§ 3.13 p.m.
§ Lord JACQUES rose to move, That the Counter-Inflation (Price Code) (Amendment) Order 1976, laid before the House on 22nd January, be approved. The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. In July last year the Government published a White Paper, The Attack on Inflation. In that Paper 364 they promised that measures would be taken to achieve price restraint on selective products of special importance to family expenditure.
§ On 27th January 1976, my right honourable friend the Secretary of State for Prices and Consumer Protection announced in another place that representative trade associations had, in the national interest, agreed to recommend to their members to hold price increases to a maximum of 5 per cent. in the six-month period February to July 1976. The prices concerned covered a wide range of goods and services representing 15 per cent. to 20 per cent. of consumer expenditure. On 11th February my right honourable friend announced the items of goods and services which would be within the scheme and the scheme commenced in the shops yesterday.
§ The scheme may result in a manufacturer selling selected goods at a price which is lower than the price he could charge under the Price Code. Market conditions may permit him to recover some or all of the revenue from the prices of other products. The first objective of this order is to permit this cost subsidisation and to lay down conditions under which it might be applied. The conditions are, first, in Clause 137 where it states that it can apply only where a substantial number of firms in a sector can restrain prices in accordance with the White Paper policy.
§ In Clause 138(1)(b) it is further provided that no firm can benefit from cost subsidisation unless it is holding a price within the 5 per cent. limit of the price restraint scheme. The order goes on to provide that the Secretary of State will certify to the Price Commission when the conditions approved by Parilament have been complied with and the Price Commission will in that way be authorised to permit the cost subsidisation in the particular cases. When this certification is done, a copy of the certificate will be sent to the trade association concerned and, in addition, full details will be published in the London, Edinburgh and Belfast Gazettes and the Trade and Industry Journal.
§ My Lords, the order has a second objective. It is to extend the investment allowance for the period from the end of March to the end of July. During that period, a firm which is subject to the 365 Price Code will have an option. It may continue during that period to receive its present investment relief or, alternatively, it can prepare a budget of capital expenditure for a second year and claim relief based on the second year rather than the first.
§ The latest report of the Price Commission shows that during the first 11 months of last year investment relief was claimed on investment totalling £1,806 million. This extension of the investment relief has been well received by industry generally and I put it to the House as a modest incentive. I have pleasure in commending the order to the House.
§ Moved, That the Counter-Inflation (Price Code) (Amendment) Order 1976, laid before the House on 22nd January, be approved.—(Lord Jacques.)
§ Baroness YOUNG
My Lords, I should like to thank the noble Lord, Lord Jacques, for introducing this order to us and for his explanation of it. If I might first deal with the second point, it seems to us that it is a disappointing order for, if its purpose is simply to extend the relief for investment from now until July 31st, this will not give much help to industrialists wishing to invest. One appreciates the difficulty that the Government find themselves in. On the one hand, they do not want to see very large price increases; on the other hand, they want to give some incentive by profit margins to invest. But it seems to me that the first part of this order is effectively continuing the policy which has been in existence and which has been a complete failure in two major respects.
It would appear that the Government have made the important connection between profits, investment and employment and yet Government policies have failed both on investment and employment. According to the Department of Industry estimates, the volume of investment fell in 1975 to about 13 per cent. below the level of 1974 and a further fall of between 5 per cent. and 8 per cent. is expected in 1976. This is hardly the kind of trend which is likely to be reversed as a result of this order.
If one looks at the unemployment figures, one sees that they are equally had. There are, after all, now 1½ million people unemployed and it stands to 366 reason that, if the industrialists and those people producing the various items which are subject to this order cannot make the profits, they cannot invest and will not employ people. So it is hardly going to contribute to that, either. I find it very difficult to escape the conclusion that the Government are trying to create the illusion of prosperity by keeping down a number of prices artificially, while at the same time preventing the creation of real prosperity which can come only by investment. This order is a classic example of a short-term expedient which will not help the long-term future prosperity of the country.
On the second part of the order, covered by paragraphs 137 to 141, cross-subsidisation seems a complicated procedure. If I understood it correctly, a manufacturer will be obliged to hold the prices of a certain list of products to a certain level to be agreed, but will be able to put up prices of other products in order that his profit margin remains as good as it was before. I hope I have that right. I should like to know how the consumer is supposed to know as a result of all this which products are being subsidised, which are the ones the manufacturer may increase in price, and how this will be explained so that we know when we purchase things how it is working.
§ 3.22 p.m.
§ Baroness PHILLIPS
My Lords, I should like to ask the noble Lord whether he will agree that while it is right to try to hold prices in the private sector, the average consumer is much more concerned about the holding of prices in the electricity, gas, transport and Post Office services? Does he agree that these have a much greater effect on the expenditure in which ordinary consumers are engaged? Do the Government recognise this and have plans for dealing with it?
§ Lord POPPLEWELL
My Lords, will my noble friend take note of what the noble Baroness, Lady Phillips, has said? Cross-subsidisation is being introduced with a view to trying to keep prices down. Would he press his colleagues in the Government to have a further look at cross-subsidisation which might take place in more basic industries or services? This was the principle which seemed to 367 have been thrown overboard some considerable time ago. When it was in operation in various services, it had a salutory effect in allowing profit on one side to be adjusted against difficulties on the other side, and had some bearing in keeping prices down. We welcome this reintroduction of the idea of cross-subsidisation. We hope the Government will give further consideration to this, bearing in mind the increases in the prices of transport and coal and so on. There are many different aspects involving transport, and if cross-subsidisation had been permitted, as happened in accordance with the 1947 Act, we might have a different story to tell regarding the future of transport and other services. Will my noble friend press our mutual friend to give further consideration to this before White Papers are issued regarding future policy on these important matters for the future?
§ Baroness ELLIOT of HARWOOD
My Lords, may I ask a question, too? I entirely agree with what the noble Baroness, Lady Phillips, has said regarding costs. Obviously, postal costs and transport costs are things which hit everybody in all circumstances and therefore are hard to bear. As I understand it, this order is intended to help businesses large and small. I am thinking particularly of small businesses, because I am chairman of a small business. The order is intended to help businesses invest more money in improvements, modernisation of plant et cetera. I am of course in favour of that; but corporation tax at 52 per cent. means that before any money can be distributed, 52 per cent. of what you have available goes to the Government. That is something which could also be considered in helping people to invest. My Lords, if 52 per cent. is deducted before you can make any distribution or plan any new equipment, it is a large amount of money and it makes it difficult to invest as much money in reorganisation, re-equipment and captial expenditure as many people would like to do. Can the Minister say whether the Government are considering this point?
§ 3.25 p.m.
§ Lord WIGG
My Lords, the discussion which has taken place seems to have illuminated one fact beyond any shadow of 368 Doubt; that is, the utter muddle into which the economic policies of both the Government and Opposition have fallen. I thought the noble Baroness, speaking from the Opposition Benches, was a classic example, for her the word "investment" seems to be something thrice blessed and if this order does not add to investment, it is to be damned for that reason. But investment is only important if you invest in things which, in the long run, are going to add to the economic wealth of the country. For example, investment in the TSR-2 or Concorde is a blazing waste of public money, and if it had gone into other things—I will not spend time on delineating it—it might have made a major contribution in the longer term. For the noble Baroness on the Opposition Benches to criticise the order and to say it does not add anything to investment is as near "barmy" as anything I have ever heard from a sane person. The one thing we do not want to do is increase consumption in this country.
As I understand the Government's policy at the present time, it is to hold consumption down through unemployment and by the £6 a week wage limit. Over-investment in biscuits, HP sauce, or things of that kind can lead to disaster in the long run. That was the crime of the Heath Government. That financial genius the then Chancellor, who is a Member of this House whom we never see, went on pumping out more and more consuming power until it almost over-whelmed us. We had investments, but what in? The Government have not decided what they want to invest in.
The trouble with the coalmining industry is that we neglected investment in our basic and, indeed, our only raw material. Later, when the mines were completely run down, we have had to invest enormous sums of money, much of them wasted. This is the dilemma of our time. As a free society, we want to retain the pricing system. But in the world in which we live, the world of technological advance proceeding ever faster, there has to be some system of economic planning. My Lords, you have to combine a plan on the one hand and the pricing system on the other. It is there that the Opposition fails in its duty because they are completely muddle-headed. The only reason I speak this afternoon is because it is time that this debate was elevated to 369 a level that may be understood by adults and comprehended in a way which can take into account the long-term needs of Britain, not only in 1976, but at least until the end of the century.
I am a profound pessimist; I believe that this country is going downhill apace. I believe that defeat, whether it is economic defeat, diplomatic defeat or military defeat, the final disaster, never comes like a thief in the night, it comes after a long period of national decline, of a refusal—I say to the noble Baroness opposite—basically for class reasons, to realise the truth of the situation in which we find ourselves. To come here and deplore the ill-effect on investments because a price limit is put on the price of biscuits is plain "dotty".
§ 3.30 p.m.
§ Lord DOUGLASS of CLEVELAND
My Lords, I have listened carefully to what the noble Lord, Lord Wigg, has said. He has uttered a great deal of wisdom. We have listened for many years to the criticisms that the trade unions have forced up prices, both by strikes and by demanding wages which it was said the community could not afford. In the Bills they have put before this House the Opposition have attempted to control this situation by legislation and have found this impracticable. Consequently, this side of the House has given a great deal of thought to the position and ultimately persuaded the trade unions that high wage increases without accompanying productivity would not be for the good of this country and would result in uncontrollable inflation. As we have listened to criticisms of the trade unions in the past—and there has been no criticism this afternoon; nor could there be—it would seem that there may be some criticism in a year's time because nobody knows whether the trade unions or the Government can hold the present situation of controlling wage increases by agreement and not by legislation.
If there is now the desire for higher prices in order to get higher investment, is there to be no control over prices at all? Is it beyond the wit or the ability of those on the opposite Benches to evolve a scheme such as that which has been evolved between the trade unions and the Government, so that they could see to it that prices did not get out of hand or 370 that we do not get unnecessary increases in the price of biscuits, and we do not have unnecessary investment in luxuries? Would it not be better if the Opposition were to say to the Government: "You have done a great deal in the industrial and trade union world to control inflation and to bring it down from 25 per cent. to something like 15 per cent."? Would it not be better if they were to say that they do not want legislation on prices and because of that they will adopt a voluntary policy just as the trade unions have done, and say to the Government: "Because we have this voluntary policy, and because we can guarantee that the wrong prices will not go up or the wrong investment be made, we want you to abandon this legislation. We will do the same thing by means of a voluntary policy as has been done by the workers in the trade union world "?
I would ask the noble Baroness, Lady Young, whether she has any ideas of this character or whether she is just simply going to blame us for not allowing prices to escalate for all sorts of investment, instead of saying that the financing of this country and every kind of investment needs to have some sort of control. I would accept that as a basis, if she could say, "Here is a common-sense plan: let us have a look at it", instead of going back to a "go as you please" situation so that inflation then becomes uncontrollable, as it was when the last Government were in power.
§ 3.33 p.m.
My Lords, the noble Baroness, Lady Phillips, has done a public service in calling attention to that sector of the economy where the price rises are felt most by the people. The consumption of the goods to which the order refers has kept more or less stable over the years, whereas consumption of coal, transport, postal charges and printing has gone down considerably and resulted in large unemployment in those industries which have priced themselves out of the market. That is the simple thing: the wages in those particular industries have increased at a far higher rate than those of a considerable proportion of the people, particularly those who are retired, or who have to live on fixed incomes. They have had to economise on the things they can best do 371 without, and those are things such as postage, transport, coal and printing. A person with whom I was playing golf recently lives on a small, fixed, company pension plus an old-age pension, and he told me that he had just had to pay £50 a ton for his boiler fuel. Naturally he has had to cut down. He does not like it because he is not as warm as he ought to be; but he is only one of many millions in that kind of position. Many people are not travelling by rail now because they find the fares quite beyond their pockets.
§ Lord POPPLEWELL
My Lords, would not the noble Lord agree that so far as these heavy industries and services are concerned the price structure has been deliberately kept below the economic level at the request of various Governments in the past? Would he not agree that consequently the astronomical rises that have taken place from time to time are not the fault of the industries concerned but result from Government policies?
My Lords, no matter whose fault it is, the result is exactly the same. Many millions of people in this country now cannot afford to buy the services provided by those particular industries. I really do not know what the remedy is. You cannot go to the railwaymen, the miners and so on, and say: "You have priced yourselves out of the market and you have to accept lower wages". We know perfectly well that they would not do it. At the same time, you cannot go to all the pensioners and the old-age pensioners and say: "Your income must be increased by 50 per cent. in order that you may buy these services", because one knows it would break the Government. We have got into a sort of vicious circle and these days only a trade unionist can afford to employ a trade unionist. Somehow we have to break out of that circle, but meanwhile there are some 7 or 8 million old-age pensioners and I should guess that three-quarters of them are much less warm than they would like to be. They are almost static in their homes because their bus fares, where there is a bus, are expensive and they cannot afford to travel by rail. They do not write many letters because the postal charges are so high, and they have cut down on their newspapers and so on because they cannot afford the prices. I 372 do not know whether anybody could enumerate or evaluate the exact amount of unemployment which is due to this factor, but I should say it is about half the whole.
§ Lord DOUGLASS of CLEVELAND
My Lords, before the noble Lord sits down, may I ask him whether he is speaking in favour of the argument which was put by the noble Baroness, Lady Young, who wants prices to go up in spite of all the arguments the noble Lord has put forward?
My Lords, that is a completely different question and I should rather like to have notice of it and to think about it before I attempted to reply.
§ 3.38 p.m.
§ Lord JACQUES
My Lords, first, with regard to investment I shall not be dragged into a debate on the priority of investment. That is not the subject of the order. We shall have an opportunity of discussing that question on 3rd March, when there will be a full debate on growth and incentive to growth. This will bring in the whole question of investment and priorities for investment. I should like to make only two points: investment may be important and priority of investment is certainly important. The problem of unemployment is perhaps even more important. Corporation tax is important, but the overwhelming problem we have to tackle is inflation. It takes precedence over all those, because if we do not tackle inflation then the other problems relating to investment, unemployment and corporation tax will be all the greater. If we want to ease these problems, we have to deal with inflation, and that is the subject of this order.
I would point out that, so far as investment is concerned, what this order does is absolutely necessary. At the present time, the law provides that, in the application of the Price Code, there shall be investment relief until 31st March. I should also like to point out that it was this Government who introduced investment relief. There was no investment relief under the previous régime.
In the ordinary course of events, that investment relief would finish on 31st March and there would be a gulf between then and the end of July, after which we might have an entirely new system of control of prices and profits. The purpose 373 of this order is to deal with that interim period, and to deal with it generously. It would be entirely wrong for the investment relief to be cut off for four months until we developed a new system. It is sensible that it should be continued. It is also sensible that it should be continued at the existing rate, or, if a firm has got out a second-year investment programme, on the second year; and that is exactly what the order seeks to do.
I come now to the real purpose of the order; that is, price restraint. First, this is a voluntary system in exactly the same way as the pay policy is a voluntary system. The Government Department concerned has had long discussions with the relevant trade associations, and has made a voluntary arrangement with them in regard to prices. They have come to quite definite agreements, but no one is obliged to keep down prices, as the noble Baroness said, except in so far as some one is morally obliged to do so under the agreement. There is no compulsion in law. The idea is to get stability of prices in at least one area of the market and, so far as possible, in that area of the market in which the housewife is most concerned; that is exactly what the price restraint scheme tries to do. I was asked how consumers would get to know. To a very considerable extent, consumers have already got to know, because there has been very wide publicity of the scheme and of the articles covered by it. But, in addition, there will be substantial expenditure on national advertising and on advertising at the point of sale, so that the consumer is fully aware of the commodities that are covered by the scheme.
I come now to the question of the nationalised industries. In some cases, for several reasons, it was not possible to include the products of the nationalised industries. For example, costs take different times to come through the pipe-lines, and in some industries there are costs in the pipelines which have not yet come through. For example, in the case of electricity there are increased oil prices which have not yet been charged to the consumer, but which have been met by the industry, and there are also increased coal prices. These have to be reflected in the price of electricity, or the taxpayer has to pay; that is the choice. But the 374 nationalised industries have made a due contribution. The total of the goods included in the price restraint scheme is equal to 15 to 20 per cent. of consumer expenditure; the nationalised products that are included in the scheme are equal to 30 per cent. Of consumer expenditure on nationalised products. So I invite the House to examine those figures and to ask whether the nationalised industries are making a due contribution. This is an honest attempt to get a voluntary scheme on the prices and profits front, similar to the successful scheme which we have on the pay front. For that reason, I hope that it will have not the half-hearted support but the whole-hearted support of this House.
§ On Question, Motion agreed to.