member for Pudsey (Mr. Shaw) shakes his head in assent, but I thought from some of his remarks today about the importation of rules about profitability that he was seeking to resurrect the Conservative Government's rules in the Price Code.
In my view, and in the expressed view of my right hon. Friend, both today and at the time of the passage of the 1977 Act, it would have been better to let the concept of safeguards, the mechanistic device for ensuring that the Price Commission's discretion could not be exercised, die with that old code. However, the Government at the time recognised that although there was no necessity for these safeguard provisions my right hon. Friend should be required to make regulations which would ensure that there would be a certain level of profitability whatever the circumstances of individual firms and irrespective of the views of the Commission.
That decision was taken in recognition of fears expressed by industry, and I do not altogether understand why there should have been any doubt about it. The hon. Member for Pudsey devoted the greater part of his speech to suggesting that my right hon. Friend had in some manner acted inconsistently with his views expressed during the passage of the 1977 Act. I must rebut that charge wholly, and if it is necessary to do so I will quote from my right hon. Friend's speech.
On Report, my right hon. Friend described the clear need for safeguards of a general kind, which this Bill will do nothing to remove. Those were the safeguards included in section 2 of the 1977 Act. My right hon. Friend went on to describe the other kinds of safeguards which this Bill will remove. He said that the other sort of safeguard was a term of art that has become the mathematical or arithmetical floor safeguard, which is something that we included during the consultative period. We included the arithemetical safeguard at the wish of industry and we promised to include it 1164 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 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. That remains precisely the position and my right hon. Friend has indicated today precisely why we moved in that way.
§ Mr. Russell Fairgrieve (Aberdeenshire, West)
A few minutes ago the Minister mentioned the need for a reasonable level of profitability. What does he consider is a reasonable level of profitability for an efficient British company as a percentage of sales?
§ Mr. Maclennan
Perhaps it was a mistake to give way to the hon. Gentleman. Had he been here earlier, he would have heard his hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) rebuke those who think it appropriate to set particular levels of profitability for the whole of industry. It is the very purpose of this Bill to demonstrate the folly of applying such an automatic test to the very different circumstances which apply to different companies operating in this country.
§ Mr. Giles Shaw
May I refer to the elaborate and kindly way in which the Minister sought to embroider the remarks that I made in attacking his hon. Friend the Secretary of State? Does he agree that his right hon. Friend told the Committee that the Government had envisaged including the safeguard clauses from the very commencement of the Bill's preparation, indeed during its initial drafting? Does he not further agree that clause 9 provides for the issuing of regulations, and that it is those regulations which provide the complicated mathematical formula which, perhaps, the hon. Gentleman so dislikes? Was it not entirely up to the Secretary of State to produce that formula?
§ Mr. Maclennan
I do not accept that. The record is clear on the face of the report that I have read. The Government's purpose is clear. The Price Commission, since it was set up, has not only used its powers with the prudence and sense that one would have expected of it; 1165 it has acted in complete conformity with section 2 of the 1977 Act. The Commission is required by that Act to have regard in performing its functions to all mattersrelevant with a view to restraining prices of goods and charges for services so far as that appears to the Commission to be consistent with the making of adequate profits by efficient suppliers of goods and services.There, for all who have eyes to see, lies the real safeguard to protect industry from the unreasonable erosion of its profitability by the Commission.
Most of the contributions from the Opposition which have touched upon the subject of profitability have wholly failed to recognise that the Commission is under a legal obligation to consider profitability in making judgments as to whether or not to restrain price increases.
Some questions have been raised and there has been speculation about how the Price Commission might seek to exercise its powers under the widened discretion that it will enjoy if the House passes this Bill. I suggest that hon. Gentlemen would do well to consider how the Commission has exercised the discretion which it at present enjoys to allow interim price increases. It has exercised its discretion to make such interim price increases on five occasions, not two, as the hon. Member for Pudsey said. It is clear that, even with safeguards, the Commission has operated in a manner that has demonstrated its sensitivity to the needs of industry for profits and that, in making these interim awards, it has given complete assurance of the manner in which it would exercise its discretion in future.
Our system of price control today depends upon the exercise of judgment by experienced people who have no axe to grind, who have no private interest in the matter being investigated, and who are able to seek out the relevant information about the situation of a firm before coming to a conclusion. It is a practical method of control. It is designed not to apply pre-ordained, detailed rules to companies whose circumstances may make the application of the rules wholly inappropriate. In such a system of price control, which is intended to be tailored to the circumstances of individual firms, there is no place for automatic safeguard regulations.
But the case for the removal of a power to make safeguard regulations does 1166 not rest alone upon the theoretical inappropriateness of a safeguard to a discretionary system of price control.
§ Mr. Maclennan
I shall explain what it means. Evidence is now accumulating that the existence of the safeguard rules is distorting the very purposes of the 1977 Act. In two-thirds of the cases investigated by the Price Commission, safeguards have been invoked. In other words, in two-thirds of the investigations, the Commission has been obliged not to give precedence to the criteria of section 2 in considering whether a proposed price increase was justified. The Commission has been required not to exercise its judgment about the circumstances of a company but to apply the rules automatically. Thus, even before its investigations are complete, in two-thirds of the cases that it has investigated it has been forced to allow a proposed price rise either in whole or in part. In two-thirds of the cases that have been before it, the Commission has been unable to consider whether a price rise was necessary or could be wholly or partially absorbed by greater efficiency or by a reduction in the company's costs.
The existence of safeguards has not only fettered the Price Commission in carrying out its duty to have regard to all matters which appear to be relevant with a view to restraining prices; it has operated, as the Commission pointed out in its quarterly report of April 1978, as a constraint upon its freedom to make recommendations.
The hon. Member for Gloucester (Mrs. Oppenheim) suggested that the fact that such a large number of price increases had been permitted under the profitability safeguards only went to prove that they were still necessary. I suggest that it proves no such thing. It merely proves that in two-thirds of the cases investigated the rules automatically applied regardless of the profit needs of the company affected.
In advancing that argument the Opposition have fallen into the trap, which the hon. Member for Circencester and Tewkesbury, in some ways wiser than most of his hon. Friends, pointed out, namely, that there is a specifiable level of profitability which is or should be available to the whole of industry.
1167 I take issue with the Opposition Members, including the hon. Member for Aberdeenshire, West (Mr. Fairgrieve), who asked about an adequate level of profitability. I do not believe that a search would be profitable for a level of profitability that would be adequate for the range of industry and for the range of circumstances in which individual firms find themselves.
In my judgment—it must be said, in the judgment of those who have been subjected to the Commission's examinations and investigations—the Commission has operated in a manner that has been entirely up to that for which Opposition Members might have hoped and in a manner in which we were confident.
The debate has focused not only upon the powers of the Commission but upon what alternatives should be considered as appropriate methods of price control. Most Opposition Members did not commit themselves to price control having no part in the battery of counter-inflation weapons, although that is the clear implication of what most of them were saying. The majority preferred to place their reliance upon the effectiveness of competition.
As in so many respects, the right hon. Member for Lowestoft (Mr. Prior) has come rather closer to being frank about the Opposition's attitude to these matters than most of his Front Bench colleagues. On 16 January 1979, on the day when my right hon. Friend the Prime Minister announced the Government's intention to introduce a Bill to strengthen the powers of the Commission, the right hon. Gentleman, in attacking the Bill, said:It is not a question of needing to put any more pressure on prices. Competition and the present measures are more than sufficient for that.—[Official Report, 16 January 1979; Vol. 960, c. 1618.]I do not know whether the right hon. Gentleman was giving his benediction to the Commission's work. If that was his purpose, he is out of line with the hon. Member for Gloucester, whose opposition to the Commission's activities has been unqualified.
It is not necessary to comment further on the elliptical remarks of the right hon. Gentleman. However, I shall comment on what he had to say about competition. The theme of the debate has been 1168 competition. A number of hon. Members on both sides of the House have rightly recognised the important role that competition has to play in the High Street in keeping down prices. Although I accept that view and agree with the right hon. Gentleman, I do not accept, nor do the Government—[Interruption.]
§ Mr. Deputy Speaker
Order. I regret that my earlier appeal for some peace and quiet for the Minister has not been observed. I earnestly appeal to hon. Members to allow the Minister to finish his speech in silence.
§ Mr. Maclennan
There are few in the House who would accept the view that the market place is so competitive that no intervention is necessary to ensure that the consumer is protected. The market place is where market power is exercised, not where the public interest is protected. All too often when industrialists express the virtues of the competitive ambience, they are speaking of a situation in which the determination of the public interest is left to accidental or calculated consequences of their own action and in which the role of Government is reduced to that of an inactive umpire. It appears that that passivity of government is the Opposition's prescription for the role of Government in price control.
Such passivity has not always characterised the views of Conservatives about the role of Government in determining relations between industry and Government.
The right hon. Member for Leeds, North-East (Sir K. Joseph), in one of his franker moments, put the matter in a nutshell when he said thatleft to themselves most business men would share the market and keep newcomers out.The point that I want to make was best expressed in this House by the hon. Member for Guildford (Mr. Howell), who is, I believe, a Shadow Treasury spokesman, in a speech in which he said some words of wisdom:Competition is not a natural phenomenon. It is a phenomenon only maintained by an increasingly sophisticated form of intervention."—[Official Report, 3 December 1969; Vol. 792, c. 1647.]That is surely right. It is the philosophy which informs the Government's attitude to the role of the Price Commission, just as it is clearly the philosophy which informs the attitude of the Commission in 1169 its work in investigating the justification or otherwise of proposed price increases.
The Commission has, on a number of occasions, illustrated by its action that when competition is defective it will intervene to restrain prices in the public interest. For example, in the case of British Gypsum Limited—where, incidentally, 42 per cent. of the proposed price increases were allowed, under safeguards—the Commission recommended that the price increases proposed by the company should be restricted, in view of its monopoly position in the supply of plasterboard. I can only say to Conservative Members, who appear to wish to hamstring the Commission, that I do not believe that there is another agency that would have acted so quickly or so sincerely in the public interest in this important area affecting house prices.
My second example is also from a field that affects house prices—that of Associated Portland Cement. In that case the Commission encouraged the company to consider a more realistic allowance for customers who collected their own cement, in order to introduce a competitive element into the market for transport services.
The remaining arguments that have been deployed in the debate against the Bill can be dealt with more summarily. They stem either from a misconception of the purpose of price control, as embodied
§ in the Act, or from a misrepresentation as to how the Price Commission is required by the law to exercise its functions, and how in practice it has exercised its functions.
§ The misconception has been perpetrated repeatedly by the right hon. Member for Gloucester in suggesting that the Government regarded the Price Commission operations as the principal weapon in their arsenal in the battle against inflation. Its purpose, and that of the Bill today, is to provide assistance in that battle, but it is by no means to be characterised in the terms used by the hon. Lady.
§ The Conservative Party has spoken of the confidence of industry and the damage that could be inflicted upon industry by the absence of adequate concern by the Price Commission for the profitability needs of industry. If there is anxiety, if there is a lack of confidence, it is because the Conservative Party has deliberately misconceived and misrepresented the purposes of the Bill.
§ Question put, That the Bill be now read a Second time:—
§ The House divided: Ayes 274, Noes 263.1173
|Division No. 53]||AYES||[10.0 p.m.|
|Abse, Leo||Butler, Mrs Joyce (Wood Green)||Dempsey, James|
|Allaun, Frank||Callanghan, Rt Hon J. (Cardiff SE)||Dewar, Donald|
|Anderson, Donald||Callaghan, Jim (Middleton & P)||Doig, Peter|
|Archer, Rt Hon Peter||Campbell, Ian||Dormand, J. D.|
|Armstrong, Ernest||Canavan, Dennis||Douglas-Mann, Bruce|
|Ashley, Jack||Cant, R. B.||Duffy, A. E. P.|
|Ashton, Joe||Carmichael, Neil||Dunnett, Jack|
|Atkins, Ronald (Preston N)||Carter, Ray||Eadie, Alex|
|Atkinson, Norman (H'gey, Tott'ham)||Carter-Jones, Lewis||Edge, Geoff|
|Bain, Mrs Margaret||Cartwright, John||Ellis, John (Bragg & Scun)|
|Barnett, Guy (Greenwich)||Clemitson, Ivor||English, Michael|
|Barnett, Rt Hon Joel (Heywood)||Cocks, Rt Hon Michael (Bristol S)||Ennals, Rt Hon David|
|Bates, Alf||Cohen, Stanley||Evans, Fred (Caerphilly)|
|Bean, R. E.||Colquhoun, Ms Maureen||Evans, Gwynfor (Carmarthen)|
|Benn, Rt Hon Anthony Wedgwood||Concannon, Rt Hon John||Evans, Ioan (Aberdare)|
|Bennett, Andrew (Stockport N)||Conlan, Bernard||Evans, John (Newton)|
|Bidwell, Sydney||Corbett, Robin||Ewing, Harry (Stirling)|
|Bishop, Rt Hon Edward||Cowans, Harry||Fernyhough, Rt Hon E.|
|Blenkinsop, Arthur||Cox, Thomas (Tooting)||Flannery, Martin|
|Boardman, H.||Crawshaw, Richard||Fletcher, L. R. (Ilkeston)|
|Booth, Rt Hon Albert||Cronin, John||Fletcher, Ted (Darlington)|
|Boothroyd, Miss Betty||Crowther, Stan (Rotherham)||Foot, Rt Hon Michael|
|Bottomley, Rt Hon Arthur||Cryer, Bob||Ford, Ben|
|Boyden, James (Bich Auck)||Davidson, Arthur||Forrester, John|
|Bradley, Tom||Davies, Bryan (Enfield N)||Fowler, Gerald (The Wrekin)|
|Bray, Dr Jeremy||Davies, Rt Hon Denzil||Fraser, John (Lambeth, N'w'd)|
|Brown, Hugh D. (Provan)||Davies, Ifor (Gower)||Freeson, Rt Hon Reginald|
|Brown, Robert C. (Newcastle W)||Davis, Clinton (Hackney C)||Garrett, John (Norwich S)|
|Buchan, Norman||Deakins, Eric||Garrett, W. E. (Wallsend)|
|Buchanan, Richard||Dean, Joseph (Leeds West)||George, Bruce|
|Gilbert, Rt Hon Dr John||McElhone, Frank||Shaw, Arnold (Ilford South)|
|Ginsburg, David||MacFarquhar, Roderick||Sheldon, Rt Hon Robert|
|Golding, John||McKay, Allen (Penistone)||Shore, Rt Hon Peter|
|Gould, Bryan||MacKenzie, Rt Hon Gregor||Short, Mrs Renée (Wolv NE)|
|Gourlay, Harry||Maclennan, Robert||Silkin, Rt Hon John (Deptford)|
|Graham, Ted||McMillan, Tom (Glasgow C)||Silkin, Rt Hon S. C. (Dulwich)|
|Grant, George (Morpeth)||Madden, Max||Silverman, Julius|
|Grant, John (Islington C)||Magee, Bryan||Skinner, Dennis|
|Grocott, Bruce||Mallalieu, J. P. W.||Smith, Rt Hon John (N Lanarkshire)|
|Harrison, Rt Hon Walter||Marks, Kenneth||Snape, Peter|
|Hart, Rt Hon Judith||Marshall, Dr Edmund (Goole)||Spearing, Nigel|
|Hattersley, Rt Hon Roy||Marshall, Jim (Leicester S)||Spriggs, Leslie|
|Hayman, Mrs Helene||Meacher, Michael||Stewart, Rt Hon Donald|
|Healey, Rt Hon Denis||Mellish, Rt Hon Robert||Stewart, Rt Hon Donald|
|Heffer, Eric S.||Mikardo, Ian||Stewart, Rt Hon M. (Fulham)|
|Henderson, Douglas||Millan, Rt Hon Bruce||Stoddart, David|
|Home Robertson, John||Miller, Dr M. S. (E Kilbride)||Stott, Roger|
|Hooley, Frank||Mitchell, Austin (Grimsby)||Strang, Gavin|
|Horam, John||Molloy, William||Strauss, Rt Hon G. R.|
|Howell, Rt Hon Denis (B'ham, Sm H)||Moonman, Eric||Summerskill, Hon Dr Shirley|
|Hoyle, Doug (Nelson)||Morris, Alfred (Wythenshawe)||Swain, Thomas|
|Huckfield, Les||Morris, Rt Hon Charles R.||Taylor, Mrs Ann (Bolton W)|
|Hughes, Rt Hon C. (Anglesey)||Morris, Rt Hon J. (Aberavon)||Thomas, Dafydd (Merioneth)|
|Hughes, Robert (Aberdeen N)||Morton, George||Thomas, Jeffrey (Abertillery)|
|Hughes, Roy (Newport)||Moyle, Rt Hon Roland||Thomas, Mike (Newcastle E)|
|Hunter, Adam||Mulley, Rt Hon Frederick||Thomas, Ron (Bristol NW)|
|Irving, Rt Hon S. (Dartford)||Murray, Rt Hon Ronald King||Thorne, Stan (Preston South)|
|Jackson, Colin (Brighouse)||Newens, Stanley||Tierney, Sydney|
|Jackson, Miss Margaret (Lincoln)||Noble, Mike||Tilley, John|
|Janner, Greville||Oakes, Gordon||Tinn, James|
|Jay, Rt Hon Douglas||Ogden, Eric||Tomlinson, John|
|Jeger, Mrs Lena||O'Halloran, Michael||Torney, Tom|
|Jenkins, Hugh (Putney)||Orbach, Maurice||Tuck, Raphael|
|John, Brynmor||Orme, Rt Hon Stanley||Varley, Rt Hon Eric G.|
|Johnson, James (Hull West)||Ovenden, John||Wainwright, Edwin (Dearne V)|
|Johnson, Walter (Derby S)||Owen, Rt Hon Dr David||Walker, Harold (Doncaster)|
|Jones, Alec (Rhondda)||Padley, Walter||Walker, Terry (Kingswood)|
|Jones, Barry (East Flint)||Palmer, Arthur||Ward, Michael|
|Jones, Dan (Burnley)||Park, George||Watkins, David|
|Judd, Frank||Parker, John||Weetch, Ken|
|Kaufman, Rt Hon Gerald||Parry, Robert||Weitzman, David|
|Kelley, Richard||Pavitt, Laurie||Wellbeloved, James|
|Kerr, Russell||Pendry, Tom||Welsh, Andrew|
|Kilroy-Silk, Robert||Perry, Ernest||While, Frank R. (Bury)|
|Kinnock, Neil||Price, C. (Lewisham W)||White, James (Pollok)|
|Lambie, David||Price, William (Rugby)||Whitlock, William|
|Lamborn, Harry||Radice, Giles||Willey, Rt Hon Frederick|
|Lamond, James||Rees, Rt Hon Merlyn (Leeds S)||Williams, Rt Hon Alan (Swansea W)|
|Latham, Arthur (Paddington)||Richardson, Miss Jo||Williams, Rt Hon Shirley (Hertford)|
|Leadbitter, Ted||Roberts, Albert (Normanton)||Williams, Sir Thomas (Warrington)|
|Lee, John||Roberts, Gwilym (Cannock)||Wilson, Gordon (Dundee E)|
|Lestor, Miss Joan (Eton & Slough)||Robertson, George (Hamilton)||Wilson, Rt Hon Sir Harold (Huyton)|
|Lever, Rt Hon Harold||Robinson, Geoffrey||Wilson, William (Coventry SE)|
|Lewis, Ron (Carlisle)||Roderick, Caerwyn||Wise, Mrs Audrey|
|Litterick, Tom||Rodgers, George (Chorley)||Woodall, Alec|
|Lofthouse, Geoffrey||Rodgers, Rt Hon William (Stockton)||Woof, Robert|
|Loyden, Eddie||Rooker, J. W.||Wrigglesworth, Ian|
|Luard, Evan||Rowlands, Ted||Young, David (Bolton E)|
|Lyon, Alexander (York)||Ryman, John|
|Lyons, Edward (Bradford W)||Sandelson, Neville||TELLERS FOR THE AYES:|
|Mabon, Rt Hon Dr J. Dickson||Sedgemore, Brian||Mr. James Hamilton and|
|McCartney, Hugh||Selby, Harry||Mr. Donald Coleman.|
|McDonald, Dr Oonagh||Sever, John|
|Adley, Robert||Booth, Rt Hon Albert||Chalker, Mrs Lynda|
|Aitken, Jonathan||Boscawen, Hon Robert||Churchill, W. S.|
|Alison, Michael||Bottomley, Peter||Clark, Alan (Plymouth, Sutton)|
|Amery, Rt Hon Julian||Bowden, A. (Brighton, Kemptown)||Clark, William (Croydon S)|
|Arnold, Tom||Boyson, Dr Rhodes (Brent)||Clarke, Kenneth (Rushcliffe)|
|Atkins, Rt Hon H. (Spelthorne)||Bradford, Rev Robert||Clegg, Walter|
|Atkinson, David (B'mouth, East)||Braine, Sir Bernard||Cockcroft, John|
|Awdry, Daniel||Brocklebank-Fowler, C.||Cooke, Robert (Bristol W)|
|Baker, Kenneth||Brooke, Hon Peter||Cope, John|
|Beith, A. J.||Brotherton, Michael||Cormack, Patrick|
|Bell, Ronald||Brown, Sir Edward (Bath)||Costain, A. P.|
|Bendall, Vivian||Bryan, Sir Paul||Craig, Rt Hon W. (Belfast E)|
|Bennett, Dr Reginald (Fareham)||Buchanan-Smith, Alick||Crouch, David|
|Benyon, W.||Buck, Antony||Crowder, F. P.|
|Berry, Hon Anthony||Budgen, Nick||Dean, Paul (N Somerset)|
|Biffen, John||Bulmer, Esmond||Dodsworth, Geoffrey|
|Biggs-Davison, John||Burden, F. A.||Douglas-Hamilton, Lord James|
|Blaker, Peter||Butler, Adam (Bosworth)||Drayson, Burnaby|
|Body, Richard||Carlisle, Mark||du Cann, Rt Hon Edward|
|Durant, Tony||Kimball, Marcus||Rathbone, Tim|
|Dykes, Hugh||King, Evelyn (South Dorset)||Rees, Peter (Dover & Deal)|
|Eden, Rt Hon Sir John||Kitson, Sir Timothy||Rees-Davies, W. R.|
|Edwards, Nicholas (Pembroke)||Knox, David||Renton, Rt Hon Sir D. (Hunts)|
|Elliott, Sir William||Lamont, Norman||Renton, Tim (Mid-Sussex)|
|Emery, Peter||Langford-Holt, Sir John||Rhodes James, R.|
|Eyre, Reginald||Latham, Michael (Melton)||Ridley, Hon Nicholas|
|Fairbairn, Nicholas||Lawrence, Ivan||Ridsdale, Julian|
|Fairgrieve, Russell||Lawson, Nigel||Rifkind, Malcolm|
|Farr, John||Lester, Jim (Beeston)||Roberts, Wyn (Conway)|
|Fell, Anthony||Lewis, Kenneth (Rutland)||Ross, Stephen (Isle of Wight)|
|Finsberg, Geoffrey||Lloyd, Ian||Ross, William (Londonderry)|
|Fisher, Sir Nigel||Loveridge, John||Rossi, Hugh (Hornsey)|
|Fletcher, Alex (Edinburgh N)||Luce, Richard||Rost, Peter (SE Derbyshire)|
|Fookes, Miss Janet||McAdden, Sir Stephen||Royle, Sir Anthony|
|Forman, Nigel||McCrindle, Robert||Sainsbury, Tim|
|Fowler, Norman (Sutton C'f'd)||McCusker, H.||St. John-Stevas, Norman|
|Fox, Marcus||Macfarlane, Neil||Scott, Nicholas|
|Fraser, Rt Hon H. (Stafford & St)||MacGregor, John||Shaw, Giles (Pudsey)|
|Freud, Clement||MacKay, Andrew (Stechford)||Shelton, William (Streatham)|
|Fry, Peter||Macmillan, Rt Hon M. (Farnham)||Shepherd, Colin|
|Galbraith, Hon T. G. D.||McNair-Wilson, M. (Newbury)||Shersby, Michael|
|Gardiner, George (Reigate)||McNair-Wilson, P. (New Forest)||Silvester, Fred|
|Gardner, Edward (S Fylde)||Madel, David||Sims, Roger|
|Gilmour, Rt Hon Sir Ian (Chesham)||Marshall, Michael (Arundel)||Sinclair, Sir George|
|Gilmour, Sir John (East Fife)||Marten, Neil||Skeet, T. H. H.|
|Glyn, Dr Alan||Mates, Michael||Smith, Cyril (Rochdale)|
|Godber, Rt Hon Joseph||Mather, Carol||Smith, Dudley (Warwick)|
|Goodhew, Victor||Maude, Angus||Smith, Timothy John (Ashfield)|
|Gorst, John||Mawby, Ray||Speed, Keith|
|Gower, Sir Raymond (Barry)||Maxwell-Hyslop, Robin||Spence, John|
|Gray, Hamish||Mayhew, Patrick||Spicer, Jim (W Dorset)|
|Griffiths, Eldon||Meyer, Sir Anthony||Spicer, Michael (S Worcester)|
|Grimond, Rt Hon J.||Miller, Hal (Bromsgrove)||Sproat, Iain|
|Grist, Ian||Mills, Peter||Stainton, Keith|
|Grylls, Michael||Miscampbell, Norman||Stanbrook, Ivor|
|Hall-Davis, A. G. F.||Mitchell, David (Basingstoke)||Stanley, John|
|Hamilton, Archibald (Epsom & Ewell)||Moate, Roger||Steel, Rt Hon David|
|Hamilton, Michael (Salisbury)||Molyneaux, James||Steen, Anthony (Wavertree)|
|Hampson, Dr Keith||Monro, Hector||Stewart, Ian (Hitchin)|
|Hannam, John||Montgomery, Fergus||Stokes, John|
|Stradling Thomas, J.|
|Harrison, Col Sir Harwood (Eye)||Moore, John (Croydon C)||Tapsell, Peter|
|Haselhurst, Alan||More, Jasper (Ludlow)||Taylor, R. (Croydon NW)|
|Hastings, Stephen||Morgan, Geraint||Taylor, Teddy (Cathcart)|
|Havers, Rt Hon Sir Michael||Morgan-Giles, Rear-Admiral||Tebbit, Norman|
|Hayhoe, Barney||Morris, Michael (Northampton S)||Temple-Morris, Peter|
|Heath, Rt Hon Edward||Morrison, Hon Charles (Devizes)||Thomas, Rt Hon P. (Hendon S)|
|Heseltine, Michael||Morrison, Hon Peter (Chester)||Thorpe, Rt Hon Jeremy (N Devon)|
|Higgins, Terence L.||Mudd, David||Townsend, Cyril D.|
|Hodgson, Robin||Neave, Airey||Trotter, Neville|
|Holland, Philip||Nelson, Anthony||van Straubenzee, W. R.|
|Hooson, Emlyn||Neubert, Michael||Vaughan, Dr Gerard|
|Hordern, Peter||Newton, Tony||Viggers, Peter|
|Howe, Rt Hon Sir Geoffrey||Nott, John||Wainwright, Richard (Colne V)|
|Howell, David (Guildford)||Oppenheim, Mrs Sally||Wakeham, John|
|Howells, Geraint (Cardigan)||Page, Rt Hon R. Graham (Crosby)||Walker, Rt Hon P. (Worcester)|
|Hunt, David (Wirral)||Page, Richard (Workington)||Walters, Dennis|
|Hunt, John (Ravensbourne)||Paisley, Rev Ian||Weatherill, Bernard|
|Hurd, Douglas||Pardon, John||Wells, John|
|Hutchison, Michael Clark||Parkinson, Cecil||Whitelaw, Rt Hon William|
|Irving, Charles (Cheltenham)||Pattie, Geoffrey||Whitney, Raymond|
|James, David||Percival, Ian||Wiggin, Jerry|
|Jenkin, Rt Hon P. (Wanst'd&W'df'd)||Peyton, Rt Hon John||Winterton, Nicholas|
|Johnson Smith, G. (E Grinstead)||Pink, R. Bonner||Wood, Rt Hon Richard|
|Johnston, Russell (Inverness)||Powell, Rt Hon J. Enoch||Young, Sir G. (Ealing, Acton)|
|Jones, Arthur (Daventry)||Prentice, Rt Hon Reg||Younger, Hon George|
|Jopling, Michael||Price, David (Eastleigh)|
|Joseph, Rt Hon Sir Keith||Prior, Rt Hon James||TELLERS FOR THE NOES:|
|Kaberry, Sir Donald||Pym, Rt Hon Francis||Mr. Spencer Le Merchant and|
|Kilfedder, James||Raison, Timothy||Mr. Michael Roberts.|
|Question accordingly agreed to.|
|Bill read a Second time.|
|Bill committed to a Committee of the whole House.—[Mr. Snape.]|