FOOD SUBSIDIES (TEA) (No. 2) ORDER 1974

HL Deb 20 November 1974 vol 354 cc1107-12

7.7 p.m.

LORD JACQUES rose to move, That the Food Subsidies (Tea) (No. 2) Order 1974, laid before the House on November 19, be approved. The noble Lord said: My Lords, I beg to move that the Food Subsidies (Tea) (No. 2) Order 1974 be approved. I think I should first explain why it is the No. 2 Order. There was an unfortunate misunderstanding between the Department and the House of Commons officials as to the method of counting the 28 days within which the Order had to be approved by Parliament. The Department had discussed with the House officials the position of this and other Orders which were made before the Dissolution, and the Department had incorrectly concluded that it was not necessary to count the period between October 22, when Members met to be sworn in and to elect a Speaker, and October 29, when Her Majesty the Queen opened the new Parliament. Late on Monday, November 18, the general office drew attention to this mistake and pointed out that the Order had ceased to have effect on November 16. Therefore, there was a short gap between November 16 and midnight on November 18, when the No. 2 Order came into operation. I apologise for this mistake and can assure the House that all possible steps to prevent a repetition have been taken.

The purpose of the Order is to add tea to the list of subsidised foods; that is to say, to permit the payment of subsidies in respect of tea under Section 1 of the Prices Act 1974. The amount of subsidy is to be 8p per pound or 2p per quarter pound. The cost to the Exchequer will be £15 million in the current year and £29 million in a full year. The effect upon the food index will be 0.4 per cent., the effect upon the retail price index will be 0.1 per cent. There are a number of questions that have to be examined before any food is added to the subsidised list. Since the primary object of the food subsidies is not only to restrict the rise in food prices but to direct any help from that to the lower income groups, it is necessary to consider as a first question: who buys the commodity? Is it one that figures prominently in the budget of the lower income groups? In the case of tea, the position is abundantly clear. Pensioners, for example, in 1973 purchased 3½ ounces per head per week; the lower income groups generally purchased three ounces per head per week, whereas the national average was only two ounces per head per week. In the case of tea, a bigger percentage of the subsidy will go to the lower income groups than for any other subsidised food. Also, the saving to those in the lowest income groups will be twice that of those in the highest income groups Tea therefore fully satisfies the first question.

The second question that has to be examined is: is it possible to ensure that the subsidy will, in fact, reach the consumer? There are many foods which on other counts it may be desirable to subsidise, but which on this count cannot be subsidised. There are many perishable foods which are of varying quality and it is virtually impossible, because of frequent price changes, to ensure that the consumer will get the full benefit of any subsidy. Tea is not in that category. There are few importers and packers who handle tea. Price control of tea, because of the way in which the market is organised, is relatively easy and it therefore follows that it is possible to subsidise tea on a fully cost-effective basis. It therefore satisfies under that heading.

The third question that has to be asked is: what is the cost of administration? Because there are only few packers and importers, and because of the way in which the tea market is organised, the cost of administration will be the least of all the subsidised foods. It will, in fact, not exceed one penny for every £100 distributed by way of subsidy. It therefore fulfils that requirement.

We come now to what I think is the final requirement, but which, economically, is the most important one: what is likely to be the effect on demand? Is there likely to be a shortage? That is obviously an important question. Tea has a very inelastic demand; that is to say, price has very little effect upon the demand. Certainly the movement of price equal to that of the subsidy has little or no effect on the demand for tea, and therefore we would not expect that the subsidy would affect the demand. In addition, we have to bear in mind that over the last few years there has been a movement away from tea to coffee, which is a more expensive beverage, and there is no reason for believing that this subsidy will prevent that movement. It will continue.

In the last few years, production of tea has shown a greater growth than the demand for tea and prices have been relatively stable, but in the past twelve months that position suddenly changed. During the past twelve months the auction prices of tea increased by 45 per cent., largely because of decline in production and, to some extent, because of increased demand in the United States and the Middle East. There is every indication that higher prices will stimulate production, and at the present time there is no difficulty in obtaining normal supplies. None is anticipated, but the Government will of course keep a close watch on the market. I hope that I have said sufficient to convince the House that it should accept this Order, and I will do whatever I can to answer questions that may arise. My Lords, I beg to move.

Moved, That the Food Subsidies (Tea) (No. 2) Order 1974, laid before the House on November 19, be approved.—(Lord Jacques.)

7.12 p.m.

EARL FERRERS

My Lords, those of us who are left here will be most grateful to the noble Lord, Lord Jacques, for having introduced this Order and for having explained what it is going to do. I was grateful to him for explaining how it becomes a No. 2 Order, and was slightly fascinated by the fact that apparently the officials in the Ministry of Agriculture and the officials of another place could not add up one to twenty-eight and come to the same conclusion. However, at least he explained how the error came about.

The noble Lord has introduced this Order and we would not dream of opposing it, but I am bound to tell the noble Lord that I believe it to be entirely misdirected in its efforts. I believe food subsidies to be wrong in principle; I believe them to be an extravagant use of public funds the results of which are not the results which the noble Lord's Government anticipate. I know that this is a subject upon which we on this side of the House and noble Lords opposite have differing views. We are now spending some £500 million a year in food subsidies, and the noble Lord brought along an Order this evening explaining that £29 million is to be used on subsidising tea. If we are to spend £29 million, I do not believe that this is the correct way to do so, nor do I believe that it is right to give a blanket subsidy on tea covering everyone, rich and poor alike, irrespective of circumstances and of their requirements.

The noble Lord said that this Order helped the old-age pensioner. I am all for helping old-age pensioners, but to give a subsidy like this to people who are not old-age pensioners in order to help those who are seems a rather fallacious way of proceeding. The noble Lord explained that 3½ oz. of tea was the average used by old-age pensioners. That means that this Order will give a subsidy of 2p per week or less to old-age pensioners. If that is what the noble Lord wishes to do, I cannot believe that this is the right way to do it and that there should be an expenditure of £29 million to achieve it.

The point which I should like to ask the noble Lord about is this. As I understood it, he said that the cost of living was going down by 0.1 per cent. I understood it was going down by 0.01 per cent. Perhaps the noble Lord when he replies would let me know whether that was a slip of the tongue or is a fact. My understanding is that the effect of the subsidy will be to reduce the cost of living by one-hundredth of 1 per cent., and that is a very small sum for the expenditure of £29 million. It is said that tea is the typical Englishman's drink. So it is, but the argument which the noble Lord put forward was that people are moving away from tea to coffee, which is a more expensive drink. If that is so, why is it, therefore, necessary to subsidise tea? This seems extraordinary. When you think that the tea is being subsidised in order to make it cheaper to drink, is it not an extraordinary fact that the cost of the tea is the smallest item in the cost of a cup of tea? Both the sugar and milk are more expensive elements than the cost of the tea element. Why therefore is it necessary to subsidise it?

In fact, one can still buy tea at 10p for a quarter of a pound, and that allows for 50 cups of tea which makes five cups of tea for a penny. I find it extraordinary to think that, at this time of national and economic crisis, the Government can come along and say, "We are going to spend £29 million on subsidising tea" which is a traditional drink and also a cheap drink. I accept the noble Lord's premise that if he wishes to help old aged pensioners this is one way of doing it. With the greatest respect, however, the right way to do it is to help them directly and not subsidise food across the board in this manner. Having said that, I am grateful to the noble Lord for having introduced this Order and explaining it to us.

LORD JACQUES

My Lords, may I confirm the fact that the effect upon the retail price index is 01 per cent. There is not as much difference between the Government and the Opposition as it would appear. So far as we are concerned, subsidies are a temporary measure: first, to prevent prices from rising as fast as they otherwise would and, secondly, in so far as is possible while doing that, to direct as much subsidy as possible to those with lower incomes. The decisions announced recently by the Chancellor of the Exchequer include changes in family allowances, pensions, et cetera. They are part of a long-term programme for controlling inflation and improving the situation of those who are in need. When circumstances make it possible, the Government will be ready to run down the subsidy programme, but this would have to be done in such a gradual way so as to avoid a sharp rise in food prices. That attitude is not much different from the attitude of the Party opposite, who stated in their programme at the recent Election that they would not interfere with the present subsidies in the present circumstances. I suggest there is not as much disagreement as the noble Earl suggests.

On Question, Motion agreed to.