PRICES BILL

HL Deb 20 June 1974 vol 352 cc1040-68

3.26 p.m.

THE MINISTER OF STATE, HOME OFFICE (LORD HARRIS OF GREENWICH)

My Lords, I beg to move that this Bill be read a second time. This Bill is an essential part of our strategy against the staggering inflationary pressures which this country was facing when this Government came to power and which still confront the British people. In February, retail prices were already over 13 per cent. higher than a year earlier. With many cost increases still to feed through, it was clear that this rate of increase was going to go still higher. In January, food prices had stood at no less than 20 per cent. higher than a year earlier. Noble Lords will be relieved to hear that I am not making a political point about this. All industrialised countries had high rates of inflation, although, I am bound to say, in most cases not so high as ours. Much—perhaps as much as half—of the rise in domestic prices in 1973 was due to rapidly growing import prices, which in turn reflected both commodity price increases and the depreciation of sterling that followed the last Government's decision to float the pound in mid-1972.

The Prices Bill is part of our strategy for making a start on the containment of inflation, and that strategy itself has to be seen against the background of our other economic difficulties. One of the most serious is the balance of payments situation. Much of the deficit was of course due to the rise in the price of imported crude oil. We are not trying to eliminate this part of deficit—it will have to be financed, of course. But we must secure a steady improvement in the non-oil deficit. In the circumstances in which we find ourselves, no substantial increase in living standards can be expected this year. This makes it the more necessary to help those in greatest need. We could not get away in the Budget without significant increases in taxation. Nor could we get away without increasing nationalised industry prices. The prospective deficit of these industries left us with no alternative. Our predecessors have conceded that they would have had to do the same if they had been returned to Office at the Election in February.

What the measures announced in the Budget did was to ensure that the unavoidable burden of higher prices was borne, so far as possible, by those best able to bear it. The retail price index for May is being published to-morrow and it would be impossible for me to speculate on its contents. In April, the index was over 15 per cent. up on a year earlier.

As to the longer term, there are a few hopeful signs at this time. Commodity prices have flattened out in the past few months, and in the case of certain commodities have begun to turn down. Wholesale prices of home sales of manufactured products increased rather more slowly in May than in many recent months. If the more moderate trend of commodity prices continues, clearly this will be a useful bonus for us in our battle against rising prices. But commodity prices are notoriously volatile and it would be a rash man who tried to predict their movement this year and next. We shall certainly not be relying on them for our salvation. If they do fall back, it will not obviate the need for a Prices Bill. For we have not finished with rising prices yet.

Some further cost increases, as a result of higher oil prices are still to move through into retail prices. The National Institute, for example, are forecasting increases in retail prices of 17 per cent. during 1974 and nearly 14 per cent. during 1975 in their recent Economic Review, and they do not believe that changes in commodity prices from now on would have too much impact on these estimates before 1976.

I now turn to the contents of the Bill. In the context I have described Clause 1 is not merely the first, but the most important, of the prices provisions of the Bill. In saying this, I do not seek to minimise the significance of the remaining provisions. They have a great deal to offer the consumer. But with food subsidies the Government are acting to break directly into the spiral of price inflation. It is not this Government's policy to rely solely on exhortation or to sit back and accept unquestioningly the price effects of world price movements.

I have said that I accept that the terrifying rate of price inflation which this country experienced last year was to a large extent the result of escalating prices of imported raw materials. In that sense, it was not the fault of the previous Administration. In fact in this, as in other matters, it is not enough to attempt to apportion blame and to identify responsibility. What matters is not who was at fault but what practical action should be taken to meet the unacceptable situation that had arisen. The Manifesto on which the Government were elected made plain our determination to do something practical and to do something swiftly.

My Lords, I recognise that there is a basic disagreement between the principal two Parties in this House over the the philosophy of food subsidy. The noble Lord, Lord Aberdare, spoke on June 12 about"banging the old drum of food subsidies ". He expressed his reservation about a policy in which"large sums of money"are spent—as he alleged—" so widely and indiscriminately ". I would say to the noble Lord that the disagreement between us is largely one of degree. Between the two Parties the disagreement is by no means so absolute as is sometimes asserted. The previous Administration, after all, had already, before the Election, committed substantial sums to subsidising both milk and butter. I assume, therefore, that noble Lords opposite will not seek to argue that food subsidies have no place in the armoury of selective economic policies. This Administration firmly believe that, in the kind of situation that we inherited earlier this year, there is a role for the selective and discriminating use of food subsidies, in suitable cases.

Clause 1 of the Bill allows for expenditure of up to £700 million on food subsidies. In his Budget Statement my right honourable friend the Chancellor of the Exchequer indicated that expenditure of up to £550 million was envisaged in the present financial year, including expenditure on the pre-existing milk and butter subsidies. Your Lordships will be aware that since the Government came to office the existing milk and butter subsidies have been increased and two new subsidy schemes on bread and cheese have been introduced. The Government have also announced their intention of introducing a subsidy on household flour, And there is finally a proposal, which I am sure your Lordships will welcome, to extend the benefits of subsidised milk to consumers who are outside the scope of the existing arrangements administered through the Milk Marketing Boards. We propose to put right the anomaly—of which I must admit, until I came to prepare this speech, I was totally unaware—by which consumers in certain of the Scottish Islands and the Scilly Isles have hitherto been unable to share in the benefits of the subsidy. The detailed arrangements for these further schemes for these additional subsidies will be announced shortly, and it will then be possible to give some kind of estimate of the additional cost.

Leaving these aside, your Lordships may like to know that in the present financial year payments in respect of the milk subsidy are expected to amount to approximately £260 million. The United Kingdom cost of the butter subsidy will be about £43 million; and an additional £10 million will be paid from E.E.C. funds. The estimated cost of the bread subsidy is £47.5 million and the cost of the cheese subsidy is £30 million. So far, therefore, £380£7.5 million has been firmly committed, and some additional expenditure will be incurred on flour and milk. In total, these subsidies represent about 4 per cent. off the Food Index and about 1 per cent. off the Retail Price Index.

In selecting foodstuffs for subsidy, and in working out the details of subsidy schemes, the Government have looked first at the foodstuffs which are fundamental in the family budget. Subsidies have been directed to necessities rather than luxuries. It is also necessary to exercise a realistic stewardship of public funds. Products selected for subsidy should have a low elasticity of demand. The Government recognise that there are certain foodstuffs—staple as they may be—which simply do not lend themselves to subsidy in a free economy. I refer in particular to fresh meat, fish, fruit and vegetables. The Government have other policies in hand which will operate to assist the purchaser of these fresh foodstuffs—I shall come to these in a moment. But the unavoidable fluctuations in supply, demand and producer prices would make it impossible for practical purposes to devise a subsidy scheme which ensured that the benefit accrued to the final consumer. It will not, therefore, be feasible to subsidise fresh foodstuffs of this kind.

The subsidies I have mentioned all apply, or will apply, to the foodstuffs mentioned in subsection (2)(a) of Clause 1 of the Bill. In subsection (2)(b), the Bill confers on the Secretary of State a power by Order to extend this list. Under subsection (8)(a), such Orders would require the Affirmative Resolution of each House of Parliament. Thus, your Lordships would have full opportunity to debate and pronounce on any proposal to extend the subsidy programme beyond the five basic commodities already specified in the Bill.

I move now to Clause 2, the clause conferring a power on the Secretary of State to regulate the price of food and of certain other goods. My noble friend Lord Jacques had something to say about this power on June 12. when he repeated to your Lordships a Statement made in another place by my right honourable friend the Secretary of State for Prices and Consumer Protection. Included in the Statement were these words: The Prices Bill, which is currently before the House, includes powers which would enable me to regulate the prices of food and other items which are of particular significance in the household budgets of those with low incomes. It will be necessary to use these powers in some areas—in particular setting maximum retail selling prices for subsidised foods. Beyond this obvious purpose, however, I have made it clear that I would prefer not to have to make widespread use of these statutory powers, provided that my objectives could be achieved by voluntary means."—[OFFICIAL REPORT, Commons, 12th June, 1974, col. 502.] Having dealt with the important agreement reached with the Retail Consortium about the concentration of price cuts on particular items, the Statement continued: I would like to pay tribute to the retail trade for their co-operation at a particularly difficult time. It does mean the sacrifice of some flexibility in their operations, and they understandably feel this to be commercially disadvantageous. Their response to my initiative is thus a measure of their concern to play a part in the battle against inflation. I have informed the retail trade that, as long as this agreement is working satisfactorily, it will not be my intention to operate the powers of Clause 2 of the Prices Bill, except in relation to subsidised foodstuffs, since the objectives to this clause will have been met by the agreement instead."—[Cols. 503 and 504.] It follows from this Statement from which I have just repeated extracts that the initial programme of Orders under Clause 2 of this Bill will be confined to the subsidised goods I have already mentioned; namely, bread, butter, cheese and flour. A general Order on milk will not be required, since an Order setting maximum retail prices for milk is already in force under the powers contained in the Emergency Laws (Re-enactments and Appeals) Act 1964.

My Lords, whatever disagreement there may be as to the merits of a policy of food subsidy, I do not think it will be disputed that, once such a consumer subsidy has been introduced, it is the Government's duty to take the necessary action to ensure that the benefits are reflected in the final prices. So far as subsidised food is concerned, this is precisely the objective of Clause 2(1)(a).

The form of particular price-regulation Orders will depend on the circumstances of each trade. However, I should say that it is intended that each should contain appropriate measures to ensure that any prescribed maximum price operates indeed as a maximum, and that retailers able to sell at lower prices do not automatically adjust their prices to the maximum. Before Orders are made, consultations will take place under the terms of subsection (6) of the clause with representative organisations, trade associations, enforcement authorities and consumer bodies generally.

The voluntary agreement announced on June 12 is intimately connected with the provisions of the Bill. The items which retailers have agreed to place"on continuous offer"include a number of subsidised foodstuffs. In addition, the basic goods subject to the agreement include a number of the fresh foodstuffs for which, as I have explained, direct subsidy is impracticable. Finally, if the Government determination to act firmly and directly on prices had not been evidenced in the terms of the Bill, I am bound to say I doubt very much whether my right honourable friend would have been more successful than the previous Administration in getting a scheme on these lines off the ground. Accordingly, the powers in Clause 2 are essential to back up the successful operation of the scheme.

May I conclude my remarks on this clause with a word about timing. Your Lordships will observe that the price regulation powers in Clause 2 are limited in duration. They will expire on March 31 next year unless extended by Order under subsection (5) for a period not exceeding a further twelve months. Within these timing parameters, the price regulation of subsidised foodstuffs must, of course, continue for as long as the subsidy schemes themselves. It is envisaged that the voluntary agreement will similarly continue in broadly its present form until March 31, 1975. Clearly, however, there must be an opportunity for earlier review if circumstances so require. My right honourable friend and her Department will remain continuously in touch with the trade on progress and problems.

My Lords, at this point it may be convenient if I move directly to Clauses 4 and 5. These clauses also contain powers to make Orders binding on retailers and relating to the information available to the consumer about prices. I will then return to Clause 3, which touches on a rather different matter in a moment. The powers contained in Clause 4 will. I believe, be generally welcomed. They correct what many of your Lordships may feel to be a long-standing omission in the commercial legislation of this country. It is somewhat surprising to learn that as the law stands now there is no general requirement for shops to mark the price of the goods that they sell. If competition is to operate effectively, full information is a prerequisite. The trend towards self-service makes price marking more than ever a necessity.

The powers in Clause 4 will make it possible by Order to impose obligations about the marking of specified goods. It will be possible to indicate how the price marking is to take account of V.A.T. It will also be possible where appropriate to require goods to be marked with a unit price. My right honourable friends' Department is already in touch with the main retail trade organisations about the most urgent candidates for price marking and unit price Orders. It is likely that Orders will be made in the first instance on fish, fresh meat, fruit and vegetables. My right honourable friend hopes that the first batch of Orders can be made very promptly after Parliament has conferred the necessary powers. It will, however, obviously be necessary first to discuss the proposals in detail with the trades concerned.

Clause 5 deals with information of a rather different nature. I implied a moment ago that the Government did not intend to make price regulation the pretext for the re-introduction of retail price maintenance by the back door. When price regulation Orders have been made there will remain, quite properly, a range of prices at which products are being sold. This range will demonstrate that there are legitimate variations in distribution and selling costs in different parts of the country and in different types of outlet, and in consequence different prices.

Emphasis on a single price or price maximum can, as I think we would all recognise, be misleading. The Government accordingly believe that in certain circumstances the right thing to publicise is not a single price but the range of prices within which goods are on offer. There are various means by which information of this sort can be made available to consumers. My right honourable friend's Department has recently extended the publicity given to current information about fresh food price movements. There may also be a role for local authorities, in the context of their general consumer protection advisory services. In addition, however, there may be circumstances in which such information could most usefully be displayed by the retailers concerned.

This is the purpose of the provision in Clause 5, which would permit the Secretary of State by Order to require retailers to display information about the range of prices at which goods are commonly sold.

The powers in the clause will be used, at least initially, in respect of subsidised foods, where maximum prices will be displayed by law and where the range will indicate that consumers need not always expect to pay the maximum price. Since the Government controls the price of milk at all stages, price ranges will not be required for liquid milk. It is expected, however, that a price range Order will be made covering bread, butter and cheese, which will be extended at the appropriate time to include parallel provisions for household flour. The Secretary of State has explained that the powers in the clause will not be used outside the subsidised field without prior discussion with the trade.

My Lords, I come finally to the provisions in the Bill relating to the Agencies established under the Counter-Inflation Act 1973. Clause 3 extends the powers of the Price Commission. Briefly, it lays down a procedure for the exceptional case, for which the general rules of the Price Code may not be appropriate. In such cases, the Commission are empowered to bring the case to the attention of the Secretary of State and seek to satisfy him that there are"exceptional circumstances justifying intervention ". If the Secretary of State is so satisfied. then after the requisite consultation required under subsection (2) a direction may be given, the effect of which is to authorise the Commission to exercise their normal powers under the Counter-Inflation Act.

My Lords, all I need say about this provision at this stage is that it is a procedure to be invoked exceptionally for the truly exceptional case. The previous Administration recognised the need for a provision for exceptional situations in the terms of the Counter-Inflation Act. Under paragraph 6 of Schedule 2 to that Act there is power for the Minister to give consent in exceptional circumstances to a price increase which would otherwise be restricted by the Price Commission as inconsistent with the Price Code.

But there is the problem. The existing power does no more than permit the Minister to authorise a price increase in excess of the amount permitted by the Order. No matter how peculiar the circumstances or how anomalous the results, there is no power for the Minister to intervene the other way.

Clause 3 does no more than introduce the necessary two-way stretch. I do not wish to exaggerate the significance of the procedure contained in this clause. It is likely to be invoked rarely, if at all. If invoked, it will be to buttress the general principles of our price control policy and not so as to impair the general status of the Code as authoritative guidance for commerce and industry. The exercise of the power is under Parliament's control, since under subsection (3) any direction would be laid as a Statutory Instrument and subject to the Negative Resolution procedure. Such as it is, however, I suggest that this new provision is a reasonable reinforcement of the existing provisions of the Counter-Inflation Act.

Clause 6 confers power for the abolition by Order of the Pay Board. This is not the occasion for a lengthy dissertation on what we on this side of the House consider to be the defects of the previous Administration's counter-inflation policy, and the difficulty of any policy for controlling incomes which does not depend ultimately on consent. But there must be no misunderstanding about this. The Government recognise that any solution to the inflationary pressures confronting us at the moment implies moderation in the level of wage settlements. Your Lordships will have observed that the General Secretary of the T.U.C. has himself recently stated his acceptance of the fact that there cannot, in general, be significant improvements in living standards over the next year. I indicated earlier that such is also the view of the Government. The policy of the social contract is based on a positive response to the measures which the Government have already taken and will continue to take under the powers in this Bill and elsewhere.

All I need say about Clause 6 at this stage is that it empowers the Secretary of State, by Order, to abolish the Pay Board and the machinery of the Counter-Inflation Act as it relates to the Board and to the Pay Code. Such an Order would be required to be laid in draft and would require the Affirmative Resolution of both Houses of Parliament. When this draft Order is laid before your Lordships' House—and it is the Government's intention to lay it immediately on this Bill's receiving the Royal Assent—there will be full opportunity to debate the merits of the policy.

My Lords, this has necessarily been a somewhat hasty canter through the provisions of the Bill, and I have sought to concentrate on the more important points. What I have said will demonstrate why the Government regard this measure as a practical and realistic contribution to our general economic strategy. I commend the Bill to your Lordships, and beg to move that it be now read a second time.

Moved, That the Bill be now read 2^a, —(Lord Harris of Greenwich.)

3.55 p.m.

LORD ABERDARE

My Lords, the House will be very grateful to the noble Lord, Lord Harris of Greenwich, for explaining this Bill so lucidly. It is a very complicated Bill, but it is perhaps a little less complicated now that he has explained it to us. It is true that in the provisions of this Bill lie the essential differences between those of us on this side of the House and the Government on counter-inflation policy. The Bill gives power to the Secretary of State to abolish the Pay Board, as the noble Lord has told us, and sets out to influence prices by subsidy and control. We are highly critical of both sets of proposals.

There can be no doubt in anybody's mind, I feel sure, that our first priority must be to reduce the rate of inflation which at present is threatening to double prices every four years. The consequences for this country of the present rate of inflation will be very grave indeed, especially for those who are among our most worthy citizens—the self-employed, the professional man, the small trader and the retired. They have no powerful union to stand up for increases in their earnings, and no"threshold"clause to be triggered by the rise in the retail price index. It is our belief that to tackle this problem effectively requires co-ordinated Government action by every means in their power—fiscal, economic and political. It was in this sense that we sought to act when we were in Government.

We established the Price Commission to act as a watchdog over price increases. It has been effective in many respects, as its periodic reports amply demonstrate. For example, during the first four months of Stage 3, price increases notified to the Commission by firms in Categories I and II were reduced by a total of £600 million. But the other leg of our policy was equally important—the Pay Board. now to be abolished. It is ironic at the present moment to watch the scramble for settlement under the generous—perhaps too generous—terms of Stage 3 in order to benefit from the"threshold"provision. In place of the Pay Board we are to rely for pay restraint on what the noble Lord has called a social"contract ", or what is sometimes called a social"compact ". The word"contract"seems to me to be a little too legal in its implications, and certainly there is nothing legal about this"compact ". In my opinion, it is nothing but a pious hope.

Certainly, no one can accuse the Government of being slow to honour their side of the bargain. Indeed, hardly a day passes without news of some further concession to the unions; and certainly the Economic Committee of the T.U.C. has responded. But no sooner had they issued their advice than individual unions were making it quite clear that they would have nothing to do with a social compact. The Scottish delegates of the National Union of Mineworkers voted unanimously to pursue a claim for rises of up to £20 a week, payable in November, and to use industrial action if necessary. How does this square with the T.U.C. Economic Committee's guide lines? Is this claim just to keep pace with the cost of living? Is this claim designed to help the lower paid? It certainly demands a settlement in a period less than twelve months after the previous one. But the threat to the social compact is not confined to the miners. NALGO, too, have expressed their rejection of it and there are a number of other unions who are by no means anxious to commit themselves to this compact.

We have no confidence in the Government's wages policy. Nor do we believe that their policy on prices is wise or effective. They began with a Budget which of itself added 1.75 per cent. to the retail price index as a result of increased indirect taxes, and 2 per cent. as a result of increases in the prices of nationalised industries—a total increase of 3.75 per cent. in the retail price index as a result of the Budget. This takes no account of the effect on prices caused by increases in corporation tax and in employers' contributions to the national insurance scheme. No wonder that in the Morning Star of May 25 it was written: It was not acts of God. but acts of Mr. Healey in his Budget, which put up all the prices. The intention now is to spend up to £700 million in food subsidies to mitigate some of that rise in the retail price index. But even given that at a time of grave economic difficulty it is right to devote such a huge sum of public money to the needs of the worst-off members of our society, indiscriminate food subsidies are certainly not the most efficient way to do so. Of the £700 million, more than three-quarters will go to people with an income of over £30 a week and about one-third will go to people with an income of over £50 a week. Some will go to overseas visitors and those who feed in hotels and restaurants. Surely this is a profligate use of public money. Looking at it another way, it has been estimated that the pensioner will benefit from these subsidies by about 33p a week. To increase pensions by 33p a week would cost £35 million, that is about one-tenth of the figure—I think it was £380 million the noble Lord told us—that has already been committed to food subsidies.

If these subsidies are not a bit of short-term window dressing, as some people suspect, what is the Government's longterm strategy? Perhaps the noble Lord, Lord Jacques, when he comes to reply, will be able to tell us. All the experts predict a continuation of inflation, and the noble Lord. Lord Harris of Greenwich, agreed that there were further rises in food prices to come. Will the Government then raise food subsidies to keep pace with these increases at a cost perhaps of £1,000 million or £1,500 million in the future? Where will their commitment end in a continuing inflationary situation? Or do they expect at least a slowing down in the rate of inflation? And will they then start to reduce food subsidies so that prices will thereby rise again despite an improvement in the economic climate?

My Lords, food subsidies do nothing to cure inflation. They may dull its impact, but at enormous cost, with indiscriminate effect and at the price of distorting the market. This is happening already. Butter is now often cheaper than margarine and there are signs of shortages of sugar, of milk and of cheese. I am told that in Cornwall there are already some shops which are having to ration cheese. Perhaps the noble Lord, Lord Jacques, could confirm whether or not that is so. In the case of cheese, the Government are spending more than £2 million on subsidising foreign imported cheeses while many of our own best native cheeses, Stilton for example, receive no subsidy.

My Lords, at least I am glad to be able to welcome the provision for unit pricing in Clause 4. We had introduced a Bill in the last Parliament for unit pricing in order to assist the consumer and it is satisfactory that the present Government have continued this policy. I am much less happy about Clause 5 in its effect on the small shopkeeper. It is all very well for the multiple store to display a notice giving price ranges for various products. In the nature of their business those prices are likely to be at the lower end of the scale. But in the case of the local shops, the price is more likely to he at the higher end and it would be impossible to explain that the small shopkeeper gives a much more local and more personal service to the customer while at the same time, being a small shop, he is not able to compete in price with the multiple store. We should like to see the small trader excluded from the provisions of this clause.

Indeed, we are very worried at the effect of the Government's prices policy on the small trader and on the village shop. I know that the Government have excluded traders with a turnover of less than £250,000 per annum from the requirement to cut their profit margins by 10 per cent., but in fact, my Lords, if the village shop is to compete with the large multiple store he too has to cut his margin, and we are fearful that many small bakers, for example, may be forced out of business. This would be a tragedy for the whole community, especially the old people who enjoy the convenience of the local shop. These are points which we hope to probe into more deeply at the Committee stage.

I have not mentioned Clause 2. As the noble Lord told us, it has mercifully been overtaken by the voluntary agreement and, like him, I hope that it will never have to be activated except in the case of subsidised food. Not that we see much benefit to the consumer from this voluntary agreement which has no effect whatever on the retail price index.

My Lords, I hope that the noble Lord's reputation as a Minister will not be judged on the introduction of this Bill. It is a Bill that squanders the taxpayers' money in a most wasteful way; that interferes in the marketplace and lays a heavy burden on the small trader; that heralds the end of the Pay Board and of pay restraint, and that gambles the economic future of this country on an unenforceable contract.

4.7 p.m.

VISCOUNT SIMON

My Lords, I should like to start by offering humble congratulations to the Government on having recognised what I regret the last Government did not fully recognise, that no prices and incomes policy—whether statutory, voluntary or hybrid—can hope to achieve its object unless prices are tackled first, and tackled vigorously. Of course, all aspects of any anti-inflationary strategy must be linked, and I am bound to say that the long-term value of legislation such as we have before us cannot be assessed until we know more clearly how the Government propose, among other things, to regulate, control, or call it what you will, wages and salaries and other forms of income. So far the Government have not unfolded in sufficient detail that side of their policy and in consequence I find it difficult to discuss intelligently the provision in Clause 6 of the Bill which enables the Secretary of State. at some future date, to lay before Parliament an Order bringing the Pay Board to an end. The noble Lord has told us that they expect to introduce this Order very shortly and that will be the time to discuss this matter, by which time I hope we shall know more clearly what machinery the Government intend to create—because I cannot believe that they are to have no machinery at all—to regulate these matters. Although the inclusion of Clause 6 in the Bill might justify widening this debate, I, for one, do not propose to do so and I will confine my further remarks to the clauses dealing with prices.

First, my Lords, with regard to Clause 1 and the subsidies, we on these Benches feel strongly that these large indiscriminate subsidies involve a massive misdirection of resources, and I agree entirely with what the noble Lord, Lord Aberdare, said in this respect. Many figures have been quoted, but I am always cautious of statistics which are notoriously difficult to interpret. I wonder, however, whether the correct conclusion has been drawn. The noble Lord did not make very much of it to-day, but his right honourable friend in another place certainly argued that the items that have been chosen for subsidy were chosen in order that the benefits should fall mainly upon the low paid and the pensioners. It is no doubt true—I have no means of checking it but I accept it—that these basic items represent a higher proportion of the expenditure on food by lower paid families and pensioners. But that does not mean that these lower paid families and pensioners eat more, mouth for mouth, than their more fortunate neighbours. On the contrary, they eat less.

During the Committee stage in another place, some figures were quoted—which I must say I found quite impossible to understand—suggesting that these people actually eat more of these commodities. I should be very surprised if that were correct. It certainly does not agree with the figures quoted by the noble Lord, Lord Aberdare, and I have no doubt that he obtained those figures from a reliable source. We must also remember that the lower paid and the pensioners are a small minority of the population. So is it not clear—and the noble Lord, Lord Aberdare, also made this point—that the greater part of the £700 million, or whatever it may be, goes to people who do not need it?

Incidentally, by directly increasing the purchasing power of the majority of the population, the Government make no contribution whatever to the control of inflation; in fact, what they have done operates in the other direction. Of course, in all parts of the House we want to help the lower paid, but this is difficult to do unless we can identify them. I do not think anyone has yet produced a method for identifying the lower paid, except by something like a means test, and we know this to be unacceptable. We can see that it does not work by looking, for instance, at the poor take-up of the butter coupons. But if the same amount as it is proposed to distribute in the form of food subsidies were distributed directly by increasing family allowances and pensions, the proportion going to the better-off people would be clawed back by taxation. Thus, in effect, the amount available would be increased so that it could be re-cycled—to adopt a popular expression these days—and the lower-paid and the pensioners would get the full benefit.

I suppose it may be said that this would take too long to organise, but if the noble Lord, Lord Jacques, tells us in replying that this is just a temporary arrangement, and that if the Government remain in office they propose at the end of that time to adopt some scheme such as I have very roughly outlined, I shall certainly feel much happier. But we have to remember that once we have established subsidies for basic foods, when we try to bring them to an end we immediately have a hump, especially if inflationary pressure is still going on, because the prices have to be increased by that much more when people have become used to receiving a subsidised article. The noble Lord, Lord Aberdare, touched on this point.

Leaving the question of subsidies for a moment, I come to Clause 2. I think we all agree that subsidised food must be price controlled or regulated as the Bill provides, in this more flexible way. The Minister has told us that as a result of his right honourable friend's voluntary agreement with the trade, reported to your Lordships' House on June 12, it is not intended—provided this agreement is acceptable—to apply Clause 2 to other than subsidised foods. We all hope that the agreement will succeed but, quite properly, provision has been made for the possible eventuality of the voluntary agreement failing. My own feeling is that the safeguards written into Clause 2, with consultation and, ultimately, an Order laid before your Lordships' House, are adequate. Should the worst occur, if this clause involves—as I think it does—a tightening up of the price control mechanism over some essential foodstuffs and other articles, then I feel that there will be no objection at all. As I have already said, any Order made is subject to Parliamentary scrutiny.

Clause 3 is a different matter. Since under the existing law special circumstances could be held to justify price increases above the level authorised under the Code, it may seem reasonable that it should equally be possible in special circumstances to justify price reductions below the level of the Code. I think that is the argument which the noble Lord put forward. But are these two situations really comparable? May I invite your Lordships to consider the effect of such action in these two situations? In the former situation, the consumer may elect not to buy the item in question—because these are not essential items; otherwise, they would be dealt with under Clause 2. In the second situation where the price is forcibly depressed below the Code level—to use that shorthand expression—the person selling the goods can equally stop selling them, but will presumably have a substantial stock and the loss of that stock which he has acquired in good faith will fall on him and may bring him to disaster. This is particularly so in the case of the small businesses, to whose position the noble Lord, Lord Aberdare, drew attention.

There has also been some discussion—this has not been mentioned this afternoon—as to whether this clause is retrospective in its effect. The noble Lord's right honourable friend in another place gave an assurance that it is not retrospective, but I am bound to say I cannot understand it. Clause 3(4), at the top of page 6, states: This section does not apply to any increase implemented before the passing of this Act but, subject to that, applies both to a proposed increase and to an increase that has already been implemented ". I am bound to say I do not understand how it can be said that that does not apply retrospectively.

We can all join in the general congratulations to the Government on Clause 4, dealing with price marking. This is an excellent clause, although there are some difficulties of detail which we may want to look into at Committee stage. On the other hand, I have found Clause 5 very difficult to understand and appreciate. I understand, from statements made during the passage of this Bill through another place that these price ranges—which it is suggested ought to be publicised, and made available to the consumer—are being obtained from the same sources as those on which the Government draw to produce the retail price index. I assume that those sources are all over the country and that an average is struck. But what is the use of putting up a range of prices from, say, 20p to 12p, in a shop in Devonshire, when the 12p price is obtainable only in East Anglia or Scotland? I do not understand how this will work, unless we have some local inquiry available into the range of prices.

Nor do I understand—and this is a point already made by the noble Lord, Lord Aberdare—how one can expect a small shop to put up a notice saying,"The range of prices for this article is from 20p to 12p. My price is 19p ". In a friendly shop, the customer will no doubt ask the shopkeeper,"Where can I get it for less than 19p?" I am quite sure that he will not tell him. Furthermore, it is a little unfair, because we all know that prices are lower in the supermarkets. But the supermarkets are probably a 20p bus fare away, and I do not think many shoppers are sufficiently skilled in accountancy to balance the reduced cost of the supermarket against the cost of going there and back. I would make one suggestion to the noble Lord. Would it not be better if these price ranges are to be posted up and to be, as I hope, regionally relevant, to put them up in post offices, social security offices and perhaps local authority offices, rather than in shops. which could lead to a good deal of unpleasantness and ill-feeling? There are also difficulties about the application of this clause, which we may want to discuss in Committee.

My Lords. I shall not say any more about Clause 6, or indeed about the rest of the Bill. In another place my right honourable and honourable friends, with some help from a few members of the Conservative Party, voted against the Third Reading of this Bill, mainly because of our strong objection to the wasteful use of a large sum of money for indiscriminate subsidies. Naturally, we have no intention in this House of seeking to divide against the Second Reading, but I believe we have a right, and indeed a duty, to call to your Lordships' attention the criticisms which I am sure would have been more cogently expressed if some of my noble friends had spoken instead of myself.

4.22 p.m.

LORD REDMAYNE

My Lords, I had not put my name down to speak in your Lordships' House this afternoon because I did not know whether I could be here, but I should like to make one comment about the voluntary package, as it is called, with which I have had a certain amount to do.

The noble Viscount, Lord Simon said that in an anti-inflationary policy, one must tackle prices first. I should like to say here what I have said since the beginning of the Chequers talks: that it is an illusion to think that you can tackle prices in an anti-inflationary situation at the retail end alone. You must start at the grass roots. It is no good sitting on the safety valve; you must draw the fire. I was happy to see that the present Minister appreciated that point and it is for that reason, in pursuing this voluntary package, that she saw fit to tackle the manufacturing trade also. The voluntary package was entered into in order to avoid the use of compulsory powers. I think that perhaps the Government are heartily relieved that there is a voluntary package, because it is extremely difficult to use the statutory powers. Nevertheless, for good or ill, it was entered into.

I want, however, to give a very real warning that the rise in retail expenses today is such that many retailers are already looking very fearfully over their shoulders at the safety net for net profit which we arranged with the Government. Wages, of course, are rising very fast. To that is added the threshold payments, and whether or not one has contracted for threshold payments, there is no question that under present conditions one pays them. This has been done almost throughout the retail trade. The addition to the employers' contribution to National Insurance has been a very heavy burden. Rates are up by some 45 to 55 per cent. in many parts of the country. Transport costs have risen most alarmingly, packaging costs, and all the rest.

The effect is that, however enticing it may have seemed to the previous Government or to this Government to take a swipe at the retail trade because in a consumer boom they had made considerable profits, there is very little room left for that type of manoeuvre now. Therefore I give fair warning that although we entered into the voluntary package with good will—as the Minister said, in a spirit of co-operation in an anti-inflationary policy—the House must remember that it was done with the proviso, a proviso admitted by the Minister, that if a retailer's profit fell to the safety net then he was not compelled to cut his gross margin by the full 10 per cent. Therefore, it is fair to say that the impact of it may not be very great. What matters is the effort made by the retail trade, and the effort made by the Government. But the noble Lord, Lord Simon, said that if the voluntary package proved not to succeed there would be room to use the statutory powers. If the voluntary package fails because there is not the profit to provide it, there is no room for the use of the statutory powers unless in fact the retailer is compelled to sell at a loss. I think all of us. if we are fair-minded men, should take that into account.

My Lords, I hope this will work. It took a good deal of achieving. If it does not work, it will not be for lack of effort but simply because costs are rising so fast that it has become an impossibility; and if it is an impossibility then statutory control is an impossibility also.

4.25 p.m.

LORD JACQUES

My Lords, we have had a short but very interesting debate on a Bill which will bring some benefits to every man, woman and child in the country. With very long experience in the retail trade I have very good reason not only to believe but to know that in the retail shop, where the shopkeeper faces the customer, we have one of the front lines in the fight against inflation, but it is quite unfair to pin the whole responsibility for rising prices on the shopkeeper. It certainly is not the Government's intention to impose an unreasonable burden on this or any other sector of the community. That is demonstrated by the precise changes which have recently been made in the Price Code rules for distribution, which were debated in your Lordships' House on May 16.

After a full consultation it was concluded that retailers generally should reduce their gross margins by 10 per cent. The action the trade is taking to implement the voluntary agreement, about which my noble friend spoke in opening the debate, will not involve any further cut in margins. The power for cutting margins and prices is really in the Price Code. The voluntary agreement merely concentrated those cuts on the necessities of life. As to the Price Code itself, the cut in margins does not apply to enterprises with a turnover of less than £250,000 per annum. It is confined, in other words, to the larger undertakings.

LORD ABERDARE

My Lords, may I raise just one point? Of course it sounds very fine to say that only the large undertaking with a turnover of over a quarter of a million pounds will have to make the cuts, but equally shops with a lower turnover would have to make cuts in order to compete with their bigger neighbours.

LORD JACQUES

My Lords, they have always had to do that. That is why they have formed their voluntary groups, such as Spar and Wavy Line. That is their response to the national chain supermarkets. The vital service which the small traders—and, if I may add a personal note, the small branches of the co-operative societies—provide in many communities all over the country is fully recognised by the Government.

The Government have already held extensive consultations about the contents of the Bill with the organisations representing distributors and manufacturers. I would particularly direct your Lordships attention to Clause 2(6), Clause 4(3) and Clause 5(4). All these subsections ensure that further consultations will take place with appropriate bodies representing the trades concerned before Orders are made to regulate prices, require price-marking or prescribe the display of price range notices. There is very full provision in this Bill for consultations. Indeed, consultations have already begun on the Government's initial proposals for unit pricing Orders, and in these consultations special attention is being given to any problems which may arise for the smaller shop. In our view, however, a blanket exemption from the scope of the powers for small shops would not be appropriate or consistent with our duty to the consumer. I would add, as a practising retailer for many years, that in my view it is more help to the consumer to have prescribed quantities rather than unit prices, and I believe that if the trade would get together and have reasonable agreements on prescribed quantities, then unit pricing, certainly on pre-packed goods, would be unnecessary.

My right honourable friend the Secretary of State for Prices and Consumer Protection has already made it clear that retail traders, while bound, of course, by any price regulation Orders that may be made under the Bill, would remain entitled over their business as a whole to have to have recourse to the safeguards already written into the Price Code to deal with losses or low profit situations. Cross-subsidisation will, however, be necessary in many shops. But this is not inconsistent with the Government's economic and social policies, that the prices of luxury goods should, if necessary, support the policy of restraint on the more basic items. In addition, your Lordships will have observed that it is specifically provided in Clause 2(7) of the Bill that in making price regulation Orders the Secretary of State will have regard to the circumstances of the trades concerned and to the effect of the Orders on the general level of profitability in the trades. There is, therefore, that additional safeguard.

My Lords, the Prices Bill is a major step forward in the Government's fight against inflation. We recognised from the very beginning that it would not be easy to halt or reverse the unprecedented rate of inflation which we inherited. We were determined, however, to do something positive to give the maximum possible protection from price inflation to those who need it most. It would be foolish to expect dramatic results overnight; yet progress is being made.

To make this point, I need do no more than let the facts speak for themselves. Without food subsidies the consumer would be paying 2p more for every pint of milk, 2p more for every large loaf of bread, 5½ more for every pound of butter and 7p more for every pound of eligible cheese. I think the figures would be appreciated better if I converted them into the old money. It means that 4½d. on a pint of milk, 4½d. on a loaf of bread; in the case of butter is. id., and in the case of cheese just under 1s. 6d. in the pound, is the reduction in the price caused by the subsidies. These savings are on key items in the household budget and are equivalent to more than 5p in the pound, or in old money ls., off the weekly food bill. It is estimated that the saving in the average household would be 60p per week, and in the case of families with four children or more the saving would be 80p per week, upwards; and even in the case of old-age pensioners it is 33p per week for the couple. Clearly the savings arising from food subsidies will mean proportionately more to pensioners and other households on low incomes than to the better off households. While the average weekly food bill of a family with an income of £60 a week is 15½, per cent., the figure for an old-age pensioner couple is 39 per cent.

Food subsidies are criticised, but quite apart from being a quite important element in the Government's strategy for dealing with inflation they have some merit of their own. First of all, there is no means test, and therefore no detailed complex administration for applying a means test. There is no incomplete take-up on the part of those who are poor but too proud to claim. There is no poverty trap. So you have to take the merits of subsidies into account as well as some of the disadvantages.

I am asked whether the subsidies are intended to be temporary. The limit so far as the Bill is concerned is only on the amount; it is not a period of dura- tion. What happens will depend upon the Budget year by year; and whether or not the Chancellor will find it necessary to continue, to increase or decrease subsidies will depend upon the economic situation and especially the trend of prices.

VISCOUNT SIMON

My Lords, if I may intervene, is the noble Lord telling us that the provision that the operation comes to an end at the end of March next year applies only to the amount of the subsidy and not to the existence of the subsidy?

LORD JACQUES

My Lords, there is nothing in the Bill which limits food subsidies, except the amount. All the other clauses either have no limit at all or are limited by duration. In the case of food subsidies the limit is the amount of the subsidy.

I was asked about the long term policy. I would say that it is the intention of the Government to continue the food subsidies for as long as it is, in their opinion, necessary to do so. We hope that there will come a time when we do not need subsidies to contain inflation. In that case there will be several choices: to end the subsidies abruptly—and I doubt whether any Government would do that; or to continue them indefinitely—I doubt whether any Government would do that; or to reduce the subsidies slowly and gradually, which would mean that the effect on inflation would be spread over a longer period as a result of the subsidies than it would otherwise have been. That, I think, would be the sensible long term policy in relation to food subsidies.

It is, of course, true that the rich get the benefit of the food subsidies, and it has been stated that they get the benefit whether they need it or not, and without paying for it. I think that food subsidies must be taken in the context of the Government's Budget as a whole. The Government's Budget as a whole was to reduce direct taxation to the lower paid. For example, those who received less than £60 a week paid less direct taxation than before; those who received more than £60 a week in total pay a good deal more tax—several hundred millions more. Consequently, we have the food subsidies, and in so far as the rich are receiving those food subsidies they are making their contribution to the cost by the increase in direct taxation.

LORD ABERDARE

My Lords, before the noble Lord leaves that point, if he wants to take the entire context of the Government's Budget into account, will he also mention the severe increases in indirect taxation which have caused much extra cost to the less well-off by raising the price of tobacco, sweets, drinks, et cetera?

LORD JACQUES

My Lords, I should have thought that there would be little disagreement as to the desirability of charging a little more for cigarettes, tobacco, and beer, and a little less for bread and butter, and the things that have been subsidised. I would be prepared to rest upon that. Food subsidies, of course, form only a part of the Bill. There are other powers in the Bill to regulate prices, to give additional power to the Price Commission and to require better price information to be made available to the consumer.

So far as Clause 5 is concerned, and the range of prices, the Secretary of State has made it clear that she intends to apply that only for the subsidised foods so long as she has a satisfactory agreement on a voluntary basis with the retail trades. That power to draw attention to the range of prices is necessary unless we are to bring back some form of retail price maintenance. Once you publish only a maximum price, everybody comes up to the maximum price. We want there to be a maximum and a range up to the maximum, and this power taken in Clause 5 is simply a tool for that purpose, and for no other purpose.

Even before the Bill has become law, the Government have been able to fulfil a major part of the objectives of Clause 2 through the voluntary agreement under which margin reductions will be concentrated on a list of basic items of particular significance in the household budget of those with lower incomes. In all these ways the Government are equipping themselves—and the consumer—better than ever before to tackle some of the most damaging aspects of inflation. The Government would have found it exceedingly difficult to have obtained a voluntary agreement had they not shown that they were paying more than lip service in their efforts to prevent inflation, and it was by their food sub- sidy policy that they were able to show that they were paying more than lip service. I doubt whether the Government would have obtained the voluntary agreement had they not the reserve powers which are in the Bill. It is because they have these reserve powers that they were able to get the satisfactory voluntary agreement with the trade.

It is only by acting directly on prices of essential household goods that we can expect wage earners to respond by moderating wage claims. Trade unionists are fully aware that they gain more from stable prices and moderate wage increases than from higher wage increases chasing higher price increases. Our prices policy is geared to demonstrate that the ordinary wage earners of this country can have confidence in the Government's efforts to control prices. When the wage earner regains this confidence we can expect him to commit himself to the united endeavour. The Prices Bill has a leading part to play in the restoration of this confidence. We believe that if we are to have industrial peace, we will not achieve it by statutory control of wages. In coming to that conclusion, we have taken into account not only our own experience but the experience of the previous Administration, and the experience of almost every western country that has tried it. We believe that there is only one way, and that is conciliation and arbitration. We have to concentrate on that and tolerate some of the difficulties and try and overcome them. The greatest difficulty is to regenerate confidence in the conciliation and arbitration machinery, and that is what we are endeavouring to do.

The biggest factor in keeping a high rate of interest in this country is anticipated inflation. The people who have money to lend anticipate inflation and consequently want a higher rate of interest. It is not until we can get greater confidence in the future stability of prices that we shall be able to get lower rates of interest. I hope that the Bill will reach the Statute Book without delay. It is an important element in the Government's policy, and to this end I invite your Lordships, with confidence, to give it a Second Reading. There are a number of matters that have arisen, but I believe that most of them could best be dealt with at the Committee stage.

LORD ROBBINS

My Lords, before the noble Lord sits down, can he enlighten me on something that I regard as an extremely important matter of general policy. Do the Government propose to take powers, in addition to the powers of controlling prices, to institute rationing where demand continues to exceed supply? The policy of indirectly restraining the increase of incomes by acting on prices by subsidies and price-fixing orders was well tried out and had a great measure of success during the war. But experience during the war here and in every country where price fixing has been tried has shown that it breaks down unless it is accompanied by powers to ration where demand continues to exceed supply. Otherwise you get scarcity and queues. and all the social disorder which arise from that.

LORD JACQUES

My Lords, in reply I should say that there is no intention to seek powers for rationing. I should imagine that the noble Lord would readily agree that the likelihood for the need for rationing would depend upon the elasticity in demand for the products which are chosen. The products which have been chosen for the subsidy have a very inelastic demand. Consequently, from the information available to us we do not expect any shortages which would give rise to the need for rationing.

LORD REDMAYNE

My Lords, the noble Lord must know that there is already a shortage of cheese.

LORD ABERDARE

My Lords, arising from that, the noble Lord has not yet answered my question as to whether cheese is, in fact, being rationed in Cornwall.

LORD JACQUES

My Lords, we have no knowledge of cheese being rationed in Cornwall. You might have a very isolated case of cheese being rationed. I have known of goods being rationed in retail shops because a retailer failed to put his order in in time and had not received his supplies immediately. I have known rationing in shops because of a breakdown in transport. Such factors could have given rise to the temporary rationing of cheese in Cornwall, if that exists, although we have no knowledge of it.

I should like to make a statement concerning the availability of supplies. In considering which items might be appropriate for subsidy, count has to be taken of the supply situation. The products which have been subsidised so far have a low elasticity of demand. According to the National Food Survey analysis covering the period 1968 to 1973, the fall in demand for each 1 per cent. increase in price is as follows: cheese, 0.11; milk, 0.09; bread, 0.32; and butter, 0.4.

There has been some understandable concern that subsidies on the three dairy items might upset the balance of supply and demand. It is known that milk supplies from farms during the rest of this year are likely to be somewhat less than last year, although at this stage it is not possible to give a precise forecast of the level. It is also true that the subsidy on milk will cause some increase in the consumption of milk in liquid form. However, these factors do not mean that we are heading for an overall shortage or that we are likely to find ourselves with insufficient supplies of dairy products towards the end of the year. For butter we are already dependent upon imports to the extent of 80 per cent. of our supplies. All indications are that any decline in United Kingdom production would be made good by imports from Europe.

Domestic production of cheese, which accounts for well over half of our total requirements, is expected to show an increase this year. Although supplies of New Zealand butter will be below the level of previous years, we are expecting increases in supplies from other Member States of the E.E.C. I think that we should firmly discount the alarmist stories which have been circulated about rationing of dairy products before the end of 1974. There is close consultation between the Department of Prices and Consumer Protection and the Ministry of Agriculture, Fisheries and Food on the availability of all these supplies.

On Question, Bill read 2^a, and committed to a Committee of the Whole House.