THE PRICES AND INCOMES POLICY

HL Deb 03 August 1966 vol 276 cc1316-28

3.15 p.m.

LORD SHEPHERD rose to move, That this House takes note of the Prices and Incomes policy of Her Majesty's Government. The noble Lord said: My Lords, the House has before it a White Paper giving the contents of a Prices and Incomes Bill, and it contains the latest Amendments that the Government have in mind which were tabled last Friday. It was the hope that by having this debate this afternoon, we might when we receive the Bill from another place, be able to take the First and Second Readings formally, and then go into Committee. Therefore, the House might like to know what arrangements have been made to enable noble Lords, if they so wish, to put down Amendments for the Committee stage. The Table will be willing to receive Amendments against the White Paper and, just before the Committee Stage the necessary alterations to the Amendments will be made to bring them into line with the Bill. If noble Lords co-operate and put their Amendments in fairly early, it will give the House an opportunity to appreciate what will arise on Committee stage.

Last night, after the Committee stage of the Industrial Development Bill, I had to get down to prepare this speech and I tried to find a theme. My mind went back to a debate that took place in your Lordships' House on July 27, 1961, on the Motion of the Leader of the House at that time, the noble Viscount, Lord Hailsham, or, as he is now known the Right Honourable Quintin Hogg. I have read that debate with considerable fascination. Taking part were the giants of yesterday. From the Bench opposite we had the noble Lord, Lord Pethick-Lawrence, in his 90th year, making one of the fascinating speeches on the economic situation. The noble Lord, Lord Morrison of Lambeth, and the noble Earl, Lord Alexander of Hillsborough spoke. Also taking part was the noble Lord, Lord Brand, to whose speech I will refer later.

As I say, the occasion of the debate was the Motion of the then Leader of the House. The noble Lord, Lord Sand-ford, in a political point on a non-controversial Private Member's Bill, has given me the opening to make the one political point that I intended to make in this debate. I intend to do so, in view of the comments that were made on the economic debate, and no doubt will be made by noble Lords opposite. The debate to which I have referred took place a few days after the Finance Bill of 1961 had passed through your Lordships' House. Perhaps I might refresh your Lordships' memories by saying that the Budget of that year gave £83 million to the surtax payers. But it was a year in which our current deficit was £340 million, and our current and capital account deficit was £550 million. It was in a year in which incomes had increased by £1,450 million as opposed to a growth in our national production of £650 million—an excess of £800 million. We then had the July mini-Budget in which indirect taxes were increased by £210 million; the bank rate was increased by 2 per cent. to 7 per cent.; credit restrictions were tightened and Government expenditure cut.

That was the background to the Motion which was moved by the then Leader of the House. If I may, I will remind your Lordships of the terms of that Motion. It was, of course, a Motion which was passed by your Lordships' House. It was in these terms: That this House endorses the policy of Her Majesty's Government as outlined by the Chancellor of the Exchequer on July 25 for the purposes of upholding the strength of sterling, improving the balance of payments, and maintaining a sound basis for the continuing prosperity of the nation. Three years later, in 1964, having stimulated the economy in the April Budget of 1963, we found that there were increased pressures on wages, profits and dividends, and, as the House will know, there was a monstrous deficit of £756 million. I felt that the House should be reminded of the circumstances, and perhaps the noble Lord, Lord Erroll of Hale, will feel some gain by it, since he is leading today from the Bench opposite, and was at that time a very distinguished President of the Board of Trade.

The speech to which I want to refer is that of the noble Lord, Lord Brand, who quoted a Report of the O.E.E.C., one of the contributors to which was one of our new colleagues, the noble Lord, Lord Kahn. I should like to repeat that quotation, for I believe it has special significance today. It was that the Government must have a wages policy for dealing with the problem of wages just as they must have monetary or fiscal policies for dealing with the problem of demand. We are fully aware that to do so requires a decision at the highest political level and a political understanding of the need for it."—[OFFICIAL REPORT, Vol. 233, c. 1117; 27/7/61.] One of the first things we did when we took office in 1964 was to seek to create an incomes policy. We recognised that, if we were to ask one section of the community to accept restraint, we should seek to see that similar restraints were applied throughout the nation. We felt that this was the only way in which we could get a prices and incomes policy. We set out to negotiate an agreement with the employers and the trade unions, but we did a great deal more. Ministers and industrial advisers at the Department of Economic Affairs, went the length and breadth of the country speaking at factory meetings, directors' meetings, and the like, trying to impress upon all not only that an incomes policy was vital and necessary to the nation, but that the vital interests of the workers were at stake.

I well remember the great debates that took place during 1965 at trade union conferences, and in particular at the Labour Party Conference at Blackpool. There the decisions were debated, and agonising decisions were taken; and it we are to be criticised, at least we can say that we as a Government faced our friends in this very difficult situation, that we demanded a vote, and that we got a majority. Do not let us underestimate the agony of decision of many of those who supported the Government view. At these meetings we said that price stability was as important as wage increases; that it was not possible to achieve price stability without a positive policy on incomes and productivity; and that it was not enough to rely on raising productivity or encouraging competition to keep prices down. The faster increase of productivity did not in itself prevent money incomes outstripping the rise in real output. This has been the experience of many countries. We also had to tell our workers, particularly those in the higher-productivity industries, that at the present stage they were not to demand their pound of flesh; that we needed a period of restraint so that the lower paid workers could catch up. We made it quite clear that, if we are to have an economy with the minimum of unemployment, there is no alternative to a policy seeking to influence directly the attitude and behaviour of those concerned with determining prices and incomes.

We reached an agreement on prices and incomes in three stages. The first stage was to agree with management and unions on our objectives. The Joint Statement of Intent on Productivity, Prices and Incomes, signed in December, 1964, set out the general objectives of the policy. Noble Lords will bear in mind that that was achieved within two months of our taking office. This, we can claim, was an achievement. The second stage was to agree on the machinery needed to achieve this policy. After discussion with "Neddy", an agreement was reached in February, 1965, and the results were set out in White Paper, Command 2577: first, that "Neddy" was to make regular reviews of prices and all money incomes; and, secondly, that a National Board for Prices and Incomes was to be set up to investigate individual cases. The third stage was to agree on the general criteria which in the national interest should guide everyone concerned with determining prices and incomes, and also the National Board for Prices and Incomes in investigating individual cases.

We reached agreement on criteria in April, 1965. These were set out in a White Paper, Command 2639. That Paper states that firms should never raise their prices except in certain defined circumstances. It also describes the circumstances in which they should be reduced. In terms of incomes, increases above the agreed norm are to be confined to cases where exceptional treatment can be shown to be justified on the grounds of direct contribution to the growth of productivity, better manpower distribution, unreasonable living standards and widely recognised anomalies. It follows that these increases should be balanced by some increases being smaller than the norm. The policy is not a short-term expedient, but a long-term voluntary policy to raise efficiency so as to keep incomes in step with output and to stabilise prices. We do not intend to displace the existing collective bargaining machinery, but it should be against the background of a policy agreed nationally with the T.U.C. and management.

The Government announced in September, 1965, that measures had to be taken to make the policy more effective if the targets in the National Plan were to be hit. One was to be a voluntary early warning system for prices and pay which would give the Government an opportunity to consider pay claims and agreements and proposed price increases before they were put into effect. The other measures the Government announced were to be embodied in legislation: first, to give the National Board for Prices and Incomes statutory power to collect all the information necessary: and, secondly, to give the Government power to require advance notification of pay claims and agreements and proposed price increases and, in appropriate cases. to require the proposed price or pay increase to be deferred pending examination by the National Board for Prices and Incomes. This power will be used only if need be; for instance, if the voluntary agreements should not work well enough,

The C.B.I. and T.U.C. have since been co-operating with the Government in a voluntary early warning arrangement; the T.U.C. is developing its own early warning system as well. Under this affiliated unions inform the General Council of all impending claims, and important claims can come before a special committee. The policy is undoubtedly having an impact; it has unquestionably had a restraining effect on the trend of prices. It was not expected that the policy could have much effect on the level of pay settlements in 1965–1966 because of the extensive forward commitments negotiated before the policy was inaugurated. But the eighteen Reports which the National Board for Prices and Incomes has so far contributed, showing how the White Paper criteria can be put into practice, have been generally welcomed. The policy has won a large measure of public approval while, to the best of my knowledge, in spite of much vocal criticism, no alternative solution has been put before us. But both prices and incomes are still rising faster than they should, and this is only perpetuating our old difficulties. There is no reason for going back on the Government's announcement of legislation to put new drive into the policy, and to impress a greater sense of urgency on all concerned.

The proposed Bill consists of three main Parts, and I will deal with them briefly. Part I of the White Paper is designed to reconstitute the National Board for Prices and Incomes, which is at present established as a Royal Commission, on a statutory basis. There are two reasons why this is desirable. First, the National Board for Incomes and Prices was set up, in agreement with both sides of industry, as a permanent institution, comparable with the Monopolies Commission, whereas a Royal Commission is really more appropriate to a body appointed for a limited period. Secondly, at present the Board has no legal power to call witnesses or to require them to give evidence. In practice, this has not been a great problem, since all but one of the various organisations concerned have been willing to co-operate with the Board on a voluntary basis. But in view of the importance of the Board's work in the future, it would be unfair to the rest of the community if any un-co-operative body were to hinder its proceedings. This Part of the White Paper would come into operation with the passing of the Bill.

I now turn to Part II dealing with the "early warning" system. This Part would give the Government reserve powers—and I would stress "reserve powers"—to require "early warning" of proposed increases of prices and charges, including fees, and of pay awards and settlements, thirty days before they were due to take effect. This "early warning" of proposals to increase prices or pay is an essential feature of the policy. It will usually be important to make a reference, if one is to be made, before the increase is put into effect—hence the need for advance notification—and it would be unsatisfactory for everyone concerned if the decision whether or not to make a reference were made in undue haste or without full knowledge of the facts.

Part II would also enable the Government to require that a price or charge referred to the Board should not be increased before the Board had reported; and that, similarly, a pay award or settlement should not be implemented while it was before the Board. The maximum length of any such temporary standstill would be three months under Clause 19, but it could be shorter if the Board were to report early. The idea of a temporary standstill is essential if the policy is to be effective. The policy would be seriously undermined if increases in prices or pay were to go ahead while they were under examination by the Board, so that its Report was nothing more than a post-mortem. No one wants the standstill to be a day longer than it need be, but it must be long enough to let the Board play its part effectively.

Part II would also enable the Government to require notification of increases in dividends and other types of company distributions. Such notifications would have to be made within seven days of the directors' decision, since to require them in advance would conflict with the precautions which are taken to prevent privileged advance information about dividend proposals being dishonestly used for personal gain. This is a new requirement. Notification of dividend proposals is a great help to the Government in deciding whether particular industries need careful watching, or whether there is need of a reference to the Board. It is also a reminder to those proposing dividend increases that they should take the national interest, and the White Paper criteria, into account.

Part II would also enable the Government to require notification of claims for increased pay or other improvements. "Early warning" and temporary standstills cannot be applied to claims, because that would mean prohibiting negotiations and preventing free collective bargaining. That is something which the Government have consistently refused to do. There is nothing in the Bill, or in the White Paper, which prevents claims being made, which in any way impedes free negotiations, or detracts from trade union activities in representing their members. The most that could happen if Part II were ever brought into force would be that there might be a limited delay before awards or settlements could be implemented, or prices or charges increased.

Part II of the White Paper is quite different in character from Part I. Part I will come into effect as soon as the Bill receives the Royal Assent, and will remain permanently in force. Part II, however, will remain inoperative after the Royal Assent, unless an Order in Council is made and approved by both Houses of Parliament. Even then, separate detailed Orders would need to be made, applying the provisions of Part II to any particular range of prices or pay. This means that when the Bill has become law, two further stages must be gone through, and there will, of course, be full opportunity for Parliamentary debate.

May I draw the attention of the House to three further features of this Part of the White Paper? Clause 6 lays down that, before any steps are taken to bring the provisions of Part II into force, the Government are to consult representative bodies on both sides of industry. That should be stressed. This is yet another safeguard against the Government of the day moving too hastily and without a substantial measure of public consent. If Part II were brought into force, its provisions would lapse unless Parliament renewed them at intervals of not more than one year. Thirdly, the provisions of Part II can be brought into force for pay only, or prices only, or both together.

It needs to be emphasised that once the Board had reported on a case referred to it, or once the "early warning" period had elapsed, the parties concerned would be free to act on their own judgment. There would be no greater compulsion on them than exists to-day to act in accordance with the Board's findings or with the wishes expressed by the Government. In other words, this is not a Bill for the statutory control, either of pay or of prices. There is nothing in the Bill which interferes with the essential voluntary principle on which the prices and incomes policy has been developed.

One feature of the Bill which may cause anxiety is the provisions in regard to fines. But it is an inescapable fact that, if Parliament creates legal obligations, it must provide penalties for those who break the law. The Bill includes a number of safeguards, and the House should be well aware of them. For instance, Clause 22(1) provides that no proceedings for an offence under Part II of the Bill may be instituted in England and Wales without the consent of the Attorney General. Secondly, Clause 16(4), which makes it an offence for workers or their representatives to try to induce an employer to break a temporary standstill on pay, provides them with express protection against liability for conspiracy which might otherwise arise, and against which the trade union Acts give no protection. Indeed, the chance of a situation arising in practice involving the possibility of prosecutions under this Bill is, we believe, remote. But we feel that these provisions need to be made. I would stress that there is no dictatorial power in that Part of the Bill. We are determined so long as possible to proceed on a voluntary basis.

My Lords, before turning to Part IV of the White Paper, I think I should say this. Through no lack of effort by my right honourable friend the Prime Minister, the Chief Secretary or the Chancellor of the Exchequer, incomes outstripped output during 1966, and this has created severe internal pressures on demand. Therefore, actions admittedly very radical for peace time have had to be considered. If I may say so, they are as repugnant to us, in our having to ask the House to accept them, as they are to those upon whom they may bear. Last week the noble Lord, Lord Carrington, I thought recognised the Government's desire for an early passage of this Bill, but he wanted to know why it was that this Bill, which was introduced some nine months ago, now needed such a rapid passage. There was a General Election, although it is true that there was a period between the result of that Election and the introduction of this Bill. But I have stressed the voluntary nature of this legislation, and a major factor of voluntary arrangements is that there should be the greatest possible consultation between the parties concerned.

Most of us can remember the failure and the bitterness of the pay-pause of Mr. Selwyn Lloyd, mainly due, not so much to the circumstances but to the manner in which it was imposed. We felt that it was right to take time to consult all the interested parties. But the circumstances have now changed, and action clearly needs to be taken. We have issued this White Paper, and we now have an opportunity to discuss it. May I say from the Government Bench that if we were to receive any representations through the usual channels for further discussion on this White Paper between now and when the Bill should come from the House of Commons, we should be very ready to assist in providing time? The Government recognise that the House should have sufficient time to consider this important legislation.

Now I come to Part IV of the Bill. This contains the amendments which were promised by the Prime Minister when he made his Statement on July 20. My right honourable friend said: Within the main field of collective bargaining we shall rely in the first instance on voluntary action. Nevertheless, in order to ensure that the selfish do not benefit at the expense of those who co-operate, it is our intention to strengthen the provisions of the Prices and Incomes Bill … Meanwhile the Government will not hesitate to act within the powers they enjoy, or may further seek, to deal with any actions involving increases outside and beyond this policy."—[OFFICIAL REPORT, Commons, Vol. 732 (No. 58), col. 636; 20/7/66.]

There are three points to make about Part IV right from the start. Part IV is designed to give statutory support to the prices and incomes standstill (described in the White Paper, Cmnd. 3073) if the need should arise—and, my Lords, I would stress those words, "if the need should arise". Like Part II, it is permissive and not mandatory. It seeks to enable the Government to enforce the standstill in any sector, industry or firm which threatens to break it; or to reduce a price or income which has been increased in defiance of the standstill call. It does not impose—and this I stress—a statutory standstill in cases where voluntary co-operation is forthcoming. Part IV would be brought into operation, if necessary, by an Order in Council subject to affirmative confirmation by both Houses of Parliament within 28 calendar days. Provision for this has been made in Clause 25. Part IV is strictly temporary: the new Clause25 limits it to one year from the passing of the Bill, and there is no provision for renewal. If the Government should feel that Part IV can be dispensed with earlier, there is power to discontinue it at any time.

The Prime Minister stressed in his Statement that the Government believe that voluntary co-operation is the best way of making the incomes and prices standstill work, and, if I may, I will repeat his words: It is not our intention to introduce elaborate statutory controls over incomes and prices. This is a situation in which the Government look with confidence to everyone concerned with these matters to act in accordance with the public interest … Within the main field of collective bargaining we shall rely in the first instance on voluntary action. My Lords, the Government do not believe that legal action should be taken to enforce the working of the prices and incomes policy unless a few selfish individuals jeopardise the fairness and effectiveness of the policy by ignoring it.

This voluntary approach is the Government's attitude over Part II, where they intend to continue with the existing non-statutory "early warning" and temporary standstill arrangements, only replacing them where and when it is necessary with statutory arrangements under Part II of the Bill. The general approach on the prices and incomes standstill is exactly the same. The Government are explaining the need for the standstill, describing it in the White Paper and elsewhere in such a way that we can obtain the greatest voluntary co-operation in the national interest. Then, if anyone should jeopardise the success or the fairness of the standstill, the Government will not hesitate to use the powers of Part IV of the Bill once they become law.

Clauses 26 and 28 of the White Paper will give the Government power to make Orders (subject to Negative Resolution by either House of Parliament) directing that specified prices or charges, or specified rates of remuneration, shall not be increased from the date of the Order without Ministerial consent. A temporary standstill could therefore be imposed where necessary on both prices and charges and on the levels of remuneration, allowing for the effect of changes in normal working hours.

Clauses 27 and 29 in the White Paper will give power to reverse where necessary unjustified price or pay increases implemented since July 20, 1966. The appropriate Minister could direct that any specified price or charge should be reduced to a level not lower than that which was prevailing on the date of the Order; and any such price or charge could not subsequently be raised without Ministerial consent.

Before making such a direction, the Minister must give fourteen days' advance notice to the person affected by the direction, and must consider any representations made within that time. The direction could not be made retrospective. In the case of pay—that is, Clause 29—the Secretary of State could make an Order (subject to Negative Resolution by either House of Parliament) that, without permission, remuneration of a specified kind should be no higher than that paid by the employer for the same kind of work before July 20, 1966. The Secretary of State must give at least fourteen days' advance notice of the Order, and must consider any representations from those concerned.

The penalties for any breaches of Part IV will be exactly the same as those in Part II. Contrary to some Press reports, there will be the same penalties and protections for employees and unions as are provided in Clause 16 in Part II. Clause 28 provides for this clearly. Moreover, by virtue of subsection (6) of Clause 25 and the provision in Clause 22(1) the Attorney-General's consent is required for any proceedings which may need to be brought under Part II, and this applies to Part IV.

My Lords, I think that covers most of the Bill. I have stressed the voluntary nature of the Bill and the policy behind it. Manufacturers and management since 1965 have shown great restraint in the field of prices. But further efforts to maintain a standstill in prices during the next six months are vital and this should be followed by a further six months of severe restraint. These terms are similar to those required for Incomes. In the field of labour relations I hope we shall all recognise now the need for tact and leadership and for management to seek to create and make opportunities for new standards of labour relations. This is the task for management. But the task for the trade union leaders, from the top right through to the factory floor, is going to be infinitely greater. None of us should be blind to the immensity of our task or to the fact that the challenge to achieve a standstill will require all the skill and determination of the trades union leaders.

But even if we have success in this connection, I believe we shall have failed if we do not use this next twelve months to greater advantage. It would be a failure if we regarded it as an interlude before moving forward to demands for greater increases in wages. This is a period in which I think all of us—particularly those who are on the factory floor or in the board rooms—should devote all we have to raising productivity, sweeping away restrictive practices and raising efficiency throughout national life. If I may, I applaud the agreement made yesterday by the boilermakers within the shipbuilding industry. Those who have some idea of the shipbuilding industry and of their difficulties in the past will realise the very great achievement made yesterday.

Having said that, the Government have a right and a duty to see that those who co-operate in the national interest should not suffer by the activities of those who refuse to co-operate. That is why Part 1V is in the Bill. It is true that success will depend on the board room, the factory and the shop floor; but let none of us feel that we are absolved from responsibility. Those of us who are in political life have a special responsibility. May I hope we live up to it. I beg to move.

Moved, That this House takes note of the Prices and Incomes policy of Her Majesty's Government.—(Lord Shepherd.)