BREAD SUBSIDY (Hansard, 9 May 1974)

§ LORD JACQUES
My Lords, with the permission of your Lordships I should like to repeat a Statement which my right honourable friend the Secretary of State for Prices and Consumer Protection is making in another place to-day about the bread subsidy. The Statement is as follows:
"The Government have decided after consultations with representatives of the bakery industry to increase the rate of the bread subsidy in order to prevent price increases of 1½p on a large loaf and ½p on a small loaf that would otherwise occur on Monday, May 13, following notifications to the Price Commission by the major plant bakers. The rate will accordingly be increased to £3.81 per 280 lb. sack of flour used on or after Sunday, May 12, in the production of loaves that qualify for the subsidy. At the same time in response to representations from honourable Members and from consumers the coverage of the subsidy will be extended to include all loaves baked 650 in tins and weighing 8 ozs. to 10 ozs. inclusive, but not to smaller loaves, fancy bread products or bread rolls. I will place the amended bread subsidy scheme in the Library as soon as possible.
"The cost of this increase in the rate of subsidy is provisionally estimated at £30.9 million in 1974–75, and at £35.7 million in a full year. These figures may be subject to some minor adjustment in the light of discussions I am having with the bakery industry about the method of calculating the rate of subsidy. I shall, of course, review the rate of subsidy if there are net reductions in the industry's allowable costs, for instance as a result of a drop in flour prices.
"Estimates will be laid before the House in the usual way, and in the meantime it will be necessary to have recourse to the Contingencies Fund."
My Lords, that concludes the Statement.

§ BARONESS YOUNG
I wish to thank the noble Lord, Lord Jacques, for repeating this Statement, but I am bound to tell him that the only part I could commend is that, having decided to subsidise bread, this subsidy is to be extended to the 8 ounce loaf. This is a small concession, but, given that there must be a subsidy at all, there will be more help for the elderly, particularly the elderly, single people.
As the noble Lord will be aware, the policy of indiscriminate food subsidies is not one which we on this side of the House support. Such subisidies mean that, regardless of need, everyone gets the subsidy. Would the noble Lord not agree that it would be far better, and juster to help directly families who most need it and not to spread the available money very thinly over the entire population?
Having said that, I should like the noble Lord, if he will, to answer the following points. First, how much can the average family be expected to benefit as a result of this increased subsidy? I ask this because obviously what the housewife wants to know is how much benefit she can expect when she goes shopping. The noble Lord said that the cost for the remainder of this year is £30.9 million and for next year £35.7 651 million. Does this include the administrative costs or is it the basic cost of the flour subsidy?
Further, will the noble Lord explain how the subsidy is arrived at? Is it based on the costs of the largest manufacturers, as it appears to be? If this is so, what is the position of smaller manufacturers who may well find that because of this they are unable to put up their prices—based on increased costs outside their control but which are costs that have been agreed as an expected price increase by the Price Commission? What will they do if they find that the subsidy is not enough? How are they expected to manage? Finally, if the bread subsidy is to continue, will the noble Lord consider subsidising flour directly so that it might be of benefit to those provident housewives who bake their own bread?

§ LORD GLADWYN
My Lords, while recognising the political importance from the Government's point of view of subsidising the production of foodstuffs, would not the Government agree that if inflation continues at its present rate it might well soon become too expensive to pursue the policy of protection to the consumer at the expense of the taxpayer?

§ LORD JACQUES
My Lords, I should like to thank both the noble Baroness and the noble Lord for the way in which they have received the Statement. I particularly thank the noble Baroness for having the courtesy to give me notice of her questions. First of all, as to the savings to the average family: the average family of two adults and two children will save, so far as the bread subsidy is concerned, 8¾p per week, and so far as all subsidies are concerned 60¼p per week.

§ BARONESS YOUNG
My Lords, I am sorry to interrupt the noble Lord, but may I ask him whether he really feels that there is a justification for making a subsidy which benefits the average family by just over 8p a week at enormous administrative cost and of course at a cost to the taxpayer?

§ LORD JACQUES
My Lords, I will deal with that when I come to why we subsidise. There was next a question on 652 the total new cost. The provisional estimates are put at £47.5 million for 1974–75 and £52 million for a full year. This, to the best of my knowledge and belief, is the cost of the subsidy without the administrative costs. If that is wrong I will write to the noble Baroness. I have had it confirmed that the cost does not include the administrative costs. In the draft of the Bill dealing with all subsidies, £650,000, most of which covers the bread subsidy, will account for the bulk of the administrative costs. To put it another way, the total cost of administration will be £650,000 and the major part of that will be for the bread subsidy.
We were asked how the subsidy was calculated. The subsidy is calculated from the pre-notification of cost increases which are sent to the Price Commission, and I would direct the attention of the noble Baroness to the paragraph in the Statement which reads, My right honourable friend is having discussions with the trade on the calculation of the subsidy. I have no doubt that the point the noble Baroness raised in connection with the calculation of the subsidy will be one of the matters on which my right honourable friend will be receiving representations. The next question was whether flour could be considered. We are still considering what other items may be subsidised, but I would remind the noble Baroness that there is not such a strong case for flour as for bread. By far the greater part of the flour sold is not used for bread baking; it is used for other things.
Finally I come to the question, why subsidise? There are two main reasons, the first being to minimise the impact of inflation on the lower paid. In this respect we have to bear in mind that the average family spends 24 per cent. of their income on food, while a couple who are on pension spend on the average 39 per cent. of their income on food. That shows the difference in the proportion of incomes spent on food. It is true that in order to minimise the impact in this way everybody has to benefit, but of course those who are better off eat less bread in proportion to their income and pay more taxes. There is a second objective which I think is of equal importance. We have inherited the inflationary economy and we are trying to put the matter right. 653 We have to minimise the impact of the expectation of inflation. It is the expectation of inflation which is the most important cause of high interest rates and which encourages applications for wage increases. Only by trying to control prices by subsidies and other means can we reduce this expectation of inflation which is so damaging to our economy.

§ LORD GLADWYN
Will the noble Lord answer my question?

§ LORD JACQUES
My Lords, it would be conceivable for us to get to a stage when the cost was too great. At the moment £550 million has been allocated by the Chancellor for the purposes of subsidies. Only something under 70 per cent. has so far been used, so we have a little way to go before we need be bothered with that problem.

§ BARONESS YOUNG
My Lords, would the noble Lord not agree, in answer to the two points he has made in justification of food subsidies, that although it is important to do everything possible to minimise the effect of inflation on the lower paid it would be far better if, for example, he chose to do so by giving help to poorer families, as Sir Keith Joseph did with the family incomes supplement, or indeed to consider other monetary devices such as a family allowance for the first child rather than an indiscriminate subsidy?

§ LORD JACQUES
My Lords, we believe that in the present circumstances the urgent need is to get control of prices. Our method of subsidies will help to do that; the alternative method proposed will not.