HL Deb 16 May 1974 vol 351 cc1153-61

4.59 p.m.

THE LORD CHANCELLOR rose to move, That the Counter-Inflation (Price and Pay Code) (Amendment) Order 1974, be approved. The noble and learned Lord said: My Lords, I beg to move that the Counter-Inflation (Price and Pay Code) (Amendment) Order 1974 be approved. I understand it will be for the convenience of the House if we also debate the Counter-Inflation (Price and Pay Code) (Amendment) (No. 2) Order 1974 at the same time. The alacrity with which the previous business was conducted necessitated a somewhat headlong chase to your Lordships' House. I apologise for the resulting confusion which took place when I was standing in another place.

My Lords, the first Amendment Order, Statutory Instrument 661, was made to allow traders to pass on to the customer the increases in excise duty and the extension of the V.A.T. announced by the Chancellor of the Exchequer in his Budget Statement. Although the Order has been in operation since April 5, the Counter-Inflation Act provides that it will lapse until it is approved by each House of Parliament. The second Amendment Order, Statutory Instrument 785, puts into effect the proposals we made on taking Office to tighten the existing price control. This Order also needs the approval of each House of Parliament.

Recent experience has demonstrated that there can be no effective policy for dealing with inflation without the wholehearted consent of the people. The measures that we have taken in the Budget have been a start. The Orders which your Lordships are debating to-day are intended to further the Government's aim of increasing consumer confidence and doing what we can to check the rate of inflation. At the same time we fully recognise the importance of ensuring that manufacturers and traders see a good prospect of a reasonable return. That is why we have tried to strike a balance between the need to protect consumers on the one hand and to reward manufacturers and traders on the other. We are also determined to protect those who suffer most from inflation for example, we have improved the pensioners' benefits, and we are acting directly on key prices of maximum concern to the ordinary householder.

The purpose of Order 661 is to regulate the way in which indirect tax increases may be reflected in prices. This is something that was not explicitly covered in the existing Price Code. Following the Budget it seemed to us right that traders should be able to pass on indirect tax increases without great difficulty. It was also important at the same time to ensure that no one should make a profit on an indirect tax. The cash amount of a tax increase alone should be passed on. There are consequential provisions to ensure that the rule is applied in all calculations relevant to the Price Code. There is also a balancing provision for future tax reductions, requiring that they must be fully reflected in price reductions. The Code now makes it absolutely clear that these have to be passed on to the consumer.

It has been suggested, however, that for all its good intentions the Order is technically at fault because it purports to be retrospective, and this is a point which has been put to the House by the Joint Committee on Statutory Instruments in its Fourth Report. The point arises because although the Order did not come into force until April 5 it refers back to tax increases imposed after March 25, and, on the face of it, that may look a bit odd. But all the Order actually does is to say that, as from April 5, prices may contain an addition to reflect a tax increase. It does nothing to authorise price increases before April 5, nor to change in any other way the position before then, so that there is no element of retrospection in it at all.

The second Order, Statutory Instrument 785, is based on proposals published in a Consultative Document on March 25, and represents a determined effort to ensure that those who need it most gain most from the impact of the Price Code. The Order tightens the Price Code in three respects. First, it sets a general three-month interval between price increases for manufacturers and service industries. Secondly, it reduces by 10 per cent. the limits of distributors' gross percentage margins. Thirdly, it restricts upward re-pricing by retailers of goods that are bought frequently by the public. The basic objective of the three-month rule is to stagger price increases made by manufacturers and by service enterprises under the Code. This should help to check the frequency of price increases and consequently make some contributions, together with the labelling requirements of the Prices Bill, towards restoring consumer confidence. It should also assist the distribution industry in exercising restraint.

We recognise that with the cost pressures that are in the pipeline, it is essential to provide industry with reasonable safeguards, and we have discussed these fully with industry. It is certainly not our intention to cripple industry but to increase its contribution towards checking inflation at this particularly critical time. Paragraphs 74, 74A and 80 of the Prices and Pay Code on cuts in distributors' margins are at the heart of the current phase of prices policy. As noble Lords will remember, the Price Commission under paragraph 80, as drafted by the previous Administration, had decided that from April 1, 1974, food distributors' permitted gross margins, other than for the Category 3 enterprises—that is to say for the smaller traders—should be cut by 10 per cent. On taking Office we judged that although the situations may not be the same there was no reason why the non-food trade should not make a similar contribution. At the same time we made paragraph 80 more flexible, enabling the Price Commission to alter gross margins both upwards and downwards where particular circumstances justified this.

In the course of consultation we took account of the pressures on the distribution sector, particularly on the small trader. We have provided exemptions for the small retailer and wholesaler, although both are bound to face the stiffer competition from those having to make price reductions. We have also provided a general profit margin safeguard for distributors, similar to that in existence for manufacturers. Throughout the debates on the previous Administration's counter-inflation programme we stressed that the consumer is concerned with actual prices of actual products in the shops and not with gross or net profit margins. In the course of consultations we have tried to obtain traders' agreement to concentrate the margin cuts on items of maximum concern to the most needy. As the Secretary of State has said in another place, she is engaged in discussions with the Retail Consortium and others on a voluntary agreement to coordinate on a national basis what would be best commercial practice in current circumstances. Indeed many supermarkets have already made welcome significant price reductions on some of the most senstive items as a result of the margin cuts on food. It is our hope that this practice can be extended as a result of the Amendment to the Code.

Paragraph 77A restricts the repricing of goods. This provision has the support of all the consumer organisations and of the retail trade, who regard irresponsible repricing as not the best practice. In the course of consultations we sought to meet many of the points of practical difficulty brought to our notice, and we have made specific exceptions as necessary. Broadly speaking, the provision will apply to goods bought frequently as part of the weekly household budget and not to durable goods bought less frequently. We have also given the Price Commission discretion to allow customary trade practices where these are not against the consumers' interest, and after consultation with the trade the Commission will be providing information about the interpretation of this provision.

My Lords, in conclusion, I think it is fair to say that the three measures contained in the No. 2 Amendment Order strike a fair belance between the interests of manufacturers and distributors on the one hand and those of consumers and wage earners on the other. They are each moderate measures in themselves, but they demonstrate clearly the determination of the Government to act directly on behalf of the consumer, whatever the difficulties. Industry and the retail trades have, we think, as much to gain from the containment of inflation and the restoration of consumer confidence as the wage earner himself. These Code Amendments are part of a prices policy aimed at creating the appropriate climate for wage moderation on the lines that the Trade Union Congress is advocating. They are indeed an essential ingredient in the social compact which, in the view of the Government, is in the interests of the community as a whole. My Lords, I beg to move.

Moved, That the Counter-Inflation (Price and Pay Code) (Amendment) Order 1974, be approved.—(The Lord Chancellor.)

5.11 p.m.


My Lords, I rise to speak with rather more nervousness than usual because, although I have worked in your Lordships' House for a number of years, both in and out of Government, I believe this is the first time that I have tangled with a Lord Chancellor, even so kindly a Lord Chancellor as the noble and learned Lord. Elements of retrospective legislation arising from these Orders have caused a number of my honourable friends in another place some concern. Perhaps it is because I am a layman that I confess that I am not myself over-anxious on this score, and I am very prepared to give noble Lords opposite the benefit of the doubt. It is always irritating to have to carry out the policies of one's predecessors, especially if one has thundered against many such policies, and especially indeed if one's own bacon is being saved by their continuing.

Let us be in no doubt that, as the noble and learned Lord said, the important issue in British politics to-day, the overriding issue, if one excepts only the pursuit of peace and stability in Northern Ireland, is the containment of inflation. We must judge these Orders overall, complex as they are in detail, in the context of this fight against inflation. Noble Lords opposite, as is well known, have chosen to concentrate their fire on the prices part of the battlefield. They have made this quite clear, and it is an honourable thing to do. They want industry and commerce to take the major role in the battle, hence the terms of this Order and hence the words of the noble and learned Lord when he said that he wished industry to increase its cooperation in fighting inflation—though I should have thought that industry has indeed been taking the major burden all along.

Mrs. Shirley Williams is much nicer than most sergeant-majors, at least in my experience, but sergeant-major she surely is, dragooning retailers in particular about the exact ways in which they must respond to the Government's fiscal behaviour. Remember, my Lords, that under the last Government they already had quite enough to contend with in this area. I accept of course that any prices legislation will involve direction and interference. The question is, how much and how often? There have been rumours of a mini-Budget in the autumn. Will we be going through this procedure again at that time? The last Government aimed its prices policy very much towards the behaviour of large consortia who were pace, or rather price-setters in the market. I appreciate the exemptions which continue on the smaller sections of the retail trade, but I must say that we are worried about the effect of these Orders on the middle range of the trade who have had enough changes, enough extra tasks to cope with during the last few years. Rather than complicated legal directives, would it not be better to reduce these in favour of detailed guidance to the Price Commission, with able men and high morale, and let them advise this sector, who are just as anxious to prevent prices going through the roof as the right honourable lady, or indeed the noble and learned Lord.

A more particular criticism of these Orders is that in an age of rapidly fluctuating money values, whether in connection with imported raw materials, or higher rate bills, or changes in direct or indirect taxation by Central Government, it is absolutely vital that the Government monitor most carefully the overall levels of profitability in the private sectors in this country. I hope that the Chancellor was not talking about profits the other day simply because he was talking to the C.B.I., rather in the way of mentioning the Navy when one is in Gravesend. Our Government made mistakes on this score of the levels of profitability, and let not the present Government compound them. Both sides of this House, I believe, wish for far greater investment and higher levels of employment. There are no short cuts, and a profitable private sector is the only way.

I have a question for the noble and learned Lord, but in view of the fact that we still have much business ahead of us it would be more than acceptable from my point of view if the noble and learned Lord prefers to write to me. The question is this: where allowable price increases are concerned, how can the Price Commission decide what is or is not a raw material without reference to the courts? Is the Price Commission able to go to the courts on a point of definition? Is it right that points of definition of this kind should be left to the Price Commission? We are surely in an area of present complexity and much possible future confusion here.


My Lords, I am sorry to interrupt the noble Earl. A little earlier he said that the previous Government had made a number of mistakes in this matter. Would it be possible for him to clarify what mistakes he has in mind that the previous Government made, or is that a matter on which he would like to have notice?


My Lords, there are so few mistakes in this matter made by the previous Government that it is rather difficult for me to remember them.


My Lords, the noble Earl mentioned that the previous Government made a number of mistakes in this matter. I should have thought that he would like to clarify that issue.


My Lords, I think that what I said was perfectly clear. If I may refer back to the earlier part of my speech, I said that there had been a great amount of interference from Central Government in the retail trade, which we accepted was a consequence of a prices policy, and we still accept that. All I was asking was that the present Government should not compound this necessary offence by adding to it. These Orders demonstrate that the present Government have held on to price restraint, and in general terms, as I have just said to the noble Lord on the Liberal Front Bench, we give the present Government credit for this. We urge them not to abandon pay restraint also, however they choose to contrive it. Good fortune to the Government if their nomenclature, or their compacts, or the personalities of individual members of the Government, succeed in holding a balance between the pay and prices sector of the counterinflationary battlefield.

We do not oppose these Orders, and we accept a considerable measure of responsibility for the climate of policy which makes their operation necessary. But we fear that the Government are ignoring other signs in the sky. It still beats me how one can carry out Orders as intricate and interventionist as these are on the prices front while relying on the airiest rhetoric on the pay front. May I finally suggest to the Government that if rough weather is in front of one, a U-turn may not always be the worst way to avoid it, until at least one finds a safe passage to the same desirable destination.

5.19 p.m.


My Lords, I am grateful to the noble Earl, Lord Gowrie, for having indicated that there was no intention of opposing these Orders and, if I may say so, I am even more grateful to him for having indicated that he will be content with a written communication in respect of the questions that he has put to me. The dark forest of Statutory Instruments in this field is one that I occasionally had the courage to penetrate in another dispensation.. In so far as these matters of difficulty can already be regulated without the necessity of court procedures, clearly that would be a most satisfactory outcome. But I will certainly investigate to see whether the procedures are adequate to cover the point that the noble Earl made. The explanation of the difficulty about the risk of retrospection is one that I have looked at myself. I am satisfied that the explanation given by the Secretary of State clears up the risk of an unacceptable element of retrospectivity in the orders, and I am also satisfied that they do not infringe the well-established requirements of Parliament in that regard. In view of the further business that is to follow, I do not propose to detain the House any longer. Accordingly, I shall move to another place formally to put the Orders.

On Question, Motion agreed to.