§ 3.50 p.m.
§ Lord JACQUES
My Lords, with the leave of the House, I propose to repeat a Statement which is being made in the other place by my right honourable friend the Secretary of State for Prices and Consumer Protection. The Statement is as follows :
§ " My right honourable friend the Chancellor of the Exchequer has today laid before the House a White Paper which sets out the Government's general strategy for the second year of the attack on inflation. The White Paper reflects the Government's recent agreement with the Trades Union Congress 797 on a further period of strict voluntary pay restraint for the 12 months from 1st August. The details were announced by my right honourable friend in the House on 5th May; and the agreement has since been approved by an overwhelming majority at the TUC Special Congress on 16th June. There will be an opportunity to debate the White Paper fully in the House next week.
§ " The White Paper stresses the importance of building up British industry. It goes on to explain that certain changes in the Price Code are essential.
§ " I have today laid before the House a Consultative Document setting out in detail the Price Code modifications which the Government propose.
§ " I have already consulted widely on both sides of industry about the modifications proposed to the Code. There is general agreement that the overriding objective to be borne in mind should be to encourage new investment, higher output and more jobs. It is common ground that if firms are to raise the funds they need to favour high investment and output, some changes in the existing Price Code are necessary. It is with that objective in mind that the Government have formulated the prices package.
§ " The new Code will continue to be based upon the control of proposed price increases, and upon the control of the profit margins of enterprises. The Government have been pressed to abandon these controls, but have refused to do so.
§ " The main changes are:
- a) an increase from 20 per cent. to 35 per cent. in the rate of investment relief;
- (b) new provisions relating to the depreciation of assets and to the appreciation of stocks, which go some way to offset the damaging effects of inflation ;
- (c) a redefinition of the categories into which firms fall, so as to take account of inflation;
- (d) measures to moderate the present disincentive effect of the Code on saving costs and increasing output, including the abolition of the productivity deduction, which has little impact now owing to pay restraint; and
- (e) other measures to reduce the administrative burden on companies operating the Code.
§ " I have asked the Price Commission to monitor carefully the reliefs in respect of investment, depreciation and stocks to ensure that they are not abused. Price Commission monitoring ensures that investment relief applies only to investment in domestic manufacturing and service industry and in distribution, not to property and overseas investment.
§ " The Code will affect different firms in different ways. Which changes in the Code are used depends on each firm's pricing and marketing situation. Allowing for the slow recovery of the domestic market which makes it difficult and in some cases impossible to increase prices even when such increases are allowed by the Code, the Government estimate that the effect of the proposed changes will be to add about 1 per cent. to the Retail Price Index over the coming 12 months.
§ " I am inviting the interests concerned to make their comments on the proposals by 16th July.
§ " Two orders have today been laid before the House in draft. That laid by my right honourable friend the Chancellor of the Exchequer extends until 31st July 1977 the operation of the Remuneration, Charges and Grants Act 1975 and of certain sections of Part II of the Counter-Inflation Act 1973. That laid by my right honourable friend the Secretary of State for Employment adds the new counter-inflation White Paper to Cmnd. 6151 for the purposes of the Remuneration, Charges and Grants Act. When the former order has been affirmed in both Houses and made by the Privy Council, and after the completion of my consultations on the Price Code, I will lay before the House an Order made under the Counter-Inflation Act and containing the new Code, effective from 1st August."
§ My Lords, that concludes the Statement.799
§ 3.56 p.m.
§ Lord ELTON
My Lords, all Members of this House will wish to thank the noble Lord, Lord Jacques, for repeating the Statement which has been made in another place. I think there is another thing which we should welcome and that is the slight evidence that the Government are at least beginning to understand the nature of the problem facing us in this field, but it is most alarming that they still do not appear to have any grasp of the size of the problem. The measures summarised in the Statement seem to us to be inadequate in the extreme to deal with the task which is laid upon the Government. Would the noble Lord not agree that the real return on investment last year was 2.2 per cent., which was only one-fifth of the return ten years ago; and will he tell us what he supposes the real return on investment will be this year as a result of his new policy? Would he agree that the real return figure which I have quoted is a gross return from which tax and interest charges both have to be removed before the position of a company is actually made clear? And will he not therefore agree that last year very many firms in fact operated at an actual loss under the policy upon which this is supposed to be an improvement, although this was sometimes hidden by the effects of inflation upon stock values ?
Of course we welcome the trade unions' promise of a co-operative approach in this field, and although perhaps anything less would be regarded as irresponsible, we welcome what is a genuine attempt to meet the problems which we in this nation share. But it would be interesting to know whether it was necessary to promise any reduction in the cuts in public expenditure planned in order to secure this co-operation, and whether indeed the Government are aware of the extent to which living standards may be expected to fall as a result. We should also like to know whether this policy leaves us on target to get inflation down in 1977 to the level of our international competitors, as has been announced by the Government. If not, will there be a new policy to succeed this one, and, if so, when ?
It seems to us that the results of this modest change in policy will themselves be modest. It must be apparent to all your Lordships, and to almost everybody outside this House, that a company needs 800 to have money not merely to buy raw materials, pay wages and so on, but also for two other vital needs: one is to create a reserve so that they do not have to lay off workers at the first draught of a bad balance sheet, and the other is that they may install new machinery so that they may keep the present workforce and, hopefully, expand it in the future. We are speaking about jobs, not just profits.
Finally, one other comment one must make at this stage is that to work the code was complex before, but it is now a great deal more complex. There are loud cries of alarm from industry at the cost, frustration and near impossibility of operating parts of it accurately. The picture one has is of a Government waving us forward to the dawn, not realising that on our backs we have a knapsack with diminishing supplies and that we are wading through paper up to our armpits to get there. If the Government would allow a more generous term for profits to allow more investment and more jobs to be created—if they would make it easier for industry to do this, and to co-operate willingly—we should be very pleased.
§ 4.1 p.m.
§ Baroness SEEAR
My Lords, from these Benches we too would like to thank the noble Lord the Minister for repeating the Statement made in another place. We give a somewhat tepid welcome, but still a welcome, to the changes that are envisaged in the Statement. It is certainly a good thing that some flexibility is allowed to people who are trying to make a success of industry and, by so doing, to counter inflation. At the same time, in our view it does not go far enough. Some of the clauses are interesting in themselves as a comment on the effect that previous Government policy has had.
For instance, it is remarkable that the Government now admit the disincentive effect of their existing policies on saving costs and increasing output. Surely, any policy over recent years should have been aimed at saving costs and increasing output if we are attempting to make a success of the running of the economy. The object given at the heading of the Statement is, after all, The Attack on Inflation. Surely it is time that we recognised that we will not attack inflation unless we have a successful industry able to invest. A successful 801 industry able to invest requires a far higher level of profit than the Government have been prepared to permit up till now. Indeed, we are up against the long-established prejudice against the whole idea of profit, and the misconception of what profit is all about. This bedevils economic development at the present time. Therefore, we should have liked to see a more generous approach towards profit than is reflected in this Statement.
My Lords, I should also like to raise the issue that control over prices and profits is an inevitable concomitant of any attempt to control pay. It seems to be an article of faith that these two propositions must go hand in hand. In our view, they are not so related. Least of all is there a relationship between a voluntary pay policy and a statutory profit and prices policy. Until it is recognised that what is necessary in regard to profits, and therefore to prices, is a different kind of approach from what is necessary with regard to pay, I do not think that the Government's intention of an attack on inflation is likely to be successful.
§ 4.5 p.m.
§ Lord JACQUES
My Lords, I thank the noble Lord, Lord Elton, and the noble Baroness, Lady Seear, for their reception of this Statement, despite some of the things they have said. I find it difficult sometimes to guess which of the two alternative arguments the Opposition will use. They have two arguments. One has been that the Price Code is completely ineffective, that prices are now determined by the market, and that the Price Code as a piece of apparatus is a waste of public money. An alternative argument is that they think that the Price Code is far too severe. I suppose, in practice, there is a little of both. Of course there are many cases where, because of market conditions, profits are well below the ceilings permitted by the Code; but there are other cases where the Code rather than the market has kept prices in check. There is a mixture.
The noble Lord, Lord Elton, said that the provisions are inadequate. May I point out that when this Code was introduced by the last Government there was no provision at all for investment. We have gradually built up the provision, until now we propose that it be 35 per cent. of the investment. Since November 1974, 802 almost £600 million has been allowed in the Price Code for investment allowances.
I can confirm the profitability figure used by the noble Lord, Lord Elton. A figure of 2.2 per cent. is being spoken of at the present time, as against 10 per cent. a few years ago. But that 2.2 per cent. must be qualified ; it is 2.2 per cent. after allowing for the replacement of assets at their current value, not at historic value.
I think that without that qualification the figure is meaningless. One must add that qualification. The noble Lord said that that was before tax and interest. It is fair to say that it is before tax. If the profit has been properly calculated there should be very little tax. However, I do not think it is right to say that it is before interest. Interest on money which is borrowed, up to the present time anyway, has been allowed in the ascertainment of prices.
It is also suggested that the new Code is more complex. In some ways I think that that is so, but in other ways we have simplified it. We have certainly reduced the burden of work. For example, in cases where the price of a commodity will be increased by no more than 2 per cent, over a period of a year, there is no need for any notification at all. That is something new, and rids firms of the need to make applications for relatively small increases in prices.
To the noble Baroness, Lady Seear, I would say that the Code was not wholly causing a disincentive in regard to saving costs. It was not wholly causing a disincentive for increasing output. It was marginally doing that. We are seeking to eliminate the marginal points where the Code was doing that, which is something quite different from what was implied in the remarks of the noble Baroness. She said that she did not think that the control of wages and similar income must go hand in hand with the control of profits. I would suggest to the noble Baroness that in a democracy politics is the art of the possible. It is quite impracticable to get working people to agree to the kind of wage control to which they have agreed unless the Government show—and no matter what Party is in office they would have to show this—that some steps are being taken to restrict price increases and restrain profits. 803 It would be quite impossible to do all this—
§ Baroness SEEAR
My Lords, has the noble Lord noticed a recent study which shows a high percentage of understanding on the factory floor of the need for profits?
§ Lord JACQUES
My Lords, there is an understanding of the need for profits; particularly the need for profits to invest in British industry. That is why we have increased the investment allowance to 35 per cent. We are encouraging profits to be made for the purpose for which we think they ought to be made in the present circumstances.
§ Lord HARMAR-NICHOLLS
My Lords, is the noble Lord the Minister aware that, however generously one views the Statement he has just made, it does not remove one of the shackles hampering industry in making the profits to bring about investment of the kind that the noble Lord wants? It may be loosening one or two of the shackles, but only slightly. Not one has actually been removed. Is the noble Lord aware that what the noble Baroness, Lady Seear, has said reflects the view of people who really understand business, that the only way to increase wage levels and make things better for the wage-earner is to remove these shackles? This is the only way in which to produce the profits that we want. I urge the noble Lord the Minister to use whatever influence he has, even at this late stage, to see whether one or two of the shackles relating to price control can be removed, rather than just loosened.
§ Lord SLATER
My Lords, is my noble friend aware that the observations that come from Lord Harmar-Nicholls and the Conservative Party, and even the noble Baroness, Lady Seear, on behalf of the Liberal Party, seem to be based on one specific object, and that is profits? The people who arc responsible and who are to blame for what has happened in this country in regard to inflation are the people in charge of industry here. I am not saying in this Chamber something that I have not said to some of the top industrialists in the country. Those who are responsible for industry in this country have not taken the interest; they have not even put into operation certain schemes 804 whereby profits would occur. Because of their lack of interest they depend upon No. 1 and No. 2 down the ladder to report back to the managing director of a company as to what is really happening on the floor.
I should like to see some of these top industrialists controlled. I should like to see that happen in my lifetime. I should like there to be introduced and carried into effect Acts of Parliament based on the principle that operates inside the mining industry, where the manager of a coal mine must at least go down below to see for himself what is happening in the various seams of operation, where production is taking place. This Statement from my noble friend, which has been read in another place, and the action of Her Majesty's Government—
§ Lord SLATER
When some of you people begin to understand and learn what manners are, the better for yourselves! Noble Lords are now trying to interrupt an old Parliamentarian who knows more about these things than some noble Lords opposite have ever known, or ever will know. I sincerely hope that my noble friend will take back my observations in regard to what I should like to see; that is Acts of Parliament being introduced to control these people. They are talking down Her Majesty's Government because of the action they are taking against inflation. Then we shall see the progress that the people of this country want to see. The situation is most serious, more serious than some noble Peers on that side of the House think. They can only see one thing, and that is profit for the owner of an industrial undertaking.
§ Lord ROBBINS
My Lords, perhaps I may make one observation on the remarks just made. Since the year 1970, which covers two kinds of Government, the value of money in this country has, roughly speaking, slightly more than halved. Would the noble Lord who has just sat down suggest that that is the fault of management ?
§ Baroness LLEWELYN-DAVIES of HASTOE
My Lords, I am afraid at this point I ought perhaps to remind your 805 Lordships that it is not really correct for noble Lords to address other noble Lords personally. It is the correct thing to address the noble Lord who has made the Statement. I think I may be taking the right feeling of the House if I say that we ought perhaps now to resume our deliberations on the Police Bill.