§ 2.50 p.m.
LORD ERROLL OF HALE rose to call attention to price increases which are occurring, wholly or partly, as a consequence of steps taken by Her Majesty's Government; and to move for Papers. The noble Lord said: My Lords, I beg to move the Motion standing on the Order Paper in my name. Your Lordships will doubtless recall many of the things said during the last General Election campaign. I think one of the most striking sentences was that uttered by Mr. Brown at Swadlingcote on September 27 when he said, in the course of his speech:
The continual rise in the cost of living can, must, and will be halted.
This was an unequivocal statement, without even a saving phrase to the effect that taxation increases should not be taken
into account. It is hardly to be expected that he would say such a thing in the heat of an Election campaign; but, nevertheless, here was an unequivocal statement, repeated in different forms by many other members of what was then Her Majesty's Opposition and repeated in much the same form in the Labour Party Election Manifesto.
§ What has happened since then? In the last six months we have seen the index of retail prices rise by more than four points. Most of the increases, when they are analysed, come back to definite actions or steps taken by Her Majesty's Government. We started with an import surcharge of 15 per cent. (it is now, of course, 10 per cent.) on a wide range of imported goods. This not only put up the prices of a wide range of imported goods but had the effect of providing a climate in which the home manufacturers could, if they wished, raise their prices by a little. Petrol went up 6d. a gallon in the Autumn Budget. In March we found that National Insurance contributions went up by 5s. 3d. a week; while the April Budget put up the cost of goods vehicle licences by 50 per cent. and of private cars by £2 10s. The price of cigarettes went up 6d. on a packet of 20; beer went up 1d. a pint; spirits were up 4s. a bottle, on average. Subsequently, there was the increase in postal charges, which is now bearing on everyone, of an extra 1d. on the inland letter rate—an increase of no less than 33⅓ per cent.—with a corresponding increase for parcels and second-class mail. For good measure the Government have put up the television licence fee by £1, while the radio licence is to cost another 5s. Rail fares are up by an average of 8 per cent.; and for electricity, according to which Area Board the customer happens to come under, the price increases from 8 per cent. to as much as 14 per cent.
§ These extra burdens imposed by Socialism amount to about £1 a week on the average family budget. For these increases, because they stem from direct Government action, Her Majesty's Government, in my view, must take full responsibility. I should mention here that there is one happier side to this story: the Resale Prices Act, which was passed by the previous Conservative Administration has, by intensifying competition, reduced some prices 1100 —notably the price of Scotch whisky. But what would have been a reduction to the public has been more than offset by tax increases.
§ There is also the added cost to industry caused by the increased Excise duties; because higher Excise duties have to be paid when tobacco or spirits, for example, are withdrawn from bond. I estimate—and it can only be an approximation—that an extra £30 million additional working capital will have to be found by the firms concerned in order to finance their stocks which have borne tax at the new higher rate until they are repaid by their distributors. And not only has this capital to be found—a difficult enough undertaking, in conditions of the credit squeeze that we have at the present time—but it has also to be serviced: interest, in one form or another, has to be paid on it. This represents another substantial and additional cost burden. I mention this because here is a matter in which Her Majesty's Government could help the manufacturer, if they so wished. They could help by permitting the payment of Excise duty several weeks in arrear, so that there would not be the same requirement of additional working capital. This would not be creating a precedent, for this is already done with purchase tax, which is paid quarterly in arrear.
I found two other examples of price increases which I thought might interest your Lordships. In the very week in which Mr. Brown announced his Declaration of Intent on prices and incomes policy the Ministry of Labour pushed up the price of the Ministry of Labour Gazette by not less than 40 per cent. This is not a very serious matter, but it is an indication, in a small way, of what little regard the Government's own Departments have for the policy of the Government as a whole. Then, as we have debated here in the last few weeks, and as has been accepted, I think, by noble Lords opposite, the legislation on control of offices has put up office rents in the London area. And it is interesting to see that a Government agency proudly announced this fact in its current advertising. Underneath the excellent picture of the lower part of a young typist the caption runs:
The dearest legs in London are even dearer now.
And the announcement goes on:
In 1963 … one sq. ft. in a central London office cost 45s. a year … To-day that sq. ft. of central London office rents at 55s. And tomorrow"—
Who knows, indeed, my Lords? But it seems ironical to me that a Government agency could use public funds in order to advertise in a newspaper that Government actions are, in fact, forcing up prices.
§ I have received information from departmental stores that in many cases their prices have not gone up. Here I would like to say a word or two in explanation, particularly with reference to the words of my Motion, because I am concerned not only with prices in the shops but with prices of products sold to other manufacturers for further processing; that is to say, with industrial prices and industrial costs. Although I have been able, I hope your Lordships will agree, to give examples of some striking price increases, we must also remember in this debate that price increases are going on all the time, some little, some great; there is a steady movement of prices. While I think that the majority of price increases are taking place at present in the industrial field—that is, in goods sold to other manufacturers for further processing—these price increases are bound to result, sooner or later, in higher prices in the shops. So, in my Motion I deliberately used the present tense—"price increases which are occurring"—because although they may not yet be visible to the average shopper, they will become so in due course.
§ I should like to put to noble Lords two propositions. The first is that all increases in costs are ultimately borne by "John Citizen". The second is that the proposition which has been used a great deal by the Government in the last few months, that manufacturers should absorb increased costs by greater efficiency, is, in fact, a delusion. In the first place, everyone has been trying to do that very thing. In a competitive country like ours, manufacturers and distributors are extremely reluctant to put up prices if they can possibly avoid doing so. Secondly, the greater efficiency which 1102 we are hoping to achieve by adherence to these ideas would result in lower prices if that greater efficiency were not mopped up by increased costs. While most of us think of the increased postal charges as affecting only our personal correspondence, nevertheless the increased postal charge rate, the increase in insurance stamps, the higher rates and the higher electricity charges together represent very substantial increases in overheads for firms throughout this country. They simply cannot absorb increases on this scale. In a few cases, where they may be able to do so, it is done at the expense of what otherwise might prove to have been price reductions.
But, my Lords, of all the forces driving up industrial costs and the retail prices of goods and services applied to the public, the greatest force is pay rises. I state this on the authority of the Progress Report of the Department of Economic Affairs in its No. 1 Bulletin of January, 1965. The Bulletin says:
The selling price of goods and services making up the final output can he broadly divided into three components, money incomes … imports, and taxes on expenditure.
This is the point I wish to impress on noble Lords:
Of these, money incomes are by far the most important, accounting for nearly three-quarters of the total.
Here in the field of money incomes Her Majesty's Government have a clear and direct responsibility. They should set a firm example by sticking to their own figure of 3½ per cent. as the norm. But what has happened? Something very different indeed.
§ Here I would ask noble Lords to bear with me for a moment while I mention some of the price increases which the Government have permitted to take place in the public sector and in the field of the Civil Service, over which they could have a direct and continuing responsibility. On December 14, a 9 per cent. rise to a quarter-of-a-million railway workers; December 21, pay rise of up to 10 per cent. for 18,000 civil servants; December 23, rise of 9.6 per cent. to 13 per cent. for 77,000 G.P.O. engineers; January 14, 80,000 British Rail engineers get a 9 per cent. pay increase; March 13, 15 per cent. rise to 6,000 G.P.O. supervising engineers; April 14, increases of up to 12½per cent. per year for 200,000 nurses; 1103 April 14, 1,100 B.E.A. pilots get a 17 per cent. rise; April 17, 120,000 postmen get 20 per cent. increase for three years—at a cost to the Post Office of £20 million—January 1964 to 1966; April 30, 70,000 gas workers get 10 per cent. pay rise; May 7, 9½ per cent. increase for prison officers. They also got a reduction in the working week.
§ From The Times of May 19 comes the headline "Bus fares in provinces may go up by 10 per cent." The report states that a 15s. per week pay rise was recommended by the committee set up by Mr. Gunter, Minister of Labour. A Government responsibility once again.
§ There are also about 2 million workers whose pay is linked to the price index and who automatically get a rise when the index goes up a little more. Here I have a small suggestion to make to the Government which they might like to consider. It is the desirability of compiling a separate index of retail prices which would omit changes in direct Excise duties up or down from an earlier base year, perhaps quarterly, as a guide to see what changes in taxes were causing fluctuations in the price index; and then one might have some reliable system of comparing changes in the purchasing power, giving the true value of money incomes.
§ When the Labour Government came into power last October, I thought to myself that they might succeed on the wages front where we had not. The trade unions boycotted our National Incomes Commission; but surely, I thought, they would co-operate with the Government which they had helped to bring into power. I thought that the trade union leaders would at least support their Government in public, and would respond to the appeal made by the Government to educate their own followers about the 3½ per cent. norm for pay increases. But one has only to look at what they are saying in public and to their own followers.
I hope I am not wearying noble Lords by making so many quotations, but this is material from which we can begin to see the shape of policy in the future. The Government and the T.U.C. had a special conference in London on April 30 to discuss Mr. Brown's wages and
incomes policy. Mr. George Woodcock, T.U.C. General Secretary, openly acknowledged that:
… there is not the remotest possible chance that incomes and wages will be kept down to 3½ per cent. in this year.
He went on to say:
This is not a plan. It is not even a policy. Let us not make any false claims. These words are much too grandiloquent to describe what we are putting before you. A policy may come out in time. This is only the first cautious and sensible step in that direction.
A few weeks earlier Mr. Clive Jenkins, ASSET General Secretary, said:
We're only too willing to talk about an incomes policy once we put right what's wrong … 3½ per cent. to the technical salariat is derisory.
Mr. Will Paynter, Secretary of the National Union of Mineworkers, said:
If we accepted 3½ per cent. in the present circumstances we couldn't survive as a trade union leadership.
Mr. Greene, General Secretary of the National Union of Railwaymen, added this comment at the same debate:
The new Board has not been set to cut across free negotiating machinery. If it does, it will be out of the window.
Incidentally, the biggest union in the country, the Transport and General Workers' Union, flatly rejected Mr. Brown's policy at the T.U.C. conference on April 30. And Mr. Frank Cousins, now Minister of Technology, on leave of absence from his post as General Secretary of that Union, commented that his union
have always been realistic about their approach to the whole question of wages policy.
There has been no change in the attitude of responsible trade union leaders since that conference took place. Mr. Woodcock, on the B.B.C. T.V. "Gallery" programme on May 20, 1965, said:
There is a very noticeable tendency on the part of many people … to think that an incomes policy meant that we would be able or that we would try and restrain the growth of incomes within a certain percentage level, in this case 3½ per cent. Well, if you're trying to do that, of course, forget it. You can't do it.
In the face of such an attitude by union leaders, and with such a bad example set by Her Majesty's Government, how can private employers hope to settle pay claims anywhere near the norm?
§ One can say that there is the Prices and Incomes Commission but this, it must be remembered, is a tender plant. It will take several years to establish its authority. It is essentially a long-term affair. It is certainly no instrument for the short-term crisis which we have on our hands. So far, as noble Lords may have observed, there have been three price references made to this body and one pay reference, making four in all, and all dealing with the private sector. There is not one reference in respect of the public sector where some of the biggest pay increases of all have taken place or are about to take place.
§ What is going to happen about these four references? For all four of them there are three possible outcomes. One outcome might be that the increase was justified, so clearly there would be no need for further action. The second possibility is that the increase was partly justified and partly not. This could only lead to months of further argument and no action. The third possible outcome is that the increase, whether in price or pay, would be condemned; and what action could then be taken? In the last resort, only price control. Legislation would be needed and so at least a year would elapse before the product could be controlled, because of the time it would take to pass the necessary legislation and draft the Statutory Instrument to institute price control for the product. As to the condemned pay rise, I know of no proposals for dealing with that. I hope that the noble Lord who is going to speak for the Government in the debate will let me know how the Government propose to deal with pay rises which are condemned by the Prices and Incomes Commission.
§ Furthermore, the Prices and Incomes Commission cannot deal with wage drift. I will not burden your Lordships this afternoon with a description of wage drift. We all know, broadly, what it means, how small wage increases are arranged on a local basis in order to attract labour or keep labour from leaving certain works, and how a certain amount of "poaching" takes place in some cases between one firm and another. As a result, the general wage level in a district or locality is gradually edged upwards. The Prices and Incomes Commission can do nothing to deal with 1106 that sort of thing, nor with what also takes place, the prices drift, because it is clear that prices tend to rise locally to meet increased incomes. When I was searching for an example of this for the purpose of this debate, I had to go no farther than the other end of this building. Shortly after the Members of another place had voted themselves a substantial pay increase, the price of the three course table d'hôte lunch in the Members' Dining Room went up from 4s. 6d. to 6s. 6d., with no increase in quality. Much the same thing goes on, I am sure, in cafés and shops of the more prosperous parts of Britain to-day.
§ LORD ERROLL OF HALE
My Lords, the Prices and Incomes Commission, if they are to succeed at all, can succeed in the long term only if Her Majesty's Government create the right economic climate—and this it is certainly not doing at the present time. Government actions are almost wholly responsible for price increases which are occurring and which, as I have shown, will affect John Citizen in the weeks and months ahead. Their incomes police, and therefore their prices policy, is breaking up before our very eyes.
Is there anything which can save the situation? It is possible that events may come to the rescue of Her Majesty's Government. Those who say that we are heading for depression, deflation or the stop of a "Stop—Go" policy may well be proved right. If so wage demands will be postponed and intensified competition in a cautious home market may keep prices from rising. But this will be achieved only at the cost of thousands of unemployed and suffering in all walks of life. My Lords, I close, as I began, with a reference to the last Election. Noble Lords will recall the slogan, "Let's go with Labour, and we'll get things done." Some went with Labour, and now we are getting done—well and truly done! I beg to move for Papers.
§ 3.13 p.m.
§ LORD BYERS
My Lords, we are all indebted to the noble Lord, Lord Erroll of Hale, for initiating this discussion, and I think that the House can congratulate itself on a good attendance, because there 1107 is a well-known race taking place to-day. I think it improves the image of the House to see how many Members are prepared to attend when an important subject of this kind is being discussed. The only doubt I have is how to understand the significance of what I believe to be true: that we are to enjoy only one speaker from the Conservative Benches on this Motion. I do not know whether they have run out of speech-writers, of material or just of speech-makers. But I should have expected that we should have far more speakers from that side of the House.
§ LORD BYERS
I do not think so, because I see that we have on this side of the House a number of noble Lords who know a lot about racing matters.
§ LORD CONESFORD
My Lords, according to the list I have before me, there is more than one Conservative speaker, but I cannot detect more than one Liberal speaker.
§ LORD BYERS
I am grateful for that assurance from the noble Lord. The Liberal Party usually confines itself to one very pointed contribution, but from a Party which has something like 800 members, one would have expected a proportionate representation in a debate of this importance in your Lordships' House.
A sharp increase in prices is, unfortunately, nothing new in this country, whichever Party is in power. From the fourth quarter of 1963 to the fourth quarter of 1964 the total of retail prices, according to the National Institute's Economic Review, rose by 4 per cent. It now looks as though the effect of the Budget from the Party opposite, and other measures, is going to put up consumer and retail prices by more than 4 per cent. But what is worrying about this situation, as the noble Lord has said, is that the General Election Manifesto of the Labour Party specifically said that 1108 high priority would be given to checking the rise in the cost of living. But in fact their policy so far has had the opposite effect. The exact quotation, which I looked up, is rather an interesting one. The Manifesto said:The success of the national plan"—something we are going to get very soon, I believe—will turn not only on the new partnership between Government and industry,"—one wonders what sort of partnership this is going to be—but on the success of new and more relevant policies to check the persistent rise in prices. Labour will attack"—this problem—at its roots.It is to this I wish to turn my attention to-day.
The cost of living is a vital factor in all our plans, but it is a problem that has never been tackled with success by either Party since the war. Under the post-war Labour Government, the pound, worth 20s. in 1945, dropped to 14s. in 1951. Then the pound, worth 20s. in 1951, dropped, under the Conservatives, to 13s. by October, 1964. It is true that this was a longer period, but it was also longer after the post-war recovery and after devaluation. But, given the emphasis placed by the present Government, at the time of the Election, on the importance of reducing the cost of living, we are entitled to ask why so many of the Government's actions have had the opposite effect. Not only is the national plan dependent on checking the persistent rise in prices, but so are our pensions. All our welfare policies are effected by this; and, above all, a sensible incomes policy. And this is what is worrying so many of us on these Benches.
I think that it is fair to say to the Government that they should now genuinely give priority to reviewing the ways in which prices can be reduced, or at least held for a sufficient period to give an incomes policy some chance of success. As I say, we have not had much success so far. No one, surely, can blame people for demanding more salaries or wages if the purchasing power of the pound continues to diminish. If prices are rising at the rate of 4 per cent. per annum, it is not much use telling the wage-earner that the wage increase norm 1109 ought to be 3½ per cent. For at that rate he will never catch up.
I would make the following suggestions to the Government. First, they should examine immediately their own policies, from the point of view of reducing or holding prices. For instance, can any more be done now in the anti-monopoly field? If I might make a suggestion here, ought we not to have perhaps an authority which can eliminate any restrictive practices by management or unions that result in higher prices or in preventing the reduction of prices? Next, will the Prices and Incomes Commission be able to work quickly enough to make a real impact on the problem? I have grave doubts about this. But if that is so, ought we not to have more sub-committees? We had a statement from the noble and learned Lord the Lord Chancellor to-day, about the way he is tackling the law consolidation problem. Is it possible that we ought to have more people working on this subject and have better machinery for co-ordinating the small committees? This is the sort of problem with which we were faced in monopolies earlier and on restrictive practices.
Next, we want to make sure that the Board of Trade is prepared to make tariff cuts to prevent price increases and to improve competition. So far is has done just the opposite. We have had the imports surcharge, which has been a gift to the inefficient company. I can see the dilemma in regard to the balance-of-payments situation, but this must he weighed up on balance to see whether we are not losing more than we are gaining. Again, in this frustrating circle of events, wage increases unconnected with productivity put prices up, so that more wages arc demanded because the cost of living has increased. What are the Government going to do about this in their own sphere? I do not suggest, as the noble Lord, Lord Erroll of Hale, seemed to suggest, that there should not have been some increases in the wages and salaries in Government Departments. But I am worried as to whether or not there was an assessment of the increased productivity likely to occur when the Post Office workers were given this large increase, which, coming from the Government, under the direction of a Cabinet Minister, must have set a serious precedent indeed in weakening the structure of the 1110 incomes policy. Can we be told a little more about what was done? Was there a productivity bargain here? What is the exact increase? How much more is it than the 3½ per cent. norm?
I think that the same can be said about the railways, because here increased efficiency and increased productivity could be obtained in return for higher wages. I am glad to see that in this connection a productivity bargain is being extended once again. We have had it at Fawley; I believe British Oxygen are doing it, and now there is a report that I.C.I. are taking it up. It seems to me that here the Government have an opportunity to create a series of teams from management and trade unions, and particularly the trade unions, to go round the country explaining to the not so progressive managements and unions how to tackle this; what to get out of it; and how to set about bargaining for productivity. I hope that something will be done in this respect.
I do not accept the implication from the previous speaker that greater efficiency cannot result in lower prices. Marks and Spencer have shown a remarkable example of what can be done by planning, efficiency and productivity. I believe that in this productivity bargaining the one thing we must remember is that not all the benefit of productivity increases should go to the wage earners. Something has to be left over for the so-called non-productive workers, some of whom are doing a most important job; and something has to be left over to reduce prices as well. It is this sort of incomes policy which I think has a chance to succeed, because it is expansionist and not restrictive. Therefore, I hope the Government will turn their minds in this direction; I am sure that here is great scope for improvement.
I now want to refer to other forms of increased productivity which could result in lower costs and prices. As I mentioned last week, I believe that one of the obvious fields to be explored here is that of roads and major installations, like the docks. We suffer in this country from being an island. The cost of crossing to Europe is an additional cost which countries with land frontiers do not have to incur. It is all the more important, therefore, for us to ensure that internal 1111 transport costs in this country are kept as low as possible. There is ample evidence of the costs of congestion on our roads. In 1957 Sir William Glanville estimated these at something like £500 million a year. This is a heavy burden, and it is largely a burden on industry. If we could get a really efficient and effective motorway network, with proper feeder routes coming into the motorways, we could, I believe, get a considerable reduction in costs and prices. I would suggest, once again, that the Government should consider the possibility of improving the roads by way of an independent road corporation, such a corporation having the right to raise money from the public and being able to service loans from tolls levied on motorways. This proposal has been advocated from these Benches since 1910, and there is no reason why it should not have matured by now. The net result should be a reduction in costs all round.
Finally, I would suggest to the Government that they might consider whether, against all this background of prices, cost of living and incomes policy, it might not be better to think and talk, not so much in terms of percentages. but in terms of hard cash. I do not know whether it is possible. It is quite clear that few people really appreciate what is meant by 3½ per cent. as the norm or "guiding light". If the total of personal incomes before tax—that is to say, salaries and wages—as given in the Economic Report on 1964 of £17,550 million is right, then what we have to distribute in a year in the way of increased salaries and wages is, if my arithmetic is correct, about £614 million. But that is not an awful lot. I do not know what the wage demands in the pipe-line at the moment amount to, but these would have to be added in the next year to those that have already been satisfied. I am willing to prophesy that we must have exceeded £614 million by the middle of this year—that is, by to-day. The Institute of Economic Affairs has estimated, I believe, that wages and salaries in 1965 will increase not by £614 million, but by over £1,363 million: in other words, by a 7 per cent. increase, instead of 3½ per cent. It must be clear, if these figures are anywhere near right, that somebody has to hold back.
1112 This is where I believe the T.U.C. must accept some responsibility. They have far more authority over their members than any other section of the community. We have got back again to the inflationary vicious circle which can be broken only by the Government's getting their priorities right and concentrating on holding, or reducing, the cost of living in order to give the incomes policy a chance. If we are not careful, either we are going to have runaway inflation again, or we shall find that what we can afford is scooped up by the strong unions—the "me firsters", getting there first—and there is going to be nothing left over for the deserving cases coming later in the queue. I think that if we can put this over to the people in terms of cash, rather than as 3½ per cent. or 4 per cent., it becomes much more dramatic and understandable. We from these Benches wish the Government well, because nobody since the war has solved this problem.
§ 3.30 p.m.
§ THE MINISTER WITHOUT PORTFOLIO (LORD CHAMPION)
My Lords, I must start by thanking the noble Lord, Lord Erroll of Hale, for initiating this debate. It is courteous to start in that way, even if it has completely occupied me for a week-end when otherwise I might have been in the garden, or even at another place on this Derby Day—but that is rather unlikely.
We are welcoming to the debate today two maiden speakers. One of them, the noble Lord, Lord Killearn, I do not know. He follows a father who was tremendously respected in this House, and who made forceful contributions on the matters in which he was particularly interested. I notice that the noble Lord follows his father in physical stature, and I hope that he will achieve the same success as did his father before him. The noble Lord, Lord Hilton of Upton, is an old personal friend. He was a colleague of mine in another place, and we have also been interested together in the agricultural field. He has followed me as a director on the British Sugar Corporation. I wish him well in that. I wish both the maiden speakers to-day well in their maiden efforts.
The noble Lord, Lord Erroll of Hale, has invited us by his Motion to discuss 1113 in isolation certain price rises attributable to Government action, though he strayed into a much wider field in what I am bound to regard as a thoroughly unhelpful and unfair speech. This was very much in contrast with the speech of the noble Lord, Lord Byers. He was balanced, as always, although he did lay about him and gave both sides a considerable amount of "stick"—
§ LORD CHAMPION
—in his neutrality of which he boasts. I suppose it is one of the advantages of neutrality that one can do this sort of thing. I am bound to say that the noble Lord also made a number of suggestions which deserve, and I promise him will receive, consideration by the Government. I suppose that is the purpose of a debate of this sort—not only that we shall be "bashing" one another, but also that there will emerge from it considerations that will be helpful in the national interest; and I thank the noble Lord for his speech.
The fact is that the problem that be-devilled most of the first half of this century was that of matching purchasing power to production capacities. In that period, and especially in the inter-war years, the problem was not solved, and the result was deflation and massive unemployment. The problem that is be-devilling the second half of the century is that of ensuring that production matches up to the distributed purchasing power. Our failure so far to solve that problem results, by and large, in a scarcity of labour, in inflation, and a chronically weak balance of payments.
An article in the London and Cambridge Economic Bulletin tells us thatThe total output of goods and services per head of the population has risen by some 25 per cent. in ten years, which is not as fast as in many European countries. … On the other hand, prices have risen every year, with an aggregate increase of 35 per cent. to 40 per cent. for the decade.The article concludes the paragraph with these words of warning:This rise does not, of course, take away from the reality of the increase in production, and its effect on the distribution of real purchasing power has been largely negatived by induced changes in monetary incomes; but it has weakened our competitive power in world markets, to the extent that corresponding rises have not taken place in other countries.1114 What the figures given in that article make doubly clear is the fact that had the country improved upon its annual increase in productivity by a not impossible amount, inflation over that period would have been avoided. A little extra effort by all concerned—and I include all the factors in production here, management as well as trade unions, those responsible for the services as well as those responsible for the production of goods—over that period would have enabled us to avoid the position that we find ourselves in to-day. The present position is that our economy is operating at or near full capacity, which is leading inevitably to a heavy inflationary pressure.
What does this mean for us? Surely not that we dare contemplate deflation and its concomitant of massive unemployment leading to a halt, or even a check, in our growth rate, but rather that a new degree of skill is going to be required in managing our economy so as to secure a high growth rate, while keeping prices and costs in check. It is to this task of improving our techniques of economic management that the Government have set their hand. If we fail in our productivity, prices and incomes policy, what will remain will be either the old remedy of deflation and high unemployment and a faltering in our growth rate, or continued inflation which will surely completely price us out of the world's markets. We shall be back to square one.
The policy that we are attempting to put into operation demands a high degree of restraint by the unions—and this has been rightly stressed by both the noble Lord, Lord Erroll of Hale, and the noble Lord, Lord Byers—and we agree completely that it will demand a high degree of restraint by the unions. But it will also demand a pricing disciplined by manufacturers and others—one which is not imposed by the markets in an inflationary situation. The markets do not provide that, and despite all that I have said—and I praise the effect and the wisdom of the last Government in introducing their Act which has to some extent cut out resale price maintenance—we still do not have a sufficiency of competitiveness in our pricing arrangements and selling arrangements.
What we are asking will also inevitably mean painful adjustments by everybody 1115 concerned to the new technologies. It is going to be difficult for managements, for trade unions and for everybody involved to adjust themselves to these new ideas which, we hope, will be increasingly accepted. But they must be accepted if this country is to be saved from some of the difficulties that I pointed out at the beginning of my speech. All these policies must be linked into one indivisible whole, and if the Government had not made clear their determination to consider them together the trade unions and employers could not reasonably have been expected to lend their support in the way in which they have already done. To have got so far as the signing of the Joint Statement of Intent is an excellent start.
But, my Lords, the real test is yet to come. The whole business of perfecting the techniques of economic management and securing their acceptance in a free society is bound to be a long, long haul. It is not a matter which can be solved in six months of a new Government; it is going to be a long job. But we have got to try it. If we do not succeed, the difficulties this country will face will be enormous. I have been a trade unionist since the age of fifteen, and I know the difficulties facing us. Something more than exhortation is necessary. To yell, "We're pricing ourselves out of the world's markets" is just about as effective as was the cry of "Wolf!" after the first couple of times that cry was used. To create a climate in which we can reasonably expect the co-operation of the trade unions, there must clearly be a guarantee of the Government's determination to make prices and incomes policy work, a removal of the fears that make workers reluctant to accept the consequences of economic change, and a removal of the fears that make them anxious to cling to the restrictive practices for which there is no good justification. But, nevertheless, I know that these fears still exist among the men with whom I worked for so many years.
It is not only in the interests of social justice that we have policies for legislation to provide reasonable compensation for workers who become redundant; for wage-related unemployment benefits; improved transfer allowances for workers who have to work away from home, and 1116 a consideration of the wider tranferability of occupational pension schemes. These are designed also to encourage labour mobility and the acceptance of economic changes.
The noble Lord, Lord Byers, said in a striking speech last Wednesday that we have a greater influence with the trade unions than the previous Administration had. He said it again this afternoon. I think that is right. That does not mean that our policies will be easily or automatically accepted. We have to show that this is the right thing, and we have to go on showing that it is the right thing. We have to do what the noble Lord, Lord Citrine, said here last week: we have to educate not only those at the top to the acceptance of this policy but also the man on the shop floor, who is always pressing the man above him to do a little more than has been done up to this time. I know these pressures; I have experienced them in the past. But the noble Lord, Lord Byers, also said last week that we probably could not have as much influence with the business side of the community. This is probably true; but by our policies and actions we must clearly show that for managements and undertakings which help to create a virile economy there will be fair, even generous, rewards.
My Lords, I have said that these policies will take a considerable time to show a real effect, but in the meantime, until the Government's policies win general acceptance within industry and the trade unions and begin to take effect, we have to use such tools as are ready to hand. Many of these tools have not yet been fashioned: they cannot have been in this short time. They have not been accepted. This means, in the short term, using fiscal and monetary policies to stimulate growth whenever economic circumstances permit, and also using fiscal and monetary policies to take excessive pressure out of the economy when this is obviously necessary. As I said at the outset, at present the economy is under excessive pressure, and the Exchequer rightly decided to decrease the pressure on our resources through a strict review of public expenditure and higher taxation, by £250 million.
1117 The noble Lord, Lord Erroll of Hale, mentioned price rises in the nationalised industries. In spite of all that has been said and written on the subject of the nationalised industries, there often still seems to be a failure to grasp the basic fact that the prices charged by those industries have to get over some pretty stiff hurdles before the final decision is taken to raise the prices of their products and services. The noble Lord knows this perfectly well. He was a member of a Government which had to help to take decisions on these matters in the past, when price rises were made by the nationalised industries, but I will not waste the time of the House in describing them here. If anyone is interested he will find the whole process described in the speech of my right honourable friend the First Secretary in the other place on May 11.
In practice, pricing decisions of the nationalised industries are infinitely more constrained than those of private industry. Even so, the Government have not ruled out the possibility of referring a price increase by a nationalised industry for investigation by the National Board for Prices and Incomes. Although there has been no action as yet to refer to the Board any of the increases in prices by the nationalised industries which have taken place in recent months, the inquiry by the Board into road haulage rates will inevitably extend to British Road Services. I am bound to say here, my Lords, that it is something of a pity that increases in prices which take place in private industry do not have to surmount the same obstacles and hurdles as they do in the nationalised industries. It would be a good thing for this country if in fact they had to do so. I am hoping that, by a further extension of the National Board for Prices and Incomes, and perhaps a greater number of sub-committees, more private industry will in fact find itself having to justify its increases before the Prices and Incomes Board.
Turning to the recent price developments, I would say that between mid-October and mid-April the retail price index rose by 3.8 per cent. Something like two-fifths of the increase represents the direct effect on the index of the November and April Budgets. Another part, about one third of a point, represents the increase for 1965–66 in local authority rates. For the rest, the increase has been a fairly normal mixture of 1118 seasonal changes and increases reflecting the persistent underlying upward pressure of wage costs, which still persists, as both noble Lords have pointed out. Import prices have not changed a great deal. The underlying trend of rising wage costs is a legacy which is bound to continue until the Government's policy on prices and incomes begins to take effect.
As for the part reflecting higher indirect taxes, the short answer is that, given the need to contain the pressure of demand on the economy, the choice lay between yet another rise in direct taxation on top of the increase of 6d. on income tax in November of last year, and an increase in indirect taxation. In the field of indirect taxes the choice was between a tax on drink and tobacco or purchase tax. In his consideration of this field the Chancellor of the Exchequer came down on the side of drink and tobacco. I have seen it argued that it would have been preferable to put the indirect taxes on luxuries by means of purchase tax increases. But what are the luxuries upon which the Chancellor could increase purchase tax? Upon cars? That seems to be the most obvious one; but the car owners are already being hit to the tune of £2 10s. 0d. a year on the vehicle Excise duty, and although the Chancellor must have considered raising purchase tax on cars he, wisely I think, decided that this important export industry can best be maintained by having a good home sales base.
We recognise that increases in indirect taxation add to the cost of living and aggravate wage claims, but we also know that direct taxation reduces the amount of "take-home" money in the wage packet and also leads to wage claims. The choice as between drink and tobacco rather than purchase tax or direct taxation was a difficult one, but the Government felt, on balance, that it was putting the tax where it could best be borne. In taking their decision the Government recognised, as the First Secretary told the other place on May 11:… that the consequential increase in the cost of living can aggravate wage demands and make more difficult the prices and incomes policy, but that has to be balanced against the other risks to economic stability. On that balance we decided to face the 1119 problem and explain why."—[OFFICIAL REPORT, Commons, Vol. 712 (No. 112), col. 302, May 11, 1965.]Despite the challenge of the noble Lord, Lord Erroll of Hale, I am not this afternoon, going back in any detail, over the years of Tory administration, for if I did I should be challenging the noble Lord to justify the continuous rise of the Retail Price Index when import prices were actually falling, when the terms of trade were to our advantage. Yet the prices still continued to go up; they went up during and over the whole period. In the years 1957–62 the index of import prices fell from 111 to 99, but during those same years the Index of Retail Prices went up by some 13.2 per cent. I must mention, too, the fact that the April Budget of last year, the Tory Budget imposed increased tobacco, wine and spirits duties, calculated to add slightly under one whole point to the Retail Price Index. Did the noble Lord, Lord Erroll of Hale, from his position in the Board of Trade, protest against this, that it might force wages up? If he did, certainly nothing ever leaked outside. I never heard of him making any such protest, although perhaps it would not have come to me.
The November Budget's increase on motor fuel added 0.2 of a point, and the increases in indirect taxation of the April Budget a further 1.4, whilst the February abolition of prescription charges reduced the index by between 0.1 and 0.2 of a point. The noble Lord, Lord Erroll of Hale mentioned that there has been an increase in postal charges which will bear hardly in individual cases, but it is not expected that these increases, which came into effect on May 17, will add more than 0.07 of a point to the Index.
The White Paper on Post Office Prospects, 1965–66 sets out clearly the reason for the increases, in these words:At current tariffs, postal services are likely to fall short of an 8 per cent return during the first three years of the target period by more than £60 million.It goes on to point out that at the tariffs operating before May 17 the estimated shortfall for 1965–66 was £32 million, and it explains this at the beginning of paragraph 7 when it says:The reason for this increasingly unsatisfactory performance lies partly in the pricing decisions taken in the past few years and partly in the character of the resources employed.1120 Who was responsible for the pricing decisions taken in the past few years? Who was responsible for the pricing decisions which would have led to the shortfall by £32 million of the figure, the 8 per cent., set out in Command 1337? I agreed with Command 1337 and its policy for the nationalised industries. But it was no good the Government producing a White Paper of this sort and setting out a policy unless their pricing decisions made that 8 per cent. possible. These things must follow. If you set out a policy you must enable the industries to follow that policy.
The increased postal charges led on inevitably to a consideration of wage and hour settlements in the Civil Service, to which the noble Lord, Lord Erroll of Hale, quite rightly referred. I have carefully examined the list of wage and hour settlements where the numbers involved exceed 50,000, and find, as the noble Lord pointed out, that they involve percentage increases ranging from 5 to 13.2 per cent. With the sole exception of what are called "Government industrials" all of the claims leading to those settlements were in the pipe-line before the Government took office.
The question is bound to arise here—and it has been posed this afternoon by the noble Lord, Lord Byers—how can the Government hope to secure a wages policy which has a close relationship to the nation's production when they themselves grant such increases? A fair question, my Lords, and certainly not an easy one to answer, especially as there are always claims in the pipe-line. My right honourable friend the First Secretary said recently:We do not intend to put the policy and its principles in abeyance until all existing claims in the pipe-line have been settled. Nor will we be foolish enough to try to impose a wage freeze. The policy will work unevenly at first and the effects will show themselves gradually.The problem here is that of finding the point at which we can break into the wages-prices cycle. The Tory Government tried to intervene at the Government employee level, and the result was injustice to the nurses, injustice to the teachers and injustice to the weaker groups in the Civil Service. They had to suffer some of the consequences. The Government stepped in at the wrong point 1121 in the wages-prices cycle. Before becoming a Minister in October last, I was for 3½ years a director of an undertaking in which wages and conditions followed other industries rather than led them. Time after time in that short period we were faced with the dilemma of exceeding the recommended Government figure for wages and conditions increases or losing valuable employees attracted by better wages elsewhere. This was because other industries had exceeded the recommended figure by considerable amounts.
This is the problem of the Civil Service and all the other services and industries which follow, not lead, in the matter of wage increases. The difficulty here is how are we to break into this cycle of private industry leapfrogging in order to hold or attract employees, and its accompaniment of the public services just having to follow to catch up with the relative position which their employees previously occupied. If we cannot break into that cycle at some point, the disaster of a worsening balance-of-trade position, through pricing ourselves out of the world's markets, will inevitably fall upon us.
Much of this speech seems to have been directed towards my friends in the trade unions, but they have the remedy only partly in their hands. In an inflationary situation, a situation in which there is not pretty fierce price competition, there is always the tendency for manufacturers, wholesalers and retailers to put up prices with every increase in costs, no matter how small. Moreover, there is always the temptation to add that little bit over and above the increased costs; and particularly, it seems to me, is this the case where increased costs have been due to Government action. This temptation must be resisted if we are to call a halt to the wages-prices spiral. In the national interest, not only must every effort be made to absorb increases in costs through greater efficiency, but also price reductions ought to follow where increases in productivity make such reductions possible, for only in that way can the consumer share in the fruits of the improvements in productivity.
It is not only in prices and wages increases that we ought to be careful at this minute. I find some of the recent 1122 dividend increases pretty disturbing. According to the Financial Times, dividends in the last quarter of 1964 were 17.7 per cent. higher than a year earlier, and in the first quarter of this year 18.8 per cent. higher. I do not propose to go through the list of companies which have raised their dividend distribution, but these distributions are well above what the Government feel ought to be distributed in the way of higher incomes.
§ LORD BYERS
My Lords, will the noble Lord allow me to interrupt him? Is this really a fruitful line of attack? It is the Tribune line. Is it not one of the objects of the capital gains tax, which we support, to take something away from the shareholder? And that must be borne in mind when the noble Lord is talking about 17 per cent. increases.
§ LORD CHAMPION
Yes, my Lords; I am bearing that in mind. Nevertheless, taking that into consideration, some of these are rather startling increases, and they ought to be carefully considered by the companies that make them, having regard to the national interest and the effect of creating a climate of opinion which will make it even more difficult for the trade unions to restrain their demands. This is the problem, and it is one that I am sure is recognised by the noble Lord. I thought it wise to call attention to this, having regard to the fact that this is all part of the position as we see it, and some of the difficulties which we are in.
§ LORD BYERS
My Lords, would the noble Lord not take this point? If this is a psychological problem he ought to give proper balance to the fact that the capital gains tax has now been accepted, at a very high rate.
§ LORD CHAMPION
Yes, my Lords; I was going to mention the capital gains tax as part of this consideration, and, indeed, a part of the preparation for the climate of opinion necessary for the acceptance of a wages-incomes policy. I hope that the House, and particularly my noble friends, will forgive me if this has not been a particularly lively or partisan speech. What I have been trying to do is to state the problem and emphasise some of its aspects, in the hope that my words will add a little to the education of all concerned. This is not a Party matter; it is a matter for the nation as 1123 a whole—the unions, the men on the shop floor, businessmen and management alike; for we are all in it together. The whole future of this country depends on the solution of the problem of productivity, prices and incomes, and unless we solve it the future looks pretty dim.