§ ORDERS FOLLOWING REPORT UNDER SECTION 11
(1) This section applies where a report of the Commission on a reference under section 11 above concludes that the body specified in the reference is pursuing a course of conduct which operates against the public interest.
(2) If it appears to the Secretary of State that any other Minister has functions directly relating to the body specified in the reference or, in the case of a reference only concerning the activities of the body in a part of the United Kingdom, functions directly relating to the body in respect of its activities in that part, he shall send a copy of the report of the Commission on the reference to that Minister; and in subsection (3) below "the relevant Minister" means—
he may by order direct the body to prepare within such time, if any, as may be specified in the order a plan for remedying or preventing such of those effects as are so specified; but where there is more than one relevant Minister no such order shall be made except by all the relevant Ministers acting jointly and where none of the relevant Ministers is the Secretary of State no such order shall be made except after consultation with him.
(4) It shall be the duty of a body to which a direction is given under subsection (3) above to prepare such a plan as is mentioned in that subsection and to send a copy of that plan to the Minister or Ministers by whom the order containing the direction was made who shall lay it before Parliament; and, in a case where the plan involves the use by the body of its powers in relation to any
subsidiary within the meaning of the Companies Act 1948, the plan shall specify the manner in which the body proposes using those powers.
(5) Whether or not an order has been or may he made under subsection(3) above, the Secretary of State may if he considers it appropriate for the purpose of remedying or preventing what he considers are the adverse effects of the course of conduct specified in the report of the Commission as operating against the public interest, by order exercise one or more of the powers specified in Part I, excluding paragraph 10, of Schedule 8 to the Fair Trading Act 1973, to such extent and in such manner as he considers appropriate.
(6) ((In the Fair Trading Act 1973—
shall have effect as if any reference in those provisions to an order under section 56 of that Act included a reference to an order under subsection (5) above.—[Mr. Tebbit.]
§ Brought up, and read the First time.
§ Mr. Deputy Speaker
It will be convenient to take with this new clause Government amendment No. 52 and the following amendments:
§ No. 27, clause 12, in page 17, line 30, leave out 'excluding paragraph 10'.
No. 28, in page 17, line 32, at end, insert—
'Provided that the exercise of powers specified in paragraph 10 of Schedule 8 to that Act shall only be exercised jointly by the Secretary of State and the Minister responsible for the body specified in the reference.'
§ No. 30, in page 18, line 1, leave out 'excluding paragraph 10'.
§ The Under-Secretary of State for Trade (Mr. Norman Tebbit)
I beg to move, That the clause be read a Second time.
I hope that this clause, which is intended to replace the existing clause 12, will be generally welcomed by the House, and, of course, Government amendment No. 52 is consequential upon it to remove the existing clause 12.
During consideration of the Bill in Standing Committee, my right hon. Friend said that she was considering whether it might be desirable and appropriate 224 to table amendments on Report to provide more effective powers to follow up the findings of the Monopolies and Mergers Commission than were already provided under clause 12. We have come to the conclusion that an additional power is required, and the new clause gives effect to that decision. The new power has been drawn up so as to provide a more appropriate way of acting upon Commission reports dealing with questions of the efficiency of, and the service provided by, nationalised industries and the other bodies included in clause 11. The power will be exercisable by order only where the Commission considers that an investigated body is pursuing a course of conduct operating against the public interest. It will enable a Minister with a sponsoring function for the body in question, after consultation with the Secretary of State for Trade, to direct that body to submit a plan for remedying or preventing the adverse effects which the Minister considers arise from that course of conduct.
Where there is no Minister with direct responsibilities for such a body, the power to require the plan will be exercised by the Secretary of State for Trade. Where more than one Minister has responsibilities for a body, the power will be exercised jointly by them, again after consultation with the Secretary of State.
Once the body has presented its plan, it will have discharged its formal obligations under the terms of the order. However, in putting forward the plan the body concerned will need to take account of the fact that its proposals will be made public and that there will be public interest in ensuring that its proposals are implemented. Implementation of the plan will also be taken into account in Departments' normal discussions with the body about its corporate plans and financial requirements.
The new power is additional to that already contained in the existing clause 12 of the Bill, which enables the Secretary of State to exercise the powers in schedule 8 to the Fair Trading Act, following a finding by the Commission that the body in question is pursuing a course of conduct contrary to the public interest. Such powers may still be appropriate where, for example, a report under clause 11 produces evidence of abuse of a monopoly situation or an anti-competitive practice. 225 But I would expect the new powers to be more relevant to most references.
As I have said, amendment No. 52 will delete the existing clause 12 and is purely consequential upon this new clause.
Turning, then, to Opposition amendments Nos. 27, 28 and 30, which we are discussing together with new clause 8, I should say that we debated these in Committee, as, indeed, we debated those matters which have caused us to table new clause 8. The Government still believe that it is the underlying causes of high prices which should be tackled rather than the symptoms. In the case of the nationalised industries, a simple power to regulate prices might merely result in the transfer of the higher prices from the consumer to the taxpayer in the form of a higher subsidy to the body concerned or in some other way.
Regulation of a nationalised industry's prices and charges could conflict with the financial objectives set by Ministers and, as the right hon. Member for Lanarkshire, North (Mr. Smith) well knows, the target returns for nationalised industries are one of the prime factors in setting the prices which they charge. In addition, such regulation might introduce an unnecessary and potentially damaging degree of rigidity into the commercial behaviour of nationalised industries. Again, I think that Ministers in the previous Administration would accept that from their own experience.
The investigations for which the order-making powers in clause 12 are intended are primarily efficiency audits, and the Commission's reports will be available to sponsoring Ministers when they come to determine financial targets.
Therefore, we find ourselves probably very much where we found ourselves in Committee so far as these Opposition amendments are concerned, and I would not be able to recommend to the House that they be accepted. On the other hand, I hope that the new clause which we have tabled will be seen by the Opposition as moving a considerable extent in the same direction as they wished to take when we discussed these matters in Committee.
§ Mr. John Fraser (Norwood)
This new clause contains one novelty and one omission. The omission, of course, is one that is highlighted in the Opposition amendments, in that the Bill remains giving no 226 power to a Minister to recommend any kind of price reduction, price freeze or price restraint as regards the prices charged by nationalised industries. As we shall have an opportunity in a moment to discuss these matters at greater length, I will not go into any great detail, but the hon. Gentleman will concede that paragraph 10 of schedule 8 to the Fair Trading Act 1973 provides that, following an adverse report from the Monopolies and Mergers Commission, a Minister has powers which he may exercise to restrain prices, and those powers to restrain prices can continue without any limit. Those powers have been exercised from time to time by way of price supervision and price restraint, particularly in the case of Valium and Librium. But when we come to deal with the nationalised industries no such powers are to be included in this Bill, although such powers previously existed under the Price Commission Act and were so exercised.
The hon. Gentleman says that one has to deal with the underlying causes of price inflation. So far as I can recall, in the gas and electricity industries the underlying cause of the impending price inflation rests with the Financial Secretary to the Treasury and the Government Benches. So there can be no question there about the responsibility's being put upon the taxpayer.
However, there may well be areas where the Monopolies and Mergers Commission looks a t the financial structures of a nationalised industry and decides that the way in which tariffs are being worked out or the way in which a price increase is being loaded on one set of consumers as against another is unfair. While as a whole the price structure of a nationalised industry may be fair and the prices charged by the nationalised industry may be not unreasonable, it may well be that the tariff structure or the structure of prices inside the industry is unfair.
A very good example, which was highlighted by the Price Commission in past reports, is the way in which the railways are capable of loading a price increase on a captive group, particularly commuters. It may be that while the total profitability of a nationalised industry may not change, it would be perfectly fair to comment adversely on the way the price increase is loaded on one consumer as against another.
227 Furthermore, in the past nationalised industries—I am not criticising them particularly on this score—have sometimes got their calculations wrong. It happened in the Post Office over telephone charges, as a result of which a restraint was exercised, and not only that but there was actually a rebate to every telephone user. There have been other occasions when the sums have been got wrong. Even the vagaries of the weather can change the profitability of an industry. So it is wrong that there should be this omission, which does not apply to private industry, of the power to control prices.
My second point concerns the novelty which appears in the clause—a novelty which I welcome. It enables the Government to impose a plan, after consultation, on a nationalised industry where there has been a conclusion that certain practices operate against the public interest. I have no objection to that at all. Why cannot we have the same thing with private industry? Why is there this lack of evenhandedness as between one sector and the other? I can think of occasions in when dealing with monopolies in the past—Tate and Lyle is a good example—where this sort of power would have been welcome.
I will not press the matter any further, but I ask the Government whether, in the context of the further competition Bill which they have promised to bring to the House in the future, they will consider the extension of this power which is to be applied to the nationalised industries to private monopolies as well.
§ Mr. Tebbit
I thank the hon. Member for Norwood (Mr. Fraser) for his welcome to at least part of the clause. I understand his reservations, and I realise that it is likely that the main debate on inflation and prices will come later in the day.
When I refer to dealing with the underlying causes of inflation, I distinguish between those underlying causes and the fact of price increases. It is easy to get a good laugh by talking about the difference between increases in prices and inflation, but on thinking more deeply about these matters one realises that there is a distinction between the two.
The distinction I mean to draw is in 228 the sense that it is possible to press a finger or thumb against any specific area of a balloon that is being inflated and to hold in that area, but, inevitably, the inflation of the balloon will continue in some other area. It might carry on uniformly over the whole surface of the balloon and, therefore, not be so readily identified. It might be possible for someone to say "I am stopping the balloon from inflating by pressing my thumb upon it", but that is not the way in which inflation of the balloon should be controlled. The cause of the inflation of the balloon lies in what is being pushed into it, and that will not be controlled by someone presing a thumb on the outside.
That is the approach that the Government are adopting towards inflation and its control, in sharp contrast to the approach adopted at times by the previous Administration. Under the guidance of the International Monetary Fund, the previous Administration acted in the way I am suggesting, even if they did not always talk in that way, but at later stages they slightly shied away from that approach.
§ Mr. John Smith
I am intrigued by the Minister's notion of counter-inflation policy being seen in terms of a balloon. What has happened over the recent proposals for electricity and gas price increases? Is that not a case of putting some hot air into an already large balloon?
§ Mr. Tebbit
I am sure that we shall have some hot air later this afternoon, but the right hon. Member for Lanarkshire, North (Mr. Smith) must accept that the extra profits which will be made by the Gas Corporation from the price increase will be made not as a result of an instruction to put up prices directly but as a result of an instruction to make a proper rate of return on its assets. There is a slight difference there to which the clause and the amendments address themselves. Profits made from the price increase will not disappear; they will be available in essence to the Government in the pursuit of other policies, either to tax less or to borrow less, both of which are counter-inflationary policies.
I am sure the right hon. Gentleman will accept that, however much he might like to make the case that the effect of the increase in gas prices will be hurtful 229 to many people. Of course, we understand that. I think he will see what I mean when I say that to some extent his amendments bear upon this. If we fix a rate of return for a nationalised industry—if financial targets are fixed—there are only two things which can give. There are the efficiency of the industry and the price which it charges for its products.
We are discussing the powers which Parliament should have. It is right that, having fixed a rate of return, we should look at the degree of efficiency or inefficiency of the nationalised corporation concerned in achieving that rate of return. That may show that prices are higher than they would have been had the industry been more efficient. It could also show that prices are higher than they would have been had the rate of return been lower. That is so at any rate in the short run, although it may not be true in the long run. It is not sensible to suggest that we should control both prices and the rate of return and also discuss the efficiency of the corporation. We need two of those factors, and I suggest that the two we need are the rate of return and the efficiency of the industry.
§ Mr. John Fraser
What will happen when industries move over to current cost accounting? If there is a genuine mistake about the value of an industry's assets and, as a result of that accountancy mistake, it has too high a return on capital and charges too high a price, what will the Government do then?
§ Mr. Tebbit
The rate of return will be adjusted in subsequent years if that is shown to be so. In some cases the industry would consider that it should lower its prices. That is what a business would do in the normal course under competitive pressure.
The hon. Member for Norwood referred to railway fares. When the Bill is enacted, our proposal is to refer the question of fares and service on commuter lines. I recollect that we discussed that proposal in Committee and we all agreed that it would be an interesting and fruitful inquiry. We look forward to it.
The hon. Gentleman asked why we should not apply these ideas to private industry and ask private companies to produce a plan for dealing with the criticisms which have been made. If private 230 companies find themselves being closely examined, they will have to react; they will have to produce a plan and they will have to respond, informally if not formally, in the same way as a nationalised industry would respond. But it is not necessary to expect private companies to produce plans which are, in effect, produced for the Government through the medium of the Director General in quite the same way as the nationalised industries do. The nationalised industries are creatures of the House and they receive from the House protection, which private industry does not.
In view of what I have said, I hope that the hon. Gentleman will feel able not to press his amendments. I certainly could not suggest to the House that they should be accepted.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.